Responsible Investing
Grosvenor’s KiwiSaver Scheme Policy Statement
What is Socially Responsible Investing?
Socially Responsible Investing (SRI) normally focuses on selecting investments where, in addition to the normal financial criteria, consideration is also given to how serious a company takes its responsibilities in mitigating the negative aspects that its business activities may have on the wider community and environment.
The most common methodology for SRI is to utilise a screening process to select, or avoid selecting, certain companies or industries that overall are assessed as having a negative impact on society. At an industry level, this often rules out industries associated with Gambling, Alcohol, Armaments and Tobacco.
In addition, SRI can also include shareholder advocacy whereby the investment manager takes an active role in ensuring a company acts in a socially responsible way on a range of environmental or social issues. SRI can also use other criteria such as the level of community investment, whereby companies are assessed on what financial and other support they provide to underserved segments of the community.
The investment manager may assess companies on all of these issues and rank them. Once the screening is complete, investments are selected from this new socially responsible universe. The end result is a universe of companies that, according to the criteria, will have a more positive impact on the overall community.
Current Grosvenor Policy
Grosvenor supports the current global trend towards explicitly incorporating SRI criteria and filters in the investment decision-making process. Since inception in 1998, Grosvenor has offered an alternative range of “ethical” investment portfolio options which excluded direct investments in companies where a significant component of their business derives revenue or earnings from tobacco, alcohol, gambling or armaments.
For all of the KiwiSaver portfolio options, Grosvenor has adopted the following policies:
• All directly-held investments (cash, bonds and equities) will be subject to the basic exclusion filter, i.e. no direct investments in companies where a significant component of their business derives revenue or earnings from tobacco, alcohol, gambling or armaments
• All investment decision-making will be guided by The Principles for Responsible Investment as developed by institutional investors and convened by the United Nations. To read more about these principles please click here
• No external funds will be recommended where their investment mandates and strategies are clearly inconsistent with the above Principles, or where they are unable to provide satisfactory information regarding exposures to the currently recommended excluded industries. In this regard, we note that the two Vanguard international share index funds in the portfolio are strategically designed and managed to effectively replicate the performance of the widely recognised markets of developed countries. Currently only 4% of these index funds is invested in stocks categorised in either of the tobacco, gambling, alcohol or defence sectors and most of these are large multinationals for whom these activities are not their primary source of revenue. We will continue to monitor developments in the index fund market regarding SRI-explicit index tracking, and remain entirely satisfied that the current funds are consistent with our current policy direction.
Future Grosvenor Policy Directions
It is important, in the pursuit of a robust SRI policy, that fundamental investment principles are not compromised. Specifically, diversification and an effective risk / return profile. The former can easily be undermined through a highly concentrated SRI portfolio and the latter can be significantly affected if well-run companies are otherwise excluded because they happen to fall under the “wrong” category. We also make the following current observations:
1. Some care must be taken when describing investments as “ethical” or “socially responsible”, particularly if this implies that investments not explicitly adopting such policies are either “unethical” or “irresponsible”. Most companies listed on the main global stock exchanges are not operating “unethically” or “irresponsibly”; shareholder and customer advocacy would ensure that such companies would not be supported or listed for long.
2. SRI does not need to be an alternative, side option. If it is, it runs the risk identified in 1), i.e. that the non-SRI options are, by implication, “irresponsible”.
3. most mum-and-dad investors are not fundamentally looking for “deep green” SRI investments, partly because of what we describe as ‘hypocritical discomfort’, e.g. investing in a fund that excludes alcohol companies, but drinking wine sold by the very same companies. They just want to avoid investing in companies that are blatantly ignoring SRI principles. Deep green will always therefore be a small niche.
Whilst initially offering a negatively-screened SRI option, Grosvenor is therefore committed to pursuing a policy of SRI-targeted investment research that applies a positive filter to the selection process. We believe this is more effective and sustainable over the long-term and one which recognises explicit SRI policies adopted by the companies in the investment universe. In addition, we believe this approach will be far more appealing to investors, compared to the current “easy” option of simply negatively screening.
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