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The future of sustainable investing Dean Anderson discusses Kernel’s new sustainable funds and what they offer for advisers and their investment clients. BY DEAN ANDERSON
You’ve recently announced Kernel’s Sustainable Funds, what are they? We have launched three sustainable funds which are: Kernel NZ 50 ESG Tilted, Kernel Global Green Property, Kernel S&P Global Clean Energy. All of the funds are available across the major wrap platforms, extending our product range to 11. This presents an opportunity for investment advisers and wholesale investors to couple sustainable investment with the benefits of low-cost index investing.
Why have you decided to add ESG funds to your product suite? We have always wanted to develop a New Zealand ESG fund, however, we didn’t want to just cut SkyCity. Until recently the data coverage and quality was not sufficient to enable an effective strategy to be developed. Since S&P DJI’s launch of global ESG indices in 2019 and the extended coverage of the Corporate Sustainability Assessment framework, we reached a 16 | ASSET 03 | 2021
tipping point where an effective strategy could be developed. The resulting NZ 50 ESG Tilted index will not only exclude certain sectors but tilt towards or away from companies based on other elements such as workforce diversity, cyber risk and systems through to greenhouse gas emissions.
There appears to be some confusion around what is an ESG fund. What is your definition? There is a lot of misuse of the terms sustainable, ESG, impact, ethical and socially responsible. In part this is due to a lack of global standards in terminology. Historically, SRI investments have used an exclusions strategy; excluding ownership of “sin stocks” like tobacco or gambling. ESG investing often has these same exclusions, but it might also use a scoring system across the E, S and G factors of each company to then increase investment in companies which are calculated to be creating a positive impact.
Given many of these terms are used interchangeably, yet they can be doing very different things, it’s important to look at the methodology of the investment strategy to ensure it aligns with your clients’ objectives.
How has passive investing evolved to capture ESG? What most won’t realise is that the shift towards ESG index strategies is fairly new. S&P DJI only launched the S&P 500 ESG Index in 2019. What we have seen recently is: •
a shift from pure exclusionary investment strategies towards integrated strategies
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the use of multiple data sources to power ESG strategies
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more targeted measurement of ESG strategies against desired objectives
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a move towards climate solutions or adaptation, as well as mitigation.
This has fuelled the expansion of ESG indices and now the first ESG equity index for New Zealand.
