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NZ Super advised to look at portfolio impacts of voting and engagement by Willis Towers Watson

State fund told to focus on impact in five-yearly review

The New Zealand Superannuation Fund (NZ Super) has been advised to focus on making “a clear and positive difference” to corporate behaviour, instead of relying on voting at company AGMs as “it can be difficult to have an impact through voting”.

The comments were part of a five-yearly, 76-page review of the NZ$43bn ($27bn) fund carried out by investment consultancy Willis Towers Watson (WTW).

Much of the commentary from authors Tim Unger and WTW veteran Roger Urwin on NZ Super’s Responsible Investing (RI) approach focused on a “need to measure its impact more fully”.

The firm recommended that “more resources are needed to focus on RI issues”. It flagged the desirability for “deeper analysis of sustainability and longer-term portfolio themes” and the “development of greater understanding concerning portfolio impacts and additionality from voting and engagement”.

WTW also identified the mapping of portfolio impacts to the Sustainable Development Goals (SDGs) as an area where other “leading asset owners” are making progress. The fund “will need to evolve alongside its peers” on this front, the report said.

Elsewhere the report described NS Super’s management of climate risk as “pragmatic” and “innovative”. Key to this is a 2017 exercise to reduce the carbon footprint of the Fund’s NZ$14bn global passive equity portfolio which resulted in the divestment of 297 companies worth NZ$950m ($684m).But perhaps the key concern flagged by WTW was the need to add to its capabilities to address “time consuming and resource hungry” RI and climate risk considerations. NZ Super currently has a three-strong specialist RI team, led by Anne-Maree O’Connor.

“More resources are needed to focus on RI issues”

In their response to the report’s findings, the Guardians, the Crown entity that manages the assets of the fund, said that while the team was small, it was able to access “substantial support from the investment team”. NZ Super is a pioneer of the Strategic Partnership model which allows the Fund to leverage the resources of external portfolio managers through specially designed mandates.

(Read RI’s recent feature on Strategic Partnerships here)

Overall, the review commended NZ Super’s “impressive” RI approach and singled out its specific activities in the areas of exclusions, climate risk and stewardship as “align(ed) with best practices”. The Fund received a rating of AA (Excellent) for RI integration and ownership activities.

The report’s publication caps a year for the fund in which it delivered benchmark-beating returns of 7% against a volatile market backdrop. However, the Fund was warned to expect “lower returns from both passive and active investments over the next five to 10 years” due to low levels of anticipated growth.