This week, we review AMP Capital’s top 10 predictions on how investors will shape more ethical behaviour from business in 2019. Rebekah Swan from AMP Capital says “It’s great to see more and more New Zealanders aligning their investments to their values… We believe the demand for investments that not only deliver competitive financial returns but also positive social and environmental impacts will only keep growing.” You can read AMP Capital’s full article here.
AMP Capital’s top 10 predictions are:
In the face of inconsistent global regulatory action, businesses have begun to anticipate the way climate change will affect their investments. As such, leading investors are aiming for two things to happen:
- A clear path to a lower carbon economy, as quickly and sensibly as possible
- Clear commitments and disclosures from companies on their path to lower emissions.
Eroding trust in banks and financial services organisations is nothing new. So in 2019, investors will be focusing on governance issues including processes, culture and remuneration. In other words, investors will be keeping a close eye on the degree to which all of these are being changed and improved.
In 2018, all eyes were opened to the use and potential abuse of our personal information by the world’s large social media companies. In 2019, governments will respond with regulation. How these companies respond, will determine how trustworthy users deem these companies to be.
In this context trust is key and investors will be focussed on the safety of information on social media networks.
Not everyone has access to essential medicines. Even in developed countries like the US, life-saving drugs like the EpiPen can cost excessive amounts of money, making it out of reach for many. With “safe, effective, quality and affordable essential medicines and vaccines” as no.3 on the UN’s Sustainable Development Goals (SDGs), we are set to see more investors interested in access to medicines.
To date, 84 investors, with more than US$11 trillion of assets under management have signed the Investor Statement of the Access to Medicine Index. This commits these investors to use it in their research and in their engagement with pharmaceutical companies.
‘Impact investing’ is ablaze in the investment community right now. Institutional investors are starting to look for investments that deliver a positive social impact as well as a financial return. The Global Impact Investing Network reported in 2018 that there is now US$228 billion in impact assets under management, that’s double the funds under management of the previous year. Short story is captured in Morgan Stanley’s 2017 survey, which suggests investors want “investments in companies or funds which aim to achieve market-rate returns while pursuing positive social and/or environmental impact.”
Palm oil is the most commonly used vegetable oil in the world. It is also the most controversial. It is a popular ingredient because it has a long shelf life, can be used in everything from detergent to chocolate, and is higher yielding than other oils.
It is also produced in tropical rainforests and has led to some significant rainforest and biodiversity destruction in Asia, so investors are also calling for the following:
- Programmes that tackle poverty and educate small landholders on sustainable farming practices.
- Evidence that the companies they invest in are tracing palm oil all the way back to the plantations and that the palm oil used is in fact certified as sustainable.
Plastic waste is high on the SBN agenda and a major concern for Kiwis around the country. Since China stopped taking much of the world’s recycling in 2018, waste has become a primary environmental issue. It’s led to huge stockpiles in warehouses all over the country and the dumping of recycling in landfill.
In response, businesses and investors are now talking about the circular economy – that is, a system without waste and pollution where materials are used and reused.
Although there have been some exciting leaps forward with major supermarkets banning plastic bags and many other initiatives, businesses that are working towards a circular economy will be the ones investors watch.
Six years ago, the treatment of workers in clothing factories in Asia was exposed when a factory in Bangladesh burned down, killing 1,100 garment workers. Encouraging progress has been made on worker rights and safety in the country since then, partly as a result of investor engagement. But there is much more work to be done.
Globally, some of the largest retailers and manufacturers have started auditing their lengthy supply chains. This basically means tracking all the factories they source from and checking the conditions in those factories.
With this awareness, it effectively forces large businesses to assess and address the risk of slavery in their operations and supply chains.
Ever wondered how the cocoa we eat in our chocolate is farmed? More than two million children are estimated to work on farms in West African countries Côte d’Ivoire and Ghana, the two countries that account for almost 70 per cent of cocoa production worldwide. While most of the world’s largest chocolate producers have committed to end child labour in the cocoa supply chain, a lot of work still needs to be done.
Investors will aim to:
- roll out systems to identify and remediate cases of child labour in the cocoa supply chain.
- provide support and training to cocoa-growing farmers so that they may move towards a living income.
Antibiotics have enabled the growth of large-scale factory farms all over the world, originally by limiting and preventing the spread of disease among animals kept in close quarters, then by stimulating animal growth rates and increasing productivity.
This means an alarming reality is emerging. Humans are building resistance to some of the antibiotics used in meat production, leaving vast numbers of people exposed to potentially fatal diseases, such as pneumonia.
The size of the potential economic impact, as well as escalating health concerns, mean that this is likely to be a key public health issue and a focus for investors in 2019. We expect investors to call for the following:
- Clear disclosure of the use of antibiotics in farming and food production.
- Plans to phase out the use of antibiotics that are critically important to human health in agriculture.
- Targeted reduction of other antibiotics used in agriculture.
Original article by AMP Capital’s Kristen Le Mesurier, Portfolio Manager.