30 March 2022
Having overhauled its investment strategy to slash its own carbon footprint, BayTrust has been enjoying record financial returns and is now championing its sustainable investing approach to other trusts around New Zealand.
To align with its purpose of ensuring Bay of Plenty communities and the environment flourish, BayTrust is working to ensure its entire $250m+ investment portfolio is truly sustainable by 2030 by only investing in companies that provide goods and services consistent with a low-carbon, prosperous, equitable, healthy and safe society.
It is already well on its way to achieving its short-term goal of halving its carbon exposure by 2025. It has also resulted in BayTrust recording the second highest return of any NZ community trust (24.3%) in the last financial year – helping to justify its approach and the principle of sustainability when it comes to investing in today’s global market.
“When I first joined BayTrust, we had exposure to stocks such as tobacco, armaments and fossil fuels producers, to name just a few,” Chief Executive Alastair Rhodes explains. “It was very traditional. Effectively the primary question for our investment advisors and the trust was ‘what is the financial risk’ and ‘what is the financial return?’ The impacts of these investments were not considered.
“Now we are putting climate change risk and opportunities, as well as sustainability, at the heart of every investment decision we make to align with our core purpose of ensuring Bay of Plenty communities and our environment can flourish. We fundamentally believe this approach is going to provide superior financial returns as this is where the best and brightest want to work, where capital is flowing and where the regulatory environment is supportive. If you’re investing in companies that don’t think about carbon exposure or climate change, they will likely be poor investments over the next 10 or 20 years – which as a perpetual trust, is our investment horizon. Why would you not want to invest in companies that have a positive impact?” Rhodes says.
BayTrust’s success to date is now being shared with other leading New Zealand trusts, who collectively manage over $5 billion worth of funds and distribute profits to their local community organisations, groups and projects.
Rhodes recently shared BayTrust’s journey with representatives of the community trusts of Aotearoa New Zealand which has initiated ‘The Funders Commitment on Climate Action’ to better understand climate action needs, issues and opportunities, show leadership, share learnings and undertake individual and collective action on these issues.
Rhodes urged fellow trusts to act immediately. “If you set targets for 2040 or 2050 it’s kicking the can too far down the road, and increasingly climate change evidence points to the fact we only have five or 10 years to act to mitigate the worst long-term impacts. If you set targets that are only three or four years out, that means you have to start now and you can’t ignore those deadlines.”
BayTrust’s Investment Committee Chair, Steve Napier, says a sinking lid policy was initially applied to reduce BayTrust’s exposure to fossil fuels before its SIPO (Statement of Investment Policy and Objectives) was updated to ensure it aligned with its sustainability ambitions. “For every single investment decision, we now not only look at its financial risk and return, but also its impact which includes social and environmental as well as our Te Tiriti o Waitangi commitments. Every fund manager we look to invest in, we measure against these things, and the investment needs to improve upon what we’ve already got to assist with our 2030 goal of being truly sustainable.”
Napier says investing in sustainable companies aligns with BayTrust’s core purpose, values and beliefs. “And as a long-term investor we’re seeing increasing evidence that it provides superior long-term adjusted returns as well.”
Rhodes acknowledges it can be difficult to measure a company’s carbon footprint but that’s no excuse not to try. Instead of focusing solely on how many carbon tonnes are emitted per $m invested, BayTrust instead looks at how many degrees of global warming BayTrust’s portfolio is contributing to – a measure which people understand better and can relate to.
While BayTrust has reduced its own carbon exposure by 90% in its global equity and emerging markets portfolio since 2018, those results reflect the “easy wins” and the next stage will be a lot harder. BayTrust will also be looking for more carbon positive opportunities around the world to help with the transition to a greener future and has committed to increasing its impact investments to 20% of its investment portfolio (~$50m) within the next 10 years, with much of this to be invested in innovative BOP housing models to help with the current local housing crisis.
“At the moment, we see more opportunities offshore than in New Zealand in terms of impactful infrastructure opportunities. And as climate change knows no boundaries, we can invest offshore while continuing to explore national opportunities. We’ve already invested in offshore wind farms and there’s significant opportunities in the US and Europe around helping to decarbonise their energy sector. We will be targeting investments that assist with the transition to greener and climate-friendly economies, particularly in the unlisted private equity and infrastructure space.”
BayTrust plans to upskill its staff and trustees further in this area and is looking to involve more climate change sustainable investment experts. “There used be that saying, ‘you can’t have your cake and eat it’, but I think it’s clear now you can actually invest really positively and get those superior financial returns at the same time.”
The full video of Rhodes’ recent presentation can be accessed on Climate Action Aotearoa and he is more than happy to come and share BayTrust’s journey and their learnings with other investors across Aotearoa. The session was facilitated by Linn Araboglos, CEO of Wellington Community Trust, alongside other representatives from community trusts and funders.
The community trusts also invite all philanthropic funders in Aotearoa to sign up to the voluntary pledge and to access resources.
For more information or images please contact:
Chair of the National Advisory Board on Impact Investments in Aotearoa
P: 07 578 6546
M: 021 921 737