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  • Writer's pictureImpact Investing Network

Don’t kick the climate change can down the road - BayTrust’s journey to sustainable investment

Updated: Aug 26, 2022

The Community Trusts of Aotearoa New Zealand have initiated The Funders Commitment on Climate Action. Its purpose is to provide a platform for funders in Aotearoa to better understand climate action needs, issues and opportunities, show leadership, share learnings and undertake individual and collective action on these issues. It aims to accelerate a just transition to a low carbon society in Aotearoa, in partnership with iwi/hapu/Māori.

Recently Alastair Rhodes, Chair of the National Advisory Board for Impact Investments in Aotearoa New Zealand, and CEO of BayTrust one of twelve Community Trusts, shared BayTrust’s journey towards shifting their $250m investment portfolio towards being truly sustainable and taking action on climate change.

Alastair maps the steps that BayTrust took, once it picked up the climate change can and decided to do something about it in 2018.

These steps may help other investors at critical points in their journey in contributing towards a more sustainable investment ecosystem where investments are aligned with a low-carbon, prosperous, equitable, healthy and safe society, which is what our communities desire.

1. Organisational purpose and strategy guides commitment to climate change action

To be true to BayTrust’s purpose of ensuing Bay of Plenty (BOP) )communities and the environment flourish and its core value of kaitiakitanga, it decided it needed to make a commitment that its investments were required to also align, and in fact, could be used to accelerate its purpose and commit them be being truly sustainable and the organisation to being climate responsible (Tiakina te ao turoa).

2. Get Trustees, staff and the community on board

The pivotal moment for BayTrust was at its 2019 AGM. Before Alastair and his Chair Rita, were prepared to stand up in front of over 100 people he worked with his Trustees to ensure the Trust could answer these questions. What is our position on climate change, and what are we going to do about it? This positive public facing pressure was the spark to publicly commit to action, be accountable for this and to change BayTrust’s investment approach.

Before this time, BayTrust largely assessed investments through a traditional risk and return lens and largely ignored the impact of its investments. However, it’s becoming apparent that as a long term investor with a commitment to its communities, this was no longer enough.

The Trusts investment decision-making framework had to be broadened to align with BayTrust’s purpose and its climate change commitments made by its Trustees and staff, and to its community.

By adding sustainability and impact to its investment lens, this made the framework more robust and relevant to align with BayTrust's purpose, meet its sustainability values as well as its financial targets.

3. Get your house in order

After the AGM, BayTrust surveyed its Trustees, staff and the community. The vast majority believed climate change was real and wanted something done about it. The clear position of Trustees and stakeholders was the catalyst for BayTrust’s team to form an action plan on the basis that climate change exists, and that it is a strategic priority for the Trust and its communities.

The staff and the Trust's investment advisors, Cambridge Associates then worked on applying this intent to its investment approach. With an initial starting point being a sinking lid policy on investments to reduce BayTrust’s exposure to fossil fuels, which was then reflected in a more comprehensive update to the Trust's SIPO (Statement of investment policy and objectives) to ensure it aligned with BayTrust’s purpose, commitments, and sustainability targets.

4. Look ahead to the long term, set short term targets to get there

For Alastair, a 2050 and even 2030 target, was too long into the future. BayTrust needed to set targets in the next five years to ensure its 2030 goals were achieved. Particularly as the experts point to the next five years being critical to reduce carbon emissions and mitigate the worst long-term impacts of climate change.

BayTrust set goals to be carbon neutral and transition to a truly sustainable investment portfolio by 2030 with a shorter-term target to achieve a 50% reduction in carbon emissions of its portfolio by 2025 to ensure staff and Trustees drove the required changes during their tenure.

“Setting climate targets for 2050 is kicking the can too far down the road. We need to be moving now as we all have only five to ten years to act”.

Alongside this, and to help accelerate the Trust's purpose and desire to transition to a more sustainable BOP, BayTrust has also committed to increasing its impact investments to 20% of its investment portfolio (~$50m) within the next 10 years.

5. Using measurements that make sense and help decisions

BayTrust worked alongside its investment advisors to ensure all investment decisions look at the three levers of risk, return and impact as well as building its in-house capability on carbon measurement and reporting.

By measuring and tracking its investments carbon emissions it enabled Trustees and the investment committee to make better informed decisions on its portfolio and enabled them to shift their portfolio away from funds that were not contributing to their carbon reduction targets.

It’s easy to get overwhelmed by the complex science and measurements. Alastair explains, “We needed to have a measurement that made sense to our Trustees, staff and community. So we can all understand whether we’re making progress”. Instead of focussing solely on tons of carbons emitted per $m invested, the focus was also on how many degrees of global warming BayTrust portfolio was contributing to. A measure that people better understood and was more relatable to them.

6. Keep refining (but not the oil type)

Despite its financial and sustainability successes. There’s plenty more that BayTrust and other investors can do.

For BayTrust and their advisors, they’ll continue to build their internal expertise in impact measurement and factor this into all decisions as well as actively target investments that assist with the transition towards more greener and climate friendly economies, particularly in the unlisted private equity and infrastructure space.

They’re open to sharing their hard-earned lessons and stories and working with other organisations to support their journey to sustainable investment.

7. Let’s can some (mis)perceptions

You can have your cake and eat it sustainably too

But isn’t investing sustainably detrimental to financial returns? Not so.

Over the last few years, BayTrust has been one of the best financial performing Community Trusts with their sustainability funds in particular outperforming their peers and a 24.3% return achieved to the year to March 2021. This has been done alongside a 90% reduction in their Trust's carbon footprint in its Global Equity and Emerging Markets portfolio exposures.

There is increasing evidence that unless you are pivoting into this sustainable space then you are at risk of your investment returns lagging behind, as sustainable companies are the area that financial capital is flowing into, the regulatory environment is supporting and where the best and brightest want to work.

Flip the fiduciary switch

But won’t a transition to a sustainable portfolio conflict with Trustees’ fiduciary responsibilities?

Alastair prefers to think about it like this. “Climate change is actually a proxy for financial risk, and not treating it as such and looking at ways to mitigate it could be a breach of fiduciary duty, and likely detrimental to your portfolios long term returns”.

With every risk there lies opportunity. The regulatory and investment landscape is increasingly supporting organisations that contribute to a just and sustainable transition, with increasing evidence that they can perform better financially, in the long term. These are the types of organisations that BayTrust is looking to invest more into, directly or via funds, whilst balancing risk, return and impact.

Just because something is hard – doesn’t mean you shouldn’t do it

Yes, measuring carbon reductions is complex. Yes, it requires expertise. However, just because something is hard doesn’t mean it shouldn’t be done.

Alastair’s experience is that you won’t get it 100% right. But that didn’t stop BayTrust from getting it right enough to produce reports that help make better investment decisions and drive superior financial performance alongside sustainable benefits.

Next steps

The full video can be accessed on Climate Action Aotearoa. The session was facilitated by Linn Araboglos, CEO of Wellington Community Trust, alongside other representatives from Community Trusts and funders.

The Community Trusts invite all philanthropic funders in Aotearoa to sign up to the voluntary pledge and to access resources.


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