Rewarding responsibility
About twenty years ago I started to take an interest in Socially Responsible Investment (SRI). For the first few years I kept thinking this was an idea whose time was about to come.
But gradually, as SRI refused to move to the centre stage of investment, I started to think that its time would never come. I did not lose interest, but simply thought that SRI may not ever come into the mainstream. Repeatedly I heard people predict a big popularity increase for SRI – and watched the public yawn.
I felt quite sorry for people who had promoted the idea so much, especially Dr Rodger Spiller, who at times was almost a lone voice.
But, suddenly and quite spectacularly, the zeitgeist has changed. Cluster bombs and tobacco are widely discussed and SRI has become important.
What caused this abrupt change after decades of obscurity?
In a word, it is KiwiSaver. KiwiSaver has democratised investment.
Nine years after it was launched, KiwiSaver has 2.6 million members invested in funds.
And so suddenly, when someone says that some managed funds have investments in companies that make nuclear weapons or who use child labour, there are 2.6 million who are affected. Many of them get upset and start to agitate for change.
The national conversation regarding SRI has also moved out to a discussion on active versus passive investment and the ability of managers to exclude certain investments.
This democratisation of investment has banks and other fund managers running scared and trying to clean up their portfolios. Reportedly, more than $100m has already come out of ethically questionable investments.
Before KiwiSaver, investments in tobacco and bombs existed but few people really cared. Things have changed. Recently, National Radio’s Kim Hill interviewed oncologist and SRI activist Dr Bronwyn King. King said that tobacco was a childrens’ rights issue.
People start to smoke when they are children (average age for starting is 15 years), and 60 per cent of the people who work in the tobacco industry are children. People who heard the interview would want to be sure their funds did not invest in tobacco.
KiwiSaver was always meant to lead an improvement in financial literacy and the conversation about SRI is a very good example of this. My guess is that both KiwiSavers and their fund managers will pay a lot more attention to what they have in their portfolios and that this change will be permanent.