Ethical investment finds fertile ground
KiwiSavers want to know where their money goes, but exclusions can be blunt instruments, writes Rob Stock.
Rachel Brown doesn’t want her KiwiSaver to contribute to climate change. ‘‘I would not be interested in investing in any new fossil fuel exploration,’’ Brown says.
Her KiwiSaver policy involves more than excluding polluting industries.
She also has a ‘‘yes’’ list of future-focused sectors, such as clean energy companies, and is delighted to see her retirement savings invested there.
Brown is chief executive of the Sustainable Business Network, which promotes planet-friendly wealth creation.
Naturally, she chose to put her money into a ‘‘deep green’’ fund, Craigs Investment Partners’ QuayStreet Balanced Socially Responsible Investment Fund, which avoids investments in companies engaged in a whole range of polluting and socially questionable industries.
These include tobacco and alcohol production, fossil fuel mining and extraction, gambling, nuclear power, weapons-making, pornography and prostitution.
Such exclusions are the standard way in which socially responsible investment (SRI) funds operate, though Brown calls such exclusions blunt instruments.
An example of the bluntness of exclusions is that alcohol covers organic wine producers as well as multinational booze makers.
It means all fossil fuel producers, even those investing heavily in green energy to secure their long-term futures.
The limitations of exclusions prompted one KiwiSaver manager to speak out at Tuesday’s Responsible Investment Association of Australasia (RIAA) conference in Auckland.
‘‘Not only are sector exclusions inflexible and limited in building investor value, it’s an approach that doesn’t necessarily effect any real or positive change in the behaviour of companies within excluded sectors,’’ says Simon O’Grady, in a
‘‘white paper’’ he released at the conference.
O’Grady, the chief investment officer at the
$3.2 billion Kiwi Wealth KiwiSaver scheme, says
New Zealand fund managers are using exclusions of entire sectors from investment portfolios as their entire responsible investment strategy, rather than engaging with companies to encourage them to be more socially responsible.
Many of the big KiwiSaver schemes, such as those run by ANZ, ASB and Westpac, now no longer invest in makers of ‘‘controversial’’ weapons like cluster bombs and landmines, or tobacco companies.
That followed media revelations, beginning as early as 2015, that many had money in companies making cluster bombs, landmines, or involved with nuclear weapons – even though three separate acts of Parliament prohibit New Zealanders from involvement.
Last year there was a scramble to get out of those three sectors, as well as tobacco, resulting in a 67 per cent lift in the number of ‘‘responsibly’’ managed funds, though the actual changes in portfolios were small, O’Grady says.
But does bowing reactively to public pressure to exclude companies operating in those sectors mean KiwiSaver schemes are really responsibly invested?
O’Grady doesn’t think so.
‘‘Little or no thought is given to positively influencing companies that, while operating legally, have poor environment, social and governance (ESG) practices,’’ he says.
‘‘We believe this is out of step with international best practice and not what we consider true responsible investment.’’
KiwiSaver managers’ first duty is to generate returns so savers enjoy comfortable retirements.
Blanket exclusions can hinder that, O’Grady believes.
In many cases, lobbying companies to become more sustainable, less polluting, and more socially responsible is a better option for savers, and for society.
‘‘Responsible investment isn’t just about reflecting personal values. It’s about managing risk to long-term shareholder and stakeholder value,’’ O’Grady says.
Engagement by fund managers with the companies they invest in can have an impact, says the RIAA’s Simon O’Connor.
Lobbying by the Australasian Centre for Corporate Responsibility, which some Aussie super funds belong to, persuaded mining giant BHP Billiton to distance itself from the Minerals Council, which opposed measures to reduce climate-changing emissions.
BHP made the move after the centre, backed by just 0.0045 per cent of the miner’s shareholders, put forward a resolution asking the company to end its membership of the council.
Many KiwiSaver schemes just aren’t engaging, O’Grady says.
Others appear to be responsible investors by offering just one or two SRI funds among many nonSRI funds.
Kiwi Wealth built its own ‘‘core’’ global index-tracking fund so it could have ‘‘full control’’ over investment choices while lobbying management to improve their practices.
The fund Brown invested in wouldn’t suit Robert Brewer, chief executive of Spirits New Zealand, which represents the interests of multinational drinks makers such as Diageo, Bacardi and MoetHennessy.
Brewer has his KiwiSaver with Mercer, and is pleased it doesn’t invest in controversial weapons, but he would shift his money if it cut out booze-makers.
‘‘I would have a problem with investing for military uses. I would not have any problem with investing in alcohol,’’ he says.
Had Brewer found himself in the awkward position of investing in a fund excluding the shares of some Spirits NZ member companies, he may have suffered what the Booster Kiwisaver scheme’s investment experts call ‘‘hypocritical discomfort’’.
That’s the feeling of being invested in a fund that excludes companies involved in an industry you regularly use, whether because you smoke, consume alcohol, or burn petrol commuting to work in your car.
An RIAA-funded survey last year highlighted the complexities of moral investing.
It showed 49 per cent of respondents felt it was ‘‘very important’’ not to have their KiwiSaver invested in whaling companies, though 8 per cent cared not a hoot.
‘‘Responsible investment isn’t just about reflecting personal values.’’
Simon O’Grady of Kiwi Wealth
The very important/not important split for tobacco was 38 per cent to 23 per cent.
For nuclear power it was 40 per cent to 19 per cent.
For adult entertainment it was evenly balanced – 29 per cent to 29 per cent.
Selecting a fund that caters to your moral make-up, as well as your aspirations for high returns, is difficult.
Brown had an advantage – the accountant at the Sustainable Business Network reviewed the KiwiSaver market to find ones that members of the network could invest in.
Not all KiwiSaver providers are good at communicating, but all have responsible investment policies.
Responsible investing policies run from the highly readable twopager from Fisher Funds to Mercer’s 11-page head-scratcher.
Finding a KiwiSaver scheme’s responsible investment policies can take some dedicated websearching, which all adds up to making shopping around timeconsuming.
And as yet, there is no simple online search tool to help.
O’Connor says the RIAA identified that gap in the market a year ago, and was considering creating one.
‘‘We are heading towards a democratisation of capital where people do want to know where their capital is being invested,’’ O’Connor says.
KiwiSaver rules require annual publication of a scheme’s entire portfolios, a measure which beats Australian super rules for transparency hands down.
But KiwiSaver is still young, and the journey towards a clearly transparent market where it’s easy for ordinary people to find investments that match their hopes and desires still has some way to go.