KiwiSaver funds get ethics C+
No KiwiSaver fund has scored more than a C+ in a new A to F ratings scale developed to show investors how socially responsible their funds are.
BetterSaver has been developed by former Fisher Funds marketer Joe Taylor, and is based around an easy-to-understand alphabetic scale that everyone remembers from school.
It’s the first time all New Zealanders are offered the ability to select their retirement fund according to an independently verified environmental, social and governance (ESG) grading system, Taylor said.
‘‘Up until now KiwiSaver providers have been able to claim that they consider ESG matters when they invest, but there has not been the ability to independently verify the truth or extent of their ESG commitments,’’ he said.
ESG is one of the buzzwords of the investment world, referring the three big areas that fund managers are increasingly required to think about by investors: The impact of their investments on the environment, on society, and, the least understood, whether companies are well-run.
BetterSaver’s scale was developed with the help of Dr Rodger Spiller, the country’s foremost expert on responsible investing.
Taylor did think about using a star scale, but said: ‘‘We went with an A to F scale because it’s a bit more in-your-face, and people can understand it more easily.’’
‘‘Everyone knows that an F is a fail, and a C is barely passing.’’
One of the aims of the scale was to encourage KiwiSaver providers to improve their ESG performance, though not necessarily to get them all to become deep green, ethically-pure investors.
The majority of KiwiSaver providers were very poor at communicating how they went about their work.
Taylor found many KiwiSaver providers made bland statements such as ‘‘we take environmental, social and governance into account when investing’’, but provided no details.
Almost none report annually to savers how they have lived up to their ESG claims.
Simply by improving their communications, most KiwiSaver schemes could improve their ratings on the scale.
There’s a growing desire from the public for KiwiSaver investments that match savers’ ethics, and in recent years KiwiSaver schemes have been forced by public outcry to remove weapons-makers and tobacco makers from their portfolios.
BetterSaver’s ratings scale is based on scoring funds on five measures: Exclusions (what they won’t invest in, such as tobacco and bombs), inclusions (environmentally and socially positive investments), how transparent the fund manager is about where and how it invests, engagement (does it vote its shares in companies and improve their behaviour), and how it conducts its ESG research.
Currently, BetterSaver will earn commission from some providers when somebody uses the platform to switch their KiwiSaver, but that’s not how Taylor expects to make money, especially as the commission deals are with KiwiSaver providers who do not rank particularly well on the A-F scale.
The genesis of the business was his time working in the KiwiSaver industry for Fisher Funds. His friends would ask for advice, which regulations prevented him from providing.
‘‘I’d refer them to the information available online, but they would often come back complaining that it was too difficult to compare the different options as there was so much information.’’
‘‘We went with an A to F scale because it’s a bit more in-yourface, and people can understand it more easily.’’ Joe Taylor of BetterSaver