Good

Ethical savings shine

AMID 2020 TURMOIL In tough economic times should we alter an ethical approach?

- With John Berry John Berry is cofounder & CEO of the ethical CareSaver KiwiSaver Scheme caresaver.co.nz

Economies, communitie­s and share markets have all had a bumpy start to 2020. In these times of hardship it may be tempting to cut corners or take an easy route, rather than following what we see as the most ethical.

Do I keep paying extra for free-range eggs? Do I make life easier and switch my commute from bus to car?

Does the same apply when it comes to investing? The last few months have answered the question with a resounding ‘no’. It turns out that being ethical actually helps us with better returns.

The first quarter of this year (January, February and March) has been hard on savers. At one point during March the US share market, for instance, was off about a third.

But thankfully it has rebounded. The US and New Zealand markets are now off less than 10 per cent, and emerging markets shares off closer to 20 per cent. It is likely you have seen these swings reflected in your KiwiSaver balance.

Principles pay off

Morningsta­r is an organisati­on that tracks the performanc­e of managed funds including KiwiSaver. It found the average conservati­ve fund had fallen 2.1 per cent in the first quarter of the year, while the average higher risk balanced and growth funds had fallen by 8.9 per cent and 12.4 per cent respective­ly.

However, funds that employ ethical investing strategies have performed ahead of the average. The

Wall Street Journal summed it up well, saying “funds focused on socially responsibl­e investing have been a rare bright spot in this year’s market meltdown.”

Mindful Money (a website that gives investors transparen­cy into what their KiwiSaver is invested in) compared four ethical KiwiSaver managers to the average in conservati­ve, balanced and growth funds. Over the first quarter the ethical funds generated better returns in each category.

Barry Coates, CEO of Mindful Money says: “Ethical funds have been resilient during the COVID-19 crisis so far. The companies that manage their environmen­tal, social and governance risks have had lower financial losses, and even some gains, in the financial downturn.”

This is no surprise given the research pointing to companies that care about environmen­tal, social and governance issues being more resilient in tough times. This means their share prices tend to fall less in a downturn and fewer of them go bankrupt. In fact, a study by Bank of America covering 2008-2015 showed investing in ‘good’ companies avoided 90 per cent of bankruptci­es.

This makes sense. ‘Good’ companies look after their staff with fair pay, decent working conditions, training and open communicat­ion. This encourages staff to be more engaged, take fewer sick days and be more productive. This in turn means the company is better at what it does – and is a better financial investment.

A ‘good’ company listens and responds to its customers and communitie­s. An authentic user experience is important – from a focus on the safety of product, monitoring the supply chain and finding humane ways to test the product. All these build consumer trust in a company, giving it a stronger brand and more loyal following. A strong brand provides resilience in a downturn.

My firm (CareSaver KiwiSaver) has benefited from these effects. According to Mindful Money over the first quarter we outperform­ed the average KiwiSaver by 4.9 per cent.

As an ethical investor, we held no coal producers, oil companies and casinos, because they all failed our ethical screens. These sectors have been poor performers.

Instead we have focused on selecting quality companies, which has meant a strong balance sheet.

COVID-19 has forced us to look at our world in new ways. I’d love that to include the desire to invest ethically, knowing our savings choices have real-world impacts while also delivering better long-term financial returns.

“Funds that employ ethical investing strategies have performed ahead of the average.”

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