Good intentions: Funds’ tough task of drawing ethical line
Investors want in but doubt lingers on moral products
The business of business is not just about being good with money, it’s about being good, period. This is fast becoming the ethos for investors, but beauty is in the eye of the beholder when it comes to drawing ethical lines.
Last month, Simplicity founder Sam Stubbs said ethical investing on human rights grounds was simply “too hard”, acknowledging most Kiwi managers had little control over the international funds they might invest in.
Kiwi Wealth chief investment officer Simon O’Grady says many fund managers are simply virtuesignalling, claiming if they make exclusions to their funds they are then being responsible.
His view is responsible investing is becoming a box-ticking or marketing exercise for some.
With all the noise around what’s ethical, investors may be sceptical about Pathfinder Asset Management’s new product CareSaver, which markets itself as aspiring to be “the most ethical KiwiSaver”.
The new KiwiSaver fund’s launch last month came with a press release pointing out how S&P/NZX 50 companies that have all-male boards will be excluded. This is a first for New Zealand, Pathfinder believes.
Pathfinder co-founder John Berry says it’s all about encouraging the right behaviour.
“We are totally in favour of boards on merit but if the board doesn’t look and feel like it has diversity then we won’t invest.”
It shouldn’t be controversial in 2019 to say that women on boards improve company performance. Investors need to look no further than Credit Suisse’s 2016 report which concluded women in senior roles meant “superior corporate profitability”.
McKinsey’s ongoing research has also consistently shown the correlation between the proportion of women executives and corporate performance.
Local research on company and performance and diversity is hard to come by but New Zealand Shareholders’ Association chief executive Michael Midgley says the CareSaver fund is good in principle, adding “we know that diversity is
good for decision-making”.
The CareSaver scheme also boasts a unique arrangement where 20 per cent of its fees go to a charity chosen by the members from a list of 17. Although Simplicity gives 15 per cent of fees to a charitable trust, you don’t get to choose who gets the money.
But if you don’t choose this fund, are you really missing out?
When Pathfinder announced the fund, three NZX 50 companies had all-male boards: Pushpay, Argosy
Property and Vital Healthcare Property Trust.
Vital Healthcare is up 25 per cent this year, compared to the NZX 50’s 23 per cent gain. Argosy and Pushpay are laggards at 18 per cent and 6 per cent respectively.
In any event, Berry said his team had been in touch with Pushpay and that it would invest in the company “based on its explanation”.
Pushpay said in an email it has signalled it is actively searching for more directors and is “considering suitably qualified candidates of diverse backgrounds and experience”.
“Pushpay realises the value of diversity and the importance of inclusion. We want to ensure we have a board with not only the right skills and competencies, but also diversity of thought.”
So CareSaver has wiggle room for all-male boards: Berry says it was okay if a company demonstrated a commitment to addressing it.
The ethical investment specialist also adds that property owners Argosy and Vital are not in CareSaver’s preferred portfolio anyway.
The fund said it prefers Precinct Properties New Zealand and Kiwi Property Group given their portfolios.
So, when it comes to NZX 50 companies, it’s hard to see what difference being in this fund might make.
What’s more, if you look at the
wider make-up of the fund, outlined in its policy statements, New Zealand companies scarcely feature. It varies across CareSaver’s conservative, balanced and growth funds, but Australasian equities only account for 10 to 20 per cent of its target investment mix. There is no indication of how many of these will be New Zealand companies.
CareSaver’s diversity exclusion doesn’t apply to international funds, so any all-male international boards out there won’t get cut out. Berry says this is a practical consideration because the reality is Pathfinder has little proximity to those companies and can’t influence them.
He’s also right in pointing out that gender diversity on boards is more of a domestic issue anyway.
Global Women said in February that 18 per cent of New Zealand listed companies had no women on their boards.
This country is the outlier compared with the US and Australia, where only 2.6 per cent and 4.4 per cent of listed boards respectively had no women. Listed companies in the UK, France, Finland and Italy all have at least one female board member.
But to use a food analogy, what Pathfinder is doing comes close to advertising lactose-free orange juice or gluten-free popcorn.
The labelling is correct, but it gives the appearance things are being excluded, when they weren’t there in the first place.
If the board doesn’t look and feel like it has diversity then we won’t invest. John Berry, Pathfinder co-founder