Ethical KiwiSaver funds: Aligning your values
In recent years, it’s become increasingly common for investors to seek out investments that align with their personal beliefs and world view.
For many KiwiSaver members, that has meant opting for KiwiSaver funds that are a good fit with their ethical goals, as well as their financial ones.
So what do you need to know if you’re trying to align your values to your investments?
What is ethical investing and how does it work for KiwiSaver?
There are a few ways that people talk about investments that are designed to fit with investor values. You might hear them talked about as ethical, or responsible, funds.
The Financial Markets Authority estimates that 90 percent of KiwiSaver is managed with some sort of ethical investing approach.
Usually that is done by making decisions based on analysis of environmental, social and governance (ESG) factors. This means things like investing in companies that are thinking about ESG issues in their decision-making processes and looking for disclosures from companies about ESG issues.
Beyond that, most responsible investing is done either by screening – not investing in certain types of companies or certain sectors – or by taking action through impact investing to support the kind of companies fund managers want to encourage, or use shareholder action to seek change.
Often the sorts of things that ethical managers stay away from are investments in companies associated with human rights abuses, alcohol, and workforce exploitation. Funds have shifted away from investing in unethical products or issues such as tobacco and pornography, in recent years. Default KiwiSaver funds exclude investments relating to the production of fossil fuels and illegal weapons.
But there is no one definition of what ethical might mean, so if you have particular things you want to invest in – or want to avoid – you may need to look more closely that the funds you are considering. What might be important to avoid for one investor might not be a big deal to another – and vice versa.
How do the investment outcomes compare?
Research suggests that funds that invest with an ethical or responsible lens do at least as well as those that do not. In fact, having an eye on things like climate change or social issues could give investment managers an element of “future proofing” and protection against future risks.
Mindful Money also points out that avoiding investments in some sectors can mean you aren’t putting money into companies that are in declining markets or that could end up with stranded assets.
As the amount of money invested in KiwiSaver increases, the impact that responsible investment decisions can have also increases.
Funds report regularly on their biggest investments via their disclosure statements, and there are also tools that can help you delve into where your money might be going.
In New Zealand about two-thirds of KiwiSaver schemes are certified by the Responsible Investment Association of Australasia. Investors can also use resources such as Mindful Money’s tools to look at where a particular fund has investments – or chat to their investment advisers.
Like to talk?
There can be a lot to work through when it comes to aligning your investments with your world view and values – but it can be a very rewarding thing to do.
If you’d like to look at what your money is invested in, and whether change might be appropriate, get in touch with us. Our team of expert advisers can answer your questions and help you identify the information you need to make choices that will bring you closer to your goals – both at home and in the wider world.
Disclaimer: Please note that the content provided in this article is intended as an overview and as general information only. While care is taken to ensure accuracy and reliability, the information provided is subject to continuous change and may not reflect current developments or address your situation. Before making any decisions based on the information provided in this article, please use your discretion and seek independent guidance.
