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KiwiSaver responsible investment Updated: 05 Aug 2008

What is responsible investment?

To the average punter, responsible - or ethical - investment may sound like motherhood and apple pie. But in the investment world, interpretations are more fluid.

Responsible investment is a catch-all phrase for funds that take environmental, social or governance matters into account when deciding where money is invested. However, the extent to which this is done can vary hugely.

Screening investments

Fund managers rely on two main approaches to responsible investment:

Negative screening is used to screen out direct investment in certain areas - commonly "sin stocks" like alcohol and tobacco.
Positive screening is used to screen in companies making a positive environmental or social contribution.

Either or both of these approaches may be used. But decisions about what to screen in or out rely largely on the fund manager's judgement. And, in some cases, the investment mix ends up being little different from that of mainstream funds.

In Australia, for example, it's not unusual for responsible investment funds to put money into alcohol, gambling and uranium stocks. In the UK, most responsible investment funds still concentrate investment in stock exchange leaders - the same big companies you'd expect to see in mainstream portfolios.

To be satisfied that the manager's choices sit comfortably with your own sense of ethics, you need to look closely at where funds are invested. That may be easier said than done. As we discovered, it's not always possible to find out exactly where your money goes.