Money
KiwiSaver responsible investment
Introduction
KiwiSaver members looking for a responsible investment fund could be disappointed with their options.
If you want your KiwiSaver dollars to help the world rather than harm it, a responsible investment fund might seem just the ticket. Eleven of the 35 KiwiSaver providers now say they offer funds which take responsible investment principles into account.
The problem is it's not always easy finding out where they're putting your money.
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.
Investment options
We contacted the 11 KiwiSaver providers that offer funds which take responsible investment into account.
We wanted to know what information they provide to help consumers make an informed choice before signing up.
What's excluded
Most providers readily disclose information about the kinds of stocks they aim to avoid. These typically include alcohol, tobacco, gambling and arms (see the Investment funds compared table). Other controversial areas, like uranium mining, didn't appear on any fund's no-go list.
It pays to read the fund's policy on exclusions carefully as the extent to which stocks are screened out can vary. If alcohol is on the fund's hit list, the policy may be to avoid direct investment in alcohol manufacturing. It may still invest in companies - supermarkets say - which get some of their revenue from alcohol sales.
It also pays to check just how actively the fund screens investments. For example, First NZ Capital told us while it took responsible investment into account it didn't actively screen each investment. Nor are underlying fund managers required to adopt specific responsible investment practices.
What's included
More difficult to find out was where funds did invest. Details of investment portfolios are rarely published on websites and, in some cases, fund managers weren't willing to tell us where the money went (see the Investment funds compared table). We think funds should provide detailed reporting of all their holdings - this is what the best ones do overseas.
Eight of the 11 funds we looked at did give us a list of investments. As with similar funds overseas, share holdings tend to be concentrated in stock exchange leaders - in New Zealand, this means big-name corporates like Auckland International Airport and Fletcher Building. Prominent Australian companies BHP Billiton and Rio Tinto (both active in uranium mining) also featured in several funds' portfolios.
Three funds - ABN Amro Craigs, Asteron and Fidelity Life - told us their portfolios included renewable energy stocks (though they don't rule out non-renewables like oil and natural gas).
Fidelity Life also told us its overseas stocks (40 percent of the fund) were invested in F & C Investments Stewardship International Fund. F & C is considered a pioneer of ethical investing. Its Stewardship Fund recently topped the list of responsible investment funds rated by Ethical Consumer, though top place still only resulted in a score of 8 points out of 20 in the magazine's rigorous ratings.
Investment funds compared
Guide to the table
Fund
Lists KiwiSaver funds that state they take responsible investment into account.
Provided list of investments
- A Intends making more details of investments available to members and prospective members later this year.
- B Provides details of investments to members and on request to prospective members. Fund website provides sample reports although these do not give full list of investments.
- C Huljich provided a list of top 10 investments.
- D No plans to disclose details of investments.
Exclusions
lists exclusions stated by fund manager. ASB's fund has no exclusions but investments are expected to demonstrate "commitment to sustainability".
Your choice
Responsible investment offers the chance to put your money where your mouth is. But if you're looking for a KiwiSaver scheme that lets you do this, you'll need to consider your options carefully.
If all you want is a scheme that doesn't invest in alcohol or tobacco, then your choice may be straightforward. Most responsible investment schemes say they "aim to avoid" direct investment in these areas.
But if your requirements are more specific - say you want a fund that invests in renewable energy and rules out non-renewables - then it's Hobson's choice. None of the existing funds do this.
If you don't like any of the options currently available, keep looking and keep asking questions. At least one other KiwiSaver provider - AMP - says it's in the process of developing a policy on responsible investment. Prometheus Finance, an ethical investment company established in 1983, is also planning to become a KiwiSaver provider next year.
Fees
Responsible investment funds may have higher management fees than other KiwiSaver funds offered by the same provider.
ABN Amro Craigs, ASB, Asteron, Fidelity Life, Forsyth Barr and Superlife all offer other KiwiSaver funds in addition to their responsible investment options. Management fees on responsible investments are at the upper end of these companies' fee scales.
You might think higher fees are justified if the fund manager is working hard to deliver the investment mix you want. But if you can't find out where your money is going, then you may not be so keen on paying.
Our advice
- To make an informed choice about responsible investment options, you need to know where your money is going. This is what counts - not the PR flannel.
- Don't get taken in by vague statements about the fund manager's commitment to environmental and social principles. After all, the manager's perspective may be very different from your own.
- If the fund manager won't tell you where your savings go, consider whether you really want to hand them over. We think any scheme advertising itself as a responsible investment option should be required to disclose where it puts members' money.
Who's keeping tabs?
Since 1 April, KiwiSaver providers have been required to disclose whether they take responsible investment into account when deciding where to put members' money. The Securities Commission polices the responsible investment disclosure requirements of the KiwiSaver Act.
The Commission has guidelines on the information that should be made public and intends to review compliance this year. It says it expects disclosure to "go beyond rhetoric" and explain the criteria used to assess investments.
More information
- KiwiSaver fees
- Consumersaver - our free KiwiSaver website
Report by Jessica Wilson