How KiwiSaver is changing to match Kiwis' moral values

Wednesday, 9 October 2019

KiwiSaver ditched most tobacco companies in 2017, but there's still a lot of 'sin stocks' in KiwiSaver funds. Each KiwiSaver fund invests in a different mix of companies. This video shows total combined holdings across all KiwiSaver funds.

When KiwiSaver launched it was almost entirely unshackled by any need to consider the ethics of 'socially responsible investment'.

Since then KiwiSaver providers have accepted they must invest to reflect the moral consensus of their 3 million investors.

That's given KiwiSaver a moral floor of avoiding investments companies involved with tobacco, or 'controversial weapons' like nuclear bombs, cluster munitions and landmines.

A proliferation of socially-responsible funds, and the launch of the first KiwiSaver 'impact' funds by ASB, has now laid to rest the long-held belief that demand is weak for clean, green KiwiSaver funds.

Animal welfare and factory farming threatens to be the next big 'exclusion' the public demands of KiwiSaver providers.

'We're going to see a lot of evolution going forward,' said former Green Party MP Barry Coates, who bank-rolled the MindfulMoney social enterprise to help KiwiSavers find ethical investment funds.

* How to go weapons-free in your KiwiSaver portfolio

* KiwiSaver, cluster bombs, mines and nukes

* Simplicity KiwiSaver scheme pulls out of guns, alcohol and porn

* Oldies but goodies: Older people driving ethical investing revolution**

Former Green Party MP Barry Coates launched MindfulMoney.co.nz to help get more KiwiSaver investors to invest in 'responsible' funds.

Since 2016 public awareness of what KiwiSaver was invested in has risen, and New Zealanders finally became a nation of climate change believers.

Official government policy is 'anti-tobacco'.

'There had been successive attempts to set up niche socially responsible investment funds, but they languished,' said Coates.

Too often they weren't promoted by the KiwiSaver providers who launched them, which led to the belief that New Zealand investors just didn't care.

'A classic example is that ANZ has a sustainable international share fund, but it is almost impossible to find on its website.'

Coates believed providers faced a shame Catch 22.

'The providers didn't want to highlight the fact that their other funds were unethical,' he said.

But in 2015, 2016, and 2017 KiwiSavers finally woke up to what their money was invested in, and the conventional wisdom was shattered.

The public realised KiwiSaver money was invested in companies involved with weapons banned under New Zealand law, and international treaties, as well as in tobacco, despite the government aiming to take the country smokefree by 2025.

Suddenly KiwiSaver providers had a moral compass to steer by 'anchored to the international conventions and laws New Zealand has signed up to,' said Coates.

It was not a new moral compass, however, as the government-run NZ Super Fund, which aims to invest in a way consistent with government morals, including on climate, and human rights abuses.

But KiwiSaver still lags the NZ Super Fund's ethical lead, and there's growing pressure on KiwiSaver providers to go further in cleaning up their funds.

'They should be respecting changing expectations and community norms,' said Simon O'Connor, chief executive of the Responsible Investment Association of Australasia.

For the NZ Super fund that includes recognising New Zealand is now committed to decarbonising the economy, and has begin to actively reduce the carbon footprints of its investments, which it also argues is good for its investment returns.

O'Connor said at the least KiwiSaver default funds should align their investing to the NZ Government's commitment to the Paris Agreement on limiting climate change, and the newly-passed Zero Carbon Act.

'Default KiwiSaver providers should be required to have in place a portfolio-level objective for reducing carbon emission intensity at a pace that aligns with a 1.5 degree Paris target,' he said.

This could be achieved by ditching investments in fossil fuels, and requiring funds to do what the NZ Super Fund does, and publish the carbon footprints of their funds annually.

The RIAA is lobbying the government to make all default funds SRI funds, and it is seriously considering doing so, though the Ministry of Business, Innovation and Employment noted in its recent consultation paper on the subject: 'Some people might think that it isn't the government's role to ensure that investments are made responsibly.'

Coates has crunched the numbers on fossil fuels in KiwiSaver. At the end of March investments in the shares and bonds of fossil fuels companies added up to $1.155billion of the $59.2b invested.

But there was another, even larger public ethics issue that has yet to cause an outcry.

$1.4b of KiwiSaver money was invested with companies with issues around 'animal welfare', including companies like Proctor & Gamble and Johnson & Johnson, some of whose cosmetic products continue to be tested on animals because China requires it before they can be sold there.

Cruelty to animals topped the list of things KiwiSavers most wanted to avoid investing in, Coates found, when he paid Colmar Brunton to test consumer sentiment.

O'Connor also wants KiwiSaver regulations in place to prevent greenwashing, and ESG-washing, where fund managers use vague language leaving investors with the impression they may be more socially responsible than they really are.

It's a topic that's caused controversy before. When social enterprise BetterSaver launched last year to rate KiwiSaver schemes on their SRI credentials, it rated none higher than a C, even those which boasted of having ethical credentials.

'We have gone for a long time using pretty loose language,' said O'Connor.

BREAKING GOOD:

2007: First money starts flowing into KiwiSaver. Craigs launches a Kiwisaver Balanced socially responsible investment (SRI) fund. Christian KiwiSaver (now Koinonia) launches.

2008: ASB launches Global Sustainability Fund (GSF) managed by Al Gore's Generation Investment Management. SRI funds launched by Fidelity (now owned by Booster), ANZ and SuperLife.

2014: ASB closes GSF for lack of investment. Quaystreet SRI Fund launches.

2015: Amanah opens, giving a Shariah-friendly fund. First article revealing KiwiSaver fund investments in nuclear weapons, cluster bombs and landmines.

2016: AMP launches Responsible Investment balanced fund. Media outcry emerges over weapons in KiwiSaver, but also KiwiSaver's tobacco investments.

2017: By the end of this year, the majority of mainstream KiwiSaver funds went tobacco, and 'controversial' weapons-free.

2018: Simplicity KiwiSaver pulls out of guns, porn and fossil fuels. Social enterprise Bettersaver.co.nz launches to help public find SRI funds. Controversially, its ratings on funds indicated some funds with SRI badges were not especially ethical.

2019: Caresaver launches the most ethical fund yet, with exclusions on tobacco, factory farming, fossil fuels, civilian weapons, gambling, whaling, controverswial weapons, inequality, animal testing and adult entertainment. Former Green party MP Barry Coates launches MindfulMoney.co.nz to promote KiwiSaver SRI options. ASB launches KiwiSaver's first 'impact' funds.