KiwiSaver funds are in the spotlight after it emerged in February this year that ANZ’s KiwiSaver scheme was investing in companies that have supplied weapons to Saudi Arabia. People are also voting with their feet and walking away from firms that pollute the environment or employ sweatshop workers in developing countries.
So, how do you check that your provider is doing the right thing and is an ethical investor? Peter Forster, General Manager of Wealth at the Bank of New Zealand (BNZ), suggests researching online and doing your homework.
“Any good provider will clearly state what their approach to responsible investing is and what they won’t invest in. From December 1 of this year the Government will have strict requirements for the six KiwiSaver default providers regarding what they are allowed to invest in and how they make that information available to their members,” he says.
Peter says ethical investing is a ‘core commitment’ for BNZ. “We believe that investing responsibly is in the best long-term interests of our investors. Our responsible investment policy helps ensure that the investment decisions we make reflect the changing attitudes of our investors and society, and also contribute to a more sustainable economy.”
That change in attitude has the potential to have significant social and environmental impact, as the trend toward investing in more ethical and more sustainable options takes hold.
KiwiSaver managers invest where people want them to. As Simplicity funds CEO Sam Stubbs points out, the KiwiSaver fund is expected to be up to around $200 billion by 2030 and the impact of that much money being invested in ‘good’ industries will be considerable. “It will make a difference,” Sam says.
Simplicity only invests in companies that operate under human rights, safe labour, responsible environmental and anti-corruption principles defined by the UN, and they don’t invest in companies with significant exposure to fossil fuel extraction, tobacco, weapons, landmines, alcohol, nuclear energy, adult entertainment or gambling.
“We have two philosophies,” says Sam. “We don’t invest in companies that don’t do good and we only invest in companies that do good.”
Simplicity, which is non-profit and which gives 15% of its fees to charity, is also pro-ethical, working actively with companies in their portfolio to encourage diversity in employment and pay equity.
Sam agrees the concept of ethical investing is increasingly important. “Of the 70,000 or so KiwiSavers with Simplicity around 20% joined because of the company’s ethical and charitable philosophy. And while many of those are young people, the skew is not as big as you might think. Older investors are also, increasingly, considering ethics and the environment when investing.”
Improving transparency around environmental responsibility will help investors, too. In April this year, the Government introduced The Financial Sector (Climate-related Disclosure and other Matters) Amendment (TCFD) Bill. This requires the financial sector to disclose the impacts of climate change on their business and explain how they will manage climate risks and opportunities.
At the time, Climate Change Minister James Shaw said that climate change will have a profound impact on businesses all over New Zealand.
“There are activities and assets that these businesses are involved in which will not hold their value in a low carbon world, simply because they emit too much climate pollution and contribute to the climate crisis,” he said.
The response from the financial sector has been swift, with changes in response to environmentally responsible investing. For example, investment firm Mercer said it would be divesting shares in companies involved in coal mining and other carbon-producing industries.
BNZ’s sustainable finance general manager Louise Tong says that companies both large and small should familiarise themselves with TCFD because disclosure of this nature will likely become mainstream and trickle into all levels of the New Zealand economy.
“Climate-related financial disclosure will create greater transparency and comparability of a business’ approach to managing climate change risk and provide the market with a more holistic risk-and-return framework to consider when allocating capital.
According to Louise, these actions “signal to the market the types of businesses we want to work with to grow the New Zealand economy in a sustainable way.
“It used to be that lending decisions considered a narrow range of economic factors, but our new, ambitious targets will hardwire sustainability into how we work. We are serious about changing the way we work and the people we do business with for the benefit of New Zealand.”
Reported by Hamish Barwick for our AA Directions Spring 2021 issue