Becoming an ethical investor

A recent survey highlighted that ethical investing is a growing area of interest for many Kiwi investors.

The survey, by RIAA and Mindful Money, revealed that over 75% of KiwiSaver investors expect their KiwiSaver funds to be managed responsibly and ethically¹.

And, more and more New Zealanders are considering becoming ethical investors so they know exactly where their money is being invested².

But what exactly does ethical investing mean? And is it something you can do with your KiwiSaver savings?

What is ethical investing? 

Broadly speaking, ethical investing is choosing to invest in a fund that aligns with your personal values. If you want to avoid investing in industries that you don’t agree with or feel cause harm to society or the environment, choosing to invest your KiwiSaver savings in an ethical fund is a way to ensure your money doesn’t end up supporting those industries.

Generally, there are two types of ethical investing:

1. Responsible investing
   
   Responsible investing takes a holistic approach and looks at all aspects of a company’s performance – including how seriously the company takes its environmental, social and governance (ESG) responsibilities.
   
   Responsible investing does not typically rule out investing in any sector or company – instead, a positive filter is applied. So, you might end up in investments in a large oil company or wine manufacture, but one that is committed to reducing its environmental impact and pays its workers a living wage.
2. Socially responsible investing
   
   Socially responsible investing excludes investing in specific industries or sectors. Socially responsible investment funds (SRI) allow investors to avoid investing in specific areas that are not aligned with their personal values.

For example, Booster’s socially responsible investment funds have nine exclusions.

Is there an ethically perfect fund?

It really depends on what is important to you as an investor. It could be that you want to avoid investing in specific industries like fossil fuel exploration or nuclear power. For others, it could be about investing in funds that are committed to social good.

As KiwiSaver is designed to help you save for your retirement, it’s important to choose an investment fund that aligns with your personal values but also offers you long-term performance. There’s no point being in the ‘perfect’ ethical fund if it doesn’t return results!

Websites like Mindful Money can help you work out what issues are important to you and match you to a selection of funds that best match your investment goals.

What about ‘greenwashing’?

One of the biggest barriers for many people choosing to invest in a socially responsible option is being confident the investment fund is as ethical as it claims to be³.

The Responsible Investment Association Australasia (RIAA) is an independent certification body that certifies funds that follow certain responsible investment principles in New Zealand and Australia. 

If you’re not sure about an investment fund’s credentials, look for the RIAA certification mark. Any KiwiSaver scheme fund that is RIAA certified will be following strict responsible investment criteria⁴. 

The power of the collective

Sometimes it’s hard to see how your individual action will make a difference. Think about our recent ban on plastic bags. That was a movement that gained traction as we realised the ongoing environmental damage plastic bags create. As we all stopped using plastic bags, our individual actions lead to a collective change.

At a global level, when the movement 350.org took off in 2010, it initially wasn’t taken that seriously. Founded by a group of university students, its aim was to encourage a move away from fossil fuels to help combat climate change. Over time, this concern grew into a global movement. Today, more than 1000 institutions and US$14 trillion has been divested from fossil fuels. 

Closer to home, as of 31 March 2020, KiwiSaver investors had over $252 million invested in socially responsible investment funds⁵. As this area of investing continues to grow, the greater the collective power to enact positive change.

Becoming an ethical KiwiSaver investor

Choosing to invest ethically means you’re investing in a better world for you and your family. And – you’re not alone. Becoming an ethical investor means you’ll be joining 75% of Kiwi investors interested in making positive changes for the future⁶.  

It’s easy to start investing ethically. Once you’ve worked out the right fund for you, simply let that KiwiSaver scheme provider know that you’d like to join their scheme, and they’ll do all the work to make the change happen.

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¹76% of New Zealanders with KiwiSaver funds or other investments surveyed expect their KiwiSaver funds and investments to be invested responsibly and ethically. Responsible Investment New Zealand Survey 2020, Q6 (831 respondents)

²71% of New Zealanders with KiwiSaver funds or other investments surveyed would be prepared to invest in a responsible KiwiSaver fund within the next 12 months. Responsible Investment New Zealand Survey 2020, Q14 (628 respondents)

³Perceived barriers to responsible investment. Responsible Investment New Zealand Survey 2020, Q10

⁴Booster’s SRI funds have been certified by the Responsible Investment Association Australasia (RIAA) according to the strict operational and disclosure practices required under the Responsible Investment Certification Program. See the RIAA website for details.

⁵FMA KiwiSaver annual report 2020, p.20

⁶75% of New Zealanders with KiwiSaver funds or other investments would be willing to invest only in companies that create positive benefits for society and the environment. Responsible Investment New Zealand Survey 2020, Q17 (831 respondents)