Can default funds ever be ethical?

November 07, 2021

November 07, 2021

You make ethical choices every day. You might choose to buy local, say no to plastic, and walk instead of drive to lessen your environmental impact. You might avoid buying factory farmed eggs and choose fair trade coffee. You realise that how you spend your money is a way you can make a difference. You go, you conscious consumer!

If you’re a conscious consumer, shouldn’t you also be a conscious investor?

Does it make sense to buy a Keep Cup but invest tens of thousands of dollars in a company that deals in oil? Why buy “clean” beauty products if you invest in companies that test on animals? Why would you buy reusable bags but put your money into companies contributing to deforestation and greenhouse gas emissions?

Your KiwiSaver fund is invested on your behalf, and where it’s invested makes an impact. For many Kiwis, KiwiSaver is their biggest asset at retirement (second biggest for those who own a house). If you think of yourself as a conscious consumer, it’s worth considering that you’re likely putting far more money into companies that your KiwiSaver is invested in than the sum of your ethical purchases.

If you really want to make an impact, make sure your KiwiSaver fund matches your ethics.

What does ethical really mean?

First of all, “ethical” means different things to different people. Some people are ok with investing in alcohol or tobacco, while others aren’t. Some people might not have a problem investing in GMO’s while others think it’s a bad idea to alter the genes in our food.

So, just because a fund claims to be ethical, that doesn’t mean it aligns with the causes you care about. There isn’t a set definition or guidelines for ethical KiwiSaver funds. It’s up to you to decide what issues are important to you and ensure you aren’t invested in a fund that supports them.

Does choosing an ethical fund actually make a difference? Consider this: a UK study looked into the carbon impact of pension funds. They found that switching to a sustainably-invested fund was 21 times more effective for reducing carbon emissions than the combination of switching to a renewable energy provider, cutting out air travel and going vegetarian.

Choosing a KiwiSaver fund that aligns with your ethics and values is a simple act that can make a big difference.

BetterSaver makes it easy for you by fully researching KiwiSaver funds to find out what exactly they are invested in. When you take our Fund Finder Quiz, we’ll ask you some questions about what matters to you and your personal values to make sure we find a fund that aligns with your ethics.

Default funds and ethics

If you don’t select a KiwiSaver fund when you sign up for KiwiSaver, you are automatically placed in a default fund. Many people end up staying in a default fund because they don’t get around to switching or they feel they don’t understand enough about it to make a decision. Right now there are 381,000 KiwiSaver members in default funds.

If you’re in a default fund, you have no say in where your money is going. In March 2021, default fund investments accounted for almost $4 billion. Yes, billion.

That’s a lot of dough at work. Imagine the impact if it was all invested ethically. Unfortunately, some KiwiSaver funds are invested in areas of concern to a lot of Kiwis, like fossil fuels, weapons, tobacco, animal testing and companies with human rights and environmental violations.

There is some good news that comes with upcoming changes to default funds. As of 1 December, default funds will have to exclude fossil fuels and illegal weapons, and include a responsible investment policy. While this doesn’t cover everything that may be of ethical concern, it is a step in the right direction to know that Kiwis won’t unknowingly be supporting these areas.

Choosing a fund is an easy way to take control of your money and become a conscious investor, which is arguably even more impactful than being a conscious consumer. You’re already contributing to your KiwiSaver - don’t you want it to do something good in the world?

Vote with your dollars

It’s estimated that by 2050, Kiwis will have invested a trillion dollars in KiwiSaver. A trillion dollars that can be ethically invested, or can have significant portions supporting things a lot of us are not ok with.

A 2020 survey by the charity Mindful Money and the Responsible Investment Association of Australasia (RIAA) found that most Kiwis in “non-ethical” funds had an appetite to switch. In fact, over 90% of people without an ethical investment fund were intending to switch funds within the next year. We would love to see this happen.

Now for the best part: it’s neither difficult nor time-consuming to switch your KiwiSaver fund to one that you are proud to support.

We know that it can seem impossible to research funds and find out what they’re invested in. And we don’t think it should be an obstacle for Kiwis to invest responsibly. So, we have gathered the data on KiwiSaver funds to get to the bottom of what they’re really into. Our first report, back in 2018, didn’t give a single provider more than a C+ (on a typical A to F grading scale). Of course, some hit back saying it was unfair. But we applied the same rigorous criteria to every fund.

KiwiSaver should be transparent. It should be easy for Kiwis to know what they’re investing in. The BetterSaver team has developed an algorithm to match an individual to a KiwiSaver fund that is best for their goals and timeline and matches their ethics and risk tolerance.

It only takes about five minutes to take our Fund Finder Quiz and be matched to a KiwiSaver fund that aligns with your ethics. Take the quiz, switch your fund, and feel good about what your money is doing for the world.

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