Once again, ethical KiwiSaver funds are a hot topic.
Last week, a Newsroom article called out the Financial Markets Authority (FMA) for failing to define ethical standards for KiwiSaver funds.
Ethics are highly personal. The issues around ethical investing are controversial, involving subjects with no clear right or wrong, but invoke strong opinions. However, the author of the article states that we have common societal values that should shape a definition of ethical KiwiSaver funds. As he put it, “Human rights are not something that change like the colour of one’s socks.”
Touché. But there is a whole range of issues where it is understandably near impossible for the FMA to make hard-and-fast rules regarding what is considered ethical for KiwiSaver investments. When we invest, our money goes directly into companies to help them grow and achieve their objectives - we want our dollars to go to work on issues we support, not areas we find unethical.
What needs to happen is a requirement for KiwiSaver fund managers to be completely transparent about their investment code of ethics. The public deserves blatant clarity around where exactly their KiwiSaver funds are invested and about the companies benefiting from those investments.
Right now, sadly, that is far from the case.
FMA calls out so-called ethical KiwiSaver funds
A July 2022 report from the FMA reviewed managed funds (both KiwiSaver and others) that use terms like ‘ethical’, ‘responsible’ and ‘sustainable’ in their name or description. They investigated how information is provided so that investors can make informed decisions.
Perhaps unsurprisingly, the report stated that “it is difficult, or in some cases impossible, for an investor to fully understand the nature of the investment they are making.”
The report cites the following issues:
Information is scattered across sources.
Information lacks sufficient detail.
Funds failed to explain what investments they exclude.
Funds failed to explain how they would make exclusions in response to incidents (like how the invasion of Ukraine led some fund managers to pull out of Russian investments).
Managers fail to explain how their funds will select investments consistent with their ethical approach.
There is some “blurring of the line” regarding whether issues like climate change will affect company returns.
Fund benefits are subjective and vague, for instance stating that a fund will have a “climate impact”.
Funds fail to say how any breaches in their ethical policy will be addressed.
None of this is new. Years ago, I was frustrated by the lack of transparency and the muddled information provided to investors, not to mention that the information is often so difficult to find that the average investor does not have time to spend searching for it.
More and more people want to know that their funds are invested ethically. The FMA reports that 68% of Kiwis prefer their money to be invested ethically. There is over $81 billion invested in KiwiSaver funds. That sum has the potential to do a lot of good in the world.
But due to inaccessible information around ethics, most people choose their ethical fund based on how the fund is marketed - if they bother to make a choice at all.
Consider these sobering stats:
Over 80% of Kiwis don’t want their funds invested in weapons. Yet $190 million of KiwiSaver funds go to companies involved in the manufacturing of weapons.
As of last year, $15 million of KiwiSaver funds is still supporting nuclear weapons.
Similarly, over 80% want to avoid products tested on animals. But a 2021 Stuff article cited that growth funds of the top 10 KiwiSaver providers had between 5 and 53 exposures to companies engaged in animal testing.
Human rights violations, gambling, big tobacco, fossil fuels - these are sectors where KiwiSaver funds are currently invested.
BetterSaver takes action
The lack of transparency around ethics in KiwiSaver investments was one of the driving forces behind the founding of BetterSaver. I wanted to make information easily accessible to all Kiwis so that everyone has the opportunity to make good financial decisions for our future.
The BetterSaver team has made it our mission to cut through the BS. We thoroughly research KiwiSaver funds in terms of ethics, returns, fees, and volatility so that you don’t have to. It is a lot of work and we are passionate about getting it right. And we’ll keep doing it until all KiwiSaver fund managers are 100% transparent. It’s the right thing to do.
No one makes it easier than us. We will find a KiwiSaver fund that matches your personal values while enabling you to get on track to achieving your financial goals.
All you have to do is take five minutes to answer some questions about yourself, such as your goals and what issues are important to you, and we will match you to a KiwiSaver fund. We will take care of switching your fund for you. That’s all it takes.
Take the quiz now and be confident that your KiwiSaver investment supports the issues you care about.