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Photo: File
Photo: File

BusinessDecember 18, 2017

First do no harm: How to be a responsible investor

Photo: File
Photo: File

There is a rising global movement towards responsible investing, but how can new KiwiSavers know how to invest without causing harm? Rebecca Stevenson caught up with Kiwi Wealth’s Steffan Berridge to discuss the ins and outs of ethical investing.

 

First things first. What is responsible investing? And why should anyone care about it?

Many Kiwis are aware of issues such as global warming, wars and health issues caused by products such as tobacco. As investors, many Kiwis don’t want to see their money invested in these areas, and over the past few years this awareness has grown. Responsible investing is all about taking Environment, Social and Governance (ESG) issues into account when investing. This might involve not investing in – or excluding – companies or sectors with particularly anti-social products or that behave in a certain way, but more importantly adding value to investments by selecting more sustainable companies as we think these tend to outperform in the long run. It’s also possible for investors to be active shareholders, using their voting rights to lobby companies to influence them to operate more responsibly and sustainably.

If these are issues that are important to you, then this can influence how you want your money invested – and who you select to manage your investments.

Ethical investing, socially responsible investing and green investing are also talked about. Is there a difference? And how can I tell which investments/funds fall into these categories?

There are a lot of different flavours of responsible investing, including those you’ve listed. As to how they differ, often they focus on specific areas of sensitivity or helping achieve specific outcomes. Typically, they tend to focus on restricting investments – either towards a certain theme or away from certain themes.   

Ethical investing tends to exclude companies producing products that are against a certain ethic (such as armaments, gambling or contraception), while Socially Responsible Investing (SRI) tends to be about focusing on companies that achieve strong ESG ratings, and of the three you’ve mentioned we think this is the only one with a strong investment case. Green investing tends to be about focusing investments on positive environmental outcomes, such as renewable energy.

How does one tell which investments fall into these categories? Usually the fund is appropriately labelled, but to be sure check the holdings and responsible investment policy to see if it matches your expectations. Some investment funds are certified with third parties such as the Responsible Investment Association Australasia, which has a classification system they provide investors to look at which areas investment managers are investing in.

How do funds work out which investments are responsible? I get that bombs and armaments are clearly not ideal, but other categories (like genetically modified organisms, or nuclear power for example) seem murkier?

Investment funds are guided by their policies and processes, which typically also includes a responsible investment policy. For investors, looking at these policies can help understand how investments are assessed. Most investment funds have an exclusion list – such as cluster bombs or tobacco – but often these can be difficult to define. For instance, supermarkets may sell tobacco products although they don’t produce them, and an aerospace company might adapt a plane to deploy cluster bombs even though they don’t produce the bombs.  

Managers need to operate with a policy that has some specific rules, but also a philosophy so a “smell test” can be applied to new investments. For instance, at Kiwi Wealth we define some more problematic industries as “areas of sensitivity”, which means we can still invest but require a higher bar.

Let’s be honest; I don’t have much money. How does what I do make any difference?

If you don’t have much money, that doesn’t mean you can’t invest – or that your investment won’t make a difference  It’s important to remember that just like an election, investing is essentially a democracy of shareholders. Your shares give you voting rights which are exercised by your investment manager. If you like a company and the way it behaves, you might want to invest in them. Similarly, if you don’t like a company, then you could either refuse to invest, or you could invest and use your votes to influence a company and its direction. We think the voting strategy is likely to have more impact than the exclusion strategy. Everyone can do their bit, just like voting in an election.

If I choose responsible investments, does this mean my returns will be lower? Or that fees will be higher?

Investing responsibly doesn’t necessarily mean receiving lower returns or paying higher fees, but this can and does vary, and depends on the manager and what responsible investing practices have been adopted. If an investment manager uses a small exclusion list, the impact on performance is likely to be small, but we think a large exclusion list or a lack of consideration for ESG issues in the investment process is likely to have an impact on returns. Fees might be higher if you have very specific demands that the investment manager needs to cater for, but we don’t think fees should be affected much if you’ve got similar concerns to the people around you and fund manager is listening.

There’s a train of thought that advocates investors pressure companies to change practices rather than simply not investing with them at all. But shouldn’t we just take our money elsewhere?

Investing can be complex, with many factors to consider. For investors, the impact of taking your money elsewhere can make a company’s shares a little cheaper as you sell or refuse to buy – and if everyone’s refusing to invest this is a problem for the company. However, if other investors are prepared to hold the shares, they will buy them cheap and the company will be no worse off. If you want to use your investment as a way of influencing behaviour, not having a shareholding means you can’t influence that company through your shareholder votes – you lose any leverage or opportunity to influence.

Investors need to ask themselves: if a company’s doing something bad, is it more “responsible” to own the shares and vote based on their conscience or beliefs, or to walk away and leave the voting to someone else?  If investors are passionate about an issue, we think they’re more likely to get a result by owning shares in companies that need to do better, and using their votes as leverage. So in summary, we think it’s better to invest and vote for change rather than to avoid investing.

It’s also worth highlighting that in share markets, almost all shares traded are bought from other investors that already own the shares: the company itself usually doesn’t get any money when you buy your shares. This is a common misconception with investors.

How widespread is responsible investing? Is this a real change, or just window dressing?

Responsible investing is increasingly widespread. A 2016 report from Global Sustainable Investment Alliance shows about 50% of all assets under management in Europe, Australia and New Zealand are responsibly invested, while this sits at 20% in the United States; adoption of responsible investing in Asia is only just beginning.

Investing often reflects the desires, issues and beliefs that are felt in widespread society – after all, without investors, investing might not exist. As society becomes sensitive to issues such as global warming, wars and health issues, this causes them – and their investment managers – to consider which sectors they might be investing in and which companies to influence. This trend has always existed and, in the case of responsible investing, appears to be a real change that will be around for a while. Investors do need to remember, though, that they’re investing in order to get a return on their money as well, so investment managers have to juggle investing responsibly with their fiduciary responsibilities with their clients’ money.

This is not a new movement globally. What’s been happening in a New Zealand context?

As an investment approach, responsible investing has been around for many years, particularly in Europe. While many Kiwi investment managers have had responsible investment policies for many years, responsible investing has really gotten on to investors’ radars in the past 12-to-18 months, largely driven by stories by Radio New Zealand and the NZ Herald on KiwiSaver funds potentially being indirectly invested in industries such as cluster munitions and tobacco. On the back of these stories, many investment managers – and KiwiSaver scheme providers in particular – reviewed their investment policies and strategies, and many organisations now offer funds which are responsibly invested. According to the Responsible Investment Association Australasia, investments in responsibly invested assets in New Zealand have grown 26 times in the past 12 months.

Steffan Berridge is senior quantitative strategist and responsible investment specialist for Kiwi Wealth.


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OMGTech! MIT (supplied)
OMGTech! MIT (supplied)

BusinessDecember 17, 2017

The Primer: the not-for-profit getting kids into coding

OMGTech! MIT (supplied)
OMGTech! MIT (supplied)

Every week we ask a local business or product to introduce themselves in eight simple takes. This week we talk to Zoe Timbrell and Vaughan Rowsell of OMGTech!, the not-for-profit getting kids into coding and technology through a series of high-tech workshops.

ONE: How did OMGTech! start and what was your inspiration for the project?

Vaughan Rowsell (VR): I had the idea for OMGTech! three years ago and was really inspired by something my mum always did, which was to give back and pay it forward. She was a paraplegic solo unemployed mum of three boys and life was tough, but she always made room to give to others who needed it. She took care of us kids and wanted the best and brightest future for us.

One day in the early eighties she came home with a computer. She had borrowed some money and bought it as she had a hunch computers would be big. Everyone thought she was crazy since putting food on the table was hard enough and nobody had computers [at the time]. But that gesture meant that from that day on, we grew up with a computer. Us three boys lived on it. We learned to code, tinker and explore everything a computer could do.

My mum passed away shortly after I launched [cloud-based software company] Vend so I missed out on showing her how it set me up to do something big with technology. When she passed, I thought a lot about how to remember her, and several years later I figured out that I wanted to do that same thing she did for us boys but for every kid in New Zealand. Give them access to the emerging future technology and teach them how to invent and innovate with it. So we launched OMGTech! [in 2014] with the mission to give every girl and boy from any background in New Zealand the opportunity to be part of the future tech industry.

OMGTech! founders Vaughan Rowsell and Zoe Timbrell (Supplied)

TWO: What kind of interest or experience in business/entrepreneurship did you have prior to starting OMGTech!? How did that inform your project?

VR: As the founder of Vend, I’d been working in tech startups my whole career and I became very aware that the profile of my peers in the industry was fairly homogenous. Mostly white guys and a lot of beards. So part of the reason for starting OMGTech! was to get more girls into tech. We also work with low decile communities so kids from less fortunate backgrounds can be part of the industry too.

Also as a start-up veteran and what I guess you would call a hacker, we wanted to run OMGTech! like a startup. We had no money so we had to think. We boot-strapped it and got investment from partners and have run it like a lean startup from day one. We’re not in the business to make money. We’ve funded it privately to keep it going. Our weekends and evenings are spent keeping it going and we have the support of an awesome volunteer network too.

THREE: Tell us about what OMGTech! does and how it works.

Zoe Timbrell (ZT): We run a number of programmes and workshops that teach the skills required to do fun and interesting stuff with future tech. Robots, drones, 3D printing, VR/AR, game design, sensors – you name it. Whatever the emerging tech is, we put together workshops that teach the concepts required to learn how this stuff works and how you can apply it to the real world. So content creation is a part of what we do.

We run a series of day-long events nationwide where parents and kids can come along and try out all of our workshops. They [get the chance to] programme up robots and design games. This creates the awareness about what we do and demystifies it so it doesn’t seem scary or hard.

“I became very aware that the profile of my peers in the industry was fairly homogenous… So part of the reason for starting OMGTech! was to get more girls into tech.” (Supplied)

We’ve developed all these workshops in a way so anyone can teach them. So we also run programmes to train teachers, volunteers, community groups and Iwi. We get more scale with the more people who can teach what we do. It’s like a self-replicating system.

Lastly, we develop overarching strategic programmes with community groups and educators to tailor the delivery of our workshops to match the needs of the kids in those communities. For example, we translated Microsoft’s Hour of Code into Te Reo to use these tools to work with Maori communities. A particular group of schools may not have the physical resources to teach things like robotics, so we figure out how to supply the gear to them. It’s all about removing the barriers to give access to the kids any way we can.

FOUR: What sort of lessons/activities go on in these OMGTech! workshops?

ZT: Robotics, VR/AR, design, ethics, computer science fundamentals, and a lot of coding. But we do it all in a way that’s fun. The kids don’t know they’re learning math and algorithms which, let’s be honest, are boring. Instead, they learn how to code a game.

FIVE: What was your reasoning behind partnering with major tech companies like Spark and Microsoft?

VR: An important part of inspiring kids and keeping up with the latest trends is to work with people who are active in the industry. We get amazing people from our partner companies like Spark and Microsoft to come along and help teach. The kids can then meet real people doing amazing things with technology and have some awesome role models. And as these companies do cool stuff with technology, they help us out by giving us the latest tools for the kids to use.

Robots, drones, 3D printing, VR/AR, game design, sensors – OMGTech! workshops give kids a range of things to play around with (supplied)

SIX: Do you think we’re doing enough in terms of educating young people today about future technologies? What would you like to see done by our government and leaders?

ZT: We can always do more and we’re actually really far behind. That’s why we started OMGTech! because we didn’t want to wait for the government to figure out there was a problem, or rather, a huge opportunity to get kids more literate with technology.

We just started doing it and demonstrating how simple it really is and how much kids and parents want it. We definitely helped some of our leaders catch up and see the opportunity ahead for New Zealand, and this has led to progress with some of the skills needed in computer science to be introduced into the school curriculum as of next year.

But we have so far to go. Kids outside of the major centres still have trouble getting reliable access to the internet, let along having a device to use on it. So there are real access problems in a lot of our communities. But even if we had every kid with access, we want to make sure they have the best content, the best tools and the most prepared educators to bring them all into a future that is going to be dominated by technology in every part of life. Let’s teach the kids how to create and innovate, not just be consumers of technology.

SEVEN: Do you have any plans to scale/grow further and if so, what are they?

VR: We are working with more and more communities all around New Zealand. But we are still a small team so it’s difficult to spread ourselves too far. We need more sponsorship so we can get onboard some more permanent team members and fund the development of new workshops. We’re also looking for people to help setup OMGTech! hubs in regions all around the country. All we need are a handful of passionate volunteers, a venue that can fit 50-100 kids and we can supply the rest. We can organise the logistics, marketing, and provide the gear and content. So anyone keen to start a new chapter let us know.

An OMGTech! workshop for school-aged kids (Supplied)

EIGHT: Lastly, tell us about a start-up or business that you really admire right now.

VR: Eat My Lunch is on a similar mission with a similar model. We also run our big events on a buy one, give one model. So if you buy a ticket, you’re sponsoring another kid to come along including their lunch, so we hope to join forces on this sometime soon. One day, we’ll get kids to make robots that can make the sandwiches and pack the bags too.

ZT: Rocket Lab because they’re showing every kid in New Zealand and the world that they can grow up to be rocket scientists. We have a space industry now and our kids will be the pioneers of a new frontier. Plus, some of our volunteers work there. We dream of having an OMGTech! space camp with Rocket Lab one day.


The Spinoff’s business content is brought to you by our friends at Kiwibank. Kiwibank backs small to medium businesses, social enterprises and Kiwis who innovate to make good things happen.

Check out how Kiwibank can help your business take the next step.