Why investing ethically should matter. (Photo: Getty Images).
Why investing ethically should matter. (Photo: Getty Images).

BusinessJune 25, 2019

How to invest ethically in KiwiSaver and why you absolutely should

Why investing ethically should matter. (Photo: Getty Images).
Why investing ethically should matter. (Photo: Getty Images).

Over 2.8 million New Zealanders are signed up for Kiwisaver, but not many are aware of where that money is going. Weaponry, fossil fuels and gambling services are all being invested in from some of the most popular funds, and a new charity tool is making it one step easier to change what you’re investing in.

Taking reusable bags to the supermarket, refusing straws at restaurants and replacing plastic wrap with beeswax are all part of the growing list of initiatives to help individuals feel like they’re doing their bit to save the planet. But millions of New Zealanders are investing their money in fossil fuels, gambling and weaponry, most without knowing.

The KiwiSaver scheme was created to help New Zealanders save money for their retirement. Allocating a certain percentage of their pay to a fund manager, a person will (hopefully) gain money as the manager invests in other companies. It’s an investment-on-behalf scheme that almost 3 million of us are signed up to.

But fund managers are investing in a lot of things, from nuclear power to weapons manufacturing, and there are no rules about disclosing this information to their customers, which means a lot of people are investing in unethical funds without realising.

Barry Coates has a long history working for environmental groups. He’s been the executive director of the World Development Movement, the executive director of Oxfam New Zealand and was a Green Party MP from 2016 to 2017.

For the past year, Coates has been creating a tool called Mindful Money, to help Kiwis better understand their KiwiSavers.

The Mindful Money website launches today, and Coates says it’s an important step in holding fund managers accountable for their investing, by giving information to people in a digestible way.

He says the government did a good thing when setting up KiwiSaver, insisting all fund managers file what their portfolios are, what returns they make and what fees they pay, so the information is out there… but it’s still not accessible to the majority of the public.

“There are other ways people can find out what companies are invested in but actually it doesn’t mean anything to people because they’ve got no way to understand that… That’s one of the things we’ve tried to do with the site, to be able to take all of this available information and make it accessible and easy to use for people.”

Barry Coates. (Photo: supplied)

Brooke Roberts is the co-founder and CEO of Sharesies, a company with the goal of making investing easy for everyone, regardless of wealth. She says people want to know where their money is going, and sometimes don’t have the time to do extensive checks.

“People really care that their money is being used in a way that aligns with their values. It’s important for them to know where their money is going and where it’s being invested on your behalf, so you can have some control over where your money is going.”

Simplicity’s managing director Sam Stubbs says one out of five people signed up to Simplicity funds because of their ethical investing.

“A lot of people won’t pay huge amounts of attention but there are a passionate group who want to know these things, and they’re a weighted minority. Young people especially, they care about these things, and it’s getting more and more important for them.”

Mindful Money feels like a resource that should have been established a long time ago, but the changing world means now more than ever people are likely to pay attention to where their money is going.

“When people hear about [changing to an ethical fund], most people want to do it. A survey that we did last year with RIAA and Colmar Brunton showed that Kiwis really want to be able to invest ethically, but they don’t know how to do it,” Coates says.

The survey suggested that around 71% of people expected their funds to be invested ethically, and 62% of those surveyed said they would be willing to change providers if the investment didn’t align with that person’s values.

Stubbs says in his experience, consumers were “genuinely stunned” when they found out where their money was actually going.

Changing funds is actually very simple, but Coates says a barrier that ethical fund managers encounter is that people don’t necessarily want to talk or think about money.

“Money can be so boring. If you try to engage people by saying ‘let’s talk about money’, they won’t want to, but if you say ‘we wanna take action on climate change and one of the ways we can do it is through the way we use money.’ Then people start to get interested.

“We’re able to invest in stuff that’s gonna help us get to zero carbon and it’s gonna help us to have a better environment and a fairer society, so we should all do that. It’s turning financial literacy around to say actually, there is a reason we should do this.”

Roberts says the language around money sometimes means people are made to feel out of their depth before they get very far.

“It can feel intimidating when you’re confronted with all the jargon and think ‘ahh, this isn’t something I can do,’ or it feels like a world you’re not part of. It doesn’t need to be there and if it does, most of it can be easily explained. We really put a lot of care into helping people understand their investment, because it shouldn’t be this exclusive club.”

Of the 264 KiwiSaver funds available, only nine made it onto the Mindful Money platform as recommended ethical funds.

Coates is aware of the subjectivity of the term ‘ethical’, and says this was taken into account when the funds were selected.

There’s a Christian fund that has policy regarding investing in pornography, gambling and alcohol, and an Islamic fund with policies for investing in halal meat and tobacco.

“In our fund finder there’s a series of questions to understand what you care about, do you care about fossil fuels or do you care about alcohol or pornography, or gambling? People ought to be able to have their diverse criteria catered for, we’re trying to get away from ‘this one’s good, this one’s bad,’ into saying we’ve isolated a number of funds that we think meet acceptable standards and how you choose between those funds is really up to your preferences and what’s important to you.”

Kiwisaver is a long game, and people want to know where their money is going. (Photo: Getty Images.)

Roberts agrees the meaning of ‘ethical’ changes for each person, so it’s important to make sure people are able to support their own brand of ethics.

“Ethical to you could mean excluding things like nuclear power and fossil fuels, it could mean vegan-friendly, there’s a real continuum there. It’s about letting people invest in what they believe in.”

As well as the nine recommended funds, Mindful Money has heaps of information about the other 255 funds. Coates wanted to make sure this information was provided so people could make their own decisions.

While there are multiple funds that don’t invest in weapons, fossil fuels and alcohol, there is surprisingly no fund manager screening out animal cruelty or testing on animals. The RIAA and Colmar Brunton poll suggested that New Zealanders are most concerned about animal cruelty than any of the other ‘unethical’ options, with 64% of people saying it was “very important” to them (versus 61% for human rights abuses, 36% for gambling and 15% for alcohol).

“We want to challenge the KiwiSaver providers by saying ‘who will be the first of you to offer a service to all of these people who are really passionate about animal welfare and don’t wanna invest in companies that abuse animals?’ Are we going to get a provider to change their policy and if so there’s a lot of people who care about that and we’ll tell them about it.”

In discussions with various providers while researching for Mindful Money, Coates spoke with the providers who didn’t make it onto his platform. He says he was surprised at how many asked what they would need to do to be considered.

” I expected them to say ‘oh no you’re full of shit, your methodology is wrong, you shouldn’t be doing this’, but all of them, bar one, said ‘what do we need to do in order to get on your platform?’ They see the way this is moving, that the public wants this to happen.”

Stubbs says Coates’ work has been thorough, and he believes Mindful Money is the best tool for this kind of research on the market.

“One of the big questions with these kind of tools is are they treating us all fairly, and I think this one is. They’ve done a lot of statistical analysis and put a lot of time into creating it.”

It’s taken about a year to gather all the information for the website, talking to people in the sector and making sure the advice that’s given is grounded in good financial practice. Coates wants to address the myth that ethical investing turns less profit, which he thinks is one reason people don’t switch.

“I helped set up the ethical investment association in the UK and was involved in a lot of the pioneers in those days. In those days it was kind of thought if you invest ethically, you kind of pay a bit of a price for it… about 10 years ago, some of the research from that period started coming in and what people found is that if you invest in more responsible companies, more sustainable, more ethical companies, you actually earn higher returns than you do if you invest in bad companies.”

He says companies like BP, Volkswagen and Fletcher Building who have a weaker ethical base are also more volatile in terms of being prone to collapse.

“Those bad companies will be outed. They’ll be outed on the internet, they’ll be outed by Government regulators eventually and in a way I think the conditions have changed. The accountability of companies has changed and people don’t let them get away with stuff in the way they used to.”

Stubbs says the data shows that ethical investment markets are getting stronger, while their competitors have been struggling.

“It’s becoming harder to make money in things that do bad. 30% of people between 18-25 say they don’t drink alcohol, and if they’re not drinking that much, that’s obviously not good for alcohol companies. Oil companies may have 30, 40, 50 year supplies, but there are questions around whether that will still be needed in that much time, it’s a massive liability problem.”

Consumers are waking up to ethical products, and investing ethically is a huge step to show big companies what the public stands for, or doesn’t.

Mindful Money is a step in the right direction, giving New Zealanders back the power over their own money.

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