Diana Clement on investing

Diana Clement is a personal finance writer

Diana Clement: How to put your money behind principles

By Diana Clement

Choosing a plan requires thought. Photo / Getty Images
Choosing a plan requires thought. Photo / Getty Images

A band of Kiwis are shunning sin when it comes to investing in KiwiSaver.

Keen for their investments to line up with their moral, ethical or environmental beliefs, they choose what's known as "responsible" KiwiSaver funds such as the Fidelity Life KiwiSaver Ethical Kiwi Fund, or one of three Koinonia funds, which are run by the Anglican Church Pension Board.

The six main providers have a total of nine responsible funds offering either ethical/socially responsible investing or "sustainable" investing that, according to ASB-owned First Choice, involves selecting "companies that demonstrate practices and processes that will sustain their profits in a changing, challenging environment".

The people who invest in these funds vary, although most are well educated, says Rodger Spiller, a responsible investing specialist and financial planner at Money Matters (NZ).

A typical Spiller client is a university lecturer with Christian beliefs who has particular concerns about the supply chains of large companies that manufacture in the developing world, where labour rights are weak, people paid as little as 13c an hour, working conditions are unhealthy and there is child labour and forced overtime.

Another client, a Buddhist, meditates regularly, drives a hybrid car and eats organic food.

Unsurprisingly, Green Party followers are big investors in responsible KiwiSaver funds. MP David Clendon, for example, chose to invest in the Fidelity Life KiwiSaver Ethical Fund after comparing options a couple of years ago.

"What I like is that my money isn't going into nuclear power, weapons, pornography, gambling, etc," says Clendon, the Green's commerce spokesperson. "In terms of return it is towards the more conservative end. But given that I am coming up to my mid-50s, I think it is an appropriate level of risk."

Fund managers use two main approaches when choosing responsible KiwiSaver investments, either excluding certain types of companies (negative screening), or using "positive screening", where investments are made because the business or government meets certain ethical or environmental standards.

But there is no universal standard for socially responsible or sustainable investing and there are myriad approaches worldwide. One fund may invest in something another wouldn't touch.

Koinonia negatively screens, avoiding industries that display a "moral hazard", such as those in the tobacco industry. Other excluded industries include pornography, prostitution and the promotion of "unacceptable activities".

Koinonia's three funds are popular with Christians of many denominations. Membership, however, is restricted to people willing to sign a declaration that they either hold Christian beliefs or work for a Christian organisation.

First Choice's KiwiSaver Global Sustainability Fund has a positive screening approach, looking for companies that demonstrate active sustainable principles.

There is no one source of in-depth information for responsible KiwiSaver funds, where everything from investing style to returns are spelled out.

Those determined to invest off their own bat will need to read some weighty documents, which are mostly available online, to find out their chosen fund's investment approach.

Even so, they may not find the perfect KiwiSaver fund for them. The options are limited in New Zealand, meaning the type of fund you believe in may not be available as a KiwiSaver.

Part of the problem is that the fund manager's profit is limited compared to more popular funds such as generic conservative and balanced funds. At Fidelity Life, for example, balanced funds have attracted investments of $62.48 million, compared with its ethical fund's $5.44 million.

The relatively small number of investors makes it expensive to run a responsible fund.

One answer, as the ASB-run First Choice KiwiSaver Global Sustainability Fund does, is to use large overseas managers with economies of scale to run the fund. In the case of First Choice, Generation Investment Management is the "underlying manager". Generation was co-founded by former US Vice-President Al Gore.

Likewise, Fidelity Life KiwiSaver Ethical Kiwi Fund invests in the Tyndall Wholesale SRI Balanced Fund, managed by Tyndall Investment Management (NZ).

The market may grow over time if the public starts putting its money behind its principles.

A determined investor can find some, but not all, of the responsible KiwiSaver returns on Morningstar's New Zealand website in its annual KiwiSaver Survey at Morningstar.co.nz. The funds are not compared against each other, but against all the funds in similar sectors.

Other useful information about responsible KiwiSaver funds can be found in the Responsible Investment Association Australasia (RIAA) benchmark report: http://tinyurl.com/63pov8x

Or you can seek advice through a financial planner or adviser. If you're looking for an ethical approach to investing then it may be a good idea to choose a financial planner and fund manager certified by the RIAA.

Another issue when investing in a responsible KiwiSaver fund is that they tend to be middle-of-the-road funds designed to appeal to a wide audience. They tend not to offer both responsible investing and options for the super-conservative or those looking for aggressive funds.

For example, Fidelity Life KiwiSaver Ethical Kiwi Fund has only 58.2 per cent of its investments in "growth" assets such as shares and property. There could well be investors out there with an ethical bent who want 100 per cent of their assets, or even none, invested in growth assets. Because of the paucity of funds, they have to go for a vanilla-flavoured one.

Nor are these funds necessarily at the cutting edge of KiwiSaver growth.

OnePath's SIL fund does, for example, aim to outdo the mainstream MSCI World Index. Over two years - the longest period available for most international equity KiwiSaver funds in Morningstar's performance survey - the OnePath SIL Sustainable Growth Fund has returned 12.35 per cent a year, compared with category-leading Mercer Super Trust Global's 22.62 per cent a year.

Likewise, Fidelity Life's fund has returned 11.23 per cent a year as a balanced KiwiSaver fund, compared with sector returns ranging from 6.09 to 19.6 per cent a year for the same period. It was 19th out of 24 "similar" funds.

That is, of course, comparing responsible funds to ordinary KiwiSaver funds that are happy to invest in vice instead of being nice. Perhaps they should be compared with other ethical funds only, although that may not be fair because you're then lumping funds that could be conservative, balanced or growth all in the same pot.

According to Koinonia, investors aren't typically looking to be at the very cutting edge of returns. They are willing to forgo some growth to adhere to their principles.

Those who advocate against ethical KiwiSaver investments do question whether investment screening has the same effect on companies as a consumer boycott would.

Sure you can go along to annual meetings and lobby against the company's activities. It's called "engagement", and can be used to get companies to change their ways.

The reality is that KiwiSaver providers aren't being shareholder activists, they're simply avoiding companies they don't approve of. Not investing in them doesn't exert the same pressure as refusing to buy Monsanto or Nestle products.

- NZ Herald

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