John Berry: KiwiSaver firms weak on responsible investment

The major providers are simply not giving investors the information they want. Photo / Getty Images

Opinion

KiwiSaver investors care if their savings cause environmental or social harm. And many more would care if major fund managers backed up their commitments to responsible investment with action.

A Westpac survey released last week portrayed KiwiSaver investors as an indifferent bunch, alleging nearly 60 per cent were unmoved by whether their investments made a positive difference.

That finding runs contrary to earlier surveys by the Responsible Investment Association of Australasia (RIAA) and Kiwi Wealth, each of which found environmental, social and governance (ESG) factors were of "at least some importance" to over 90 per cent of respondents when selecting a KiwiSaver.

It's impressive that in each survey over 80 per cent rated ESG's importance as 5 out of 10 or higher.

The findings of the Westpac survey also run contrary to the conversations we have on responsible investing up and down the country. We find that people either can't find the information they want on responsible investment or they are sceptical about the responsible investment claims made by the major providers.

Responsible investment information from large KiwiSaver providers is often hard to find and occasionally confusing. We reviewed websites of all 16 providers in Morningstar's KiwiSaver survey and less than half make responsible investment information easy to access. This means less than half make responsible investment a priority.

With the lack of information, investor apathy would be no surprise. More of a concern for these providers is the potential lack of trust.

John Berry

Of the 12 managers who had FAQs (frequently asked questions) on their KiwiSaver page, only one talked about responsible investment. Many, (but not all) of the big KiwiSaver providers don't seem to rate the topic very highly. Thumbs up to Kiwi Wealth and Booster, thumbs down to too many of the others.

Investment product providers appear to misunderstand the market. A RIAA survey of investment product providers and large wholesale investors found they believe two of the top deterrents to the growth of responsible investment in New Zealand are the lack of public awareness and lack of retail demand.

But the problem is not one of demand — there is clear retail investor interest in responsible investing. Could the problem be on the supply side, that providers don't understand what retail investors actually want?

Providers can give mixed messages

One large provider says, in a reasonably prominent place on its KiwiSaver website, that it asks its fund managers "to include environmental, social and governance (ESG) factors into their investment analysis ... " and to exclude cluster munitions, land mines, nuclear weapons and tobacco.

So far so good, it looks very responsible. Yet at the same time its KiwiSaver scheme's Statement of Investment Policies and Objectives (a key document defining the investment philosophy and framework) says: "Responsible investment, including environmental, social, and governance considerations are not taken into account in the investment policies of the Scheme".

Which one is it? The commitment to responsible investing or the declaration that responsible investment plays no part in their KiwiSaver? No wonder KiwiSaver investors can get confused or disinterested.

ASB, a major trading bank and default scheme provider, makes no claims that it invests responsibly. Meanwhile its KiwiSaver scheme invests in the shares and bonds in eight tobacco companies, despite unequivocal investor concern about the sector.

The major providers are simply not giving investors the information they need and want.

What does it mean to invest responsibly?

How is it applied in the KiwiSaver investment process? Is it as simple as excluding a few tobacco companies or is investment focused into companies with better environmental, social and governance practices?

Will they engage with companies and vote at shareholder meetings to demand change? Do they believe investing responsibly comes at the expense of returns? (it doesn't).

Investors want to build their knowledge but too often there is an information vacuum from KiwiSaver providers.

With the lack of information, investor apathy would be no surprise. More of a concern for these providers is the potential lack of trust.

When the RIAA asked roughly 1000 KiwiSaver investors whether they believed in claims that funds described as "responsible", "sustainable" or "ethical" were true to label, only 11 per cent said they were.

That's not a vote of confidence. An astonishingly high 29 per cent didn't believe "responsible", "sustainable" or "ethical" claims by KiwiSaver fund managers. More than half were unsure (which is a high proportion, but fair enough — how do you know whether or not to believe the claims if it's a struggle to find information on KiwiSaver websites?)

All of this matters, especially to younger investors who are the future of KiwiSaver. Westpac notes responsible investment interest is high among 18-34 year olds. This cohort have 30+ years to build sizeable KiwiSaver balances and will expect more around responsible investment.

Soon they will be asking the banks some tough questions. For example, why don't bank KiwiSavers have exclusions beyond tobacco and landmines? Why haven't they excluded gambling, thermal coal or adult entertainment? Do they make money by lending or providing other services to these companies?

Too many KiwiSaver providers think investors don't care about responsible investment. News flash — they do — and their interest is growing exponentially. Kiwisaver providers would be wise to take note.

• John Berry is a co-founder and CEO of Pathfinder Asset Management. Pathfinder is a responsible investment specialist but does not operate a KiwiSaver scheme.