KiwiSaver providers have "ambiguous and inconsistent terminology" when it comes to their ethical investments, which could confuse investors.
That's the finding of a report by KPMG prepared as part of the three-yearly review on retirement income policies currently being undertaken by the Retirement Commissioner.
More than $57 billion is invested in KiwiSaver with most providers claiming to have a responsible investment approach.
But KPMG's research found the terminology and definitions surrounding it vary between and even within KiwiSaver fund providers.
"This can confuse retail investors and make it difficult for them to compare investment strategies."
It also found ambiguous policies and confusing documentation.
The most common responsible investment method used is negative screening, which excludes investment in certain sectors like tobacco and controversial weapons.
KPMG said this mirrored the early stages of responsible investment internationally, which had now progressed to more pro-active positive screening and shareholder engagement.
New Zealand is also starting to see the emergence of impact funds with ASB launching a KiwiSaver impact fund in August.
But KPMG found few KiwiSaver funds provided details about monitoring processes, and there was a misconception that ESG investing (based on environmental, social and governance principles) was purely ethical and may compromise financial returns.
Research over the past decade showed that responsible investment was not necessarily less profitable.
KPMG recommend the Retirement Commissioner include in his recommendations to government that clear and consistent definitions for responsible investment be established, including themed investments such as "impact" and "green" investment.
It said there should be a classification and labelling system, with consumer-focused guidance so members could be assured they were selecting a fund that met ethical criteria, and fund managers should be required to provide clear and consistent reports on their responsible investment funds.
Peter Cordtz, interim Retirement Commissioner, said the growth of KiwiSaver and the rise in members' interest for their funds to be invested ethically made the issue of clarity and consistency across the fund management industry important.
"We'll consider KPMG's suggestions along with public submissions in forming our recommendations to government," said Cordtz.
"Our aim is to help New Zealanders build a good standard of living in retirement, and if they want to do that ethically there should be a framework that enables that."
The Retirement Commissioner heads up the Commission for Financial Capability which undertakes financial education in New Zealand.
Research undertaken by the Commission has found women were found to be more likely than men to want certain categories banned from KiwiSaver funds.
Topping the list were animal cruelty (83 per cent of women want this category banned compared with 73 per cent of men); worker exploitation (80 per cent of women and 70 per cent of men); whaling (77 per cent of women and 69 per cent of men) and weapons (70 per cent of women and 57 per cent men).
Other categories included nuclear power, pornography, fossil fuels, gambling, alcohol, genetic engineering and tobacco. In every category, more women than men wanted it banned from their KiwiSaver fund.
Across both men and women KiwiSaver members, 74 per cent were interested in ethical investment.
One of the retirement policy review's terms of reference is the requirement to find out which investments New Zealanders think should be excluded from KiwiSaver funds, and whether New Zealanders thought enough providers offered ethical fund options.
It found 70 per cent thought they did.
Public submissions are open until October 31 and Cordtz will deliver his report with recommendations to government in December.