KiwiSaver cleans up its act

An investigation last year showed kiwis had unknowingly invested in nuclear weapons. Photo / Getty

Responsible investing has moved front and centre for KiwiSaver fund managers following a year that saw investors express concerns with unprecedented customer churn.

Investigations last year by the Herald and RNZ highlighted how a broad range of KiwiSaver providers, whether directly or indirectly, had collectively invested more than $150 million of client funds in assets blacklisted by the New Zealand Superannuation Fund.

These blacklisted companies ranged from firms producing weapons - nuclear, landmines and cluster bombs - banned by New Zealand legislation, to those with products antithetical to government policy - tobacco - or guilty of human rights abuses.

The issue struck a nerve with KiwiSaver investors, with a record number of people changing schemes following the revelations, resulting in providers reviewing responsible investment policies with billions of client funds reallocated.

The Herald approached the country's six largest KiwiSaver providers, together accounting for 80 per cent of the market, to ask what's changed over the past year. All said responsible investment policies had been reviewed and strengthened, resulting in a total divestment of stakes in controversial weapon-makers.

There is, however, some variation in how the larger providers managed indirect exposure and over the vexed question of tobacco investments.

ANZ, the largest KiwiSaver provider, said the controversy had prompted moves to ensure direct and indirect holdings in controversial weapons and tobacco were excluded from customer portfolios.

Ana-Marie Lockyer, general manger of wealth products at ANZ, said the divestments were accompanied by the development of a responsible investing framework it expected to be implemented by the end of the year.

"Responsible investing is something we, and our customers, take seriously and this continues to evolve," she said.

Westpac said its investment arm had conducted a review following last year's revelations and developed a new responsible investment policy it expected to be fully in place by the end of next month.

The spokeswoman said it had moved to divest from all controversial weapon exposures, and direct tobacco holdings, a process it said was "well-advanced" and due to be completed by August 31.

ASB was one of the first large providers to tackle the issue of indirect exposures to controversial weapons via indices, shifting what it is believed to be in excess of $1 billion of KiwiSaver clients from international fund provider Vanguard to Blackrock in October last year.

A spokeswoman for the bank said following last year's developments it had researched consumer concern over the issue.

"Early findings indicate some interest in [responsible investing]," she said.

ASB, however, remains the only large KiwiSaver provider to not actively screen out tobacco investments.

BNZ moved in March of this year, following a review begun last year, deciding to exclude controversial weapons and tobacco stocks. A spokeswoman said the past few months had seen this policy adopted by Russell Investment, covering BNZ clients exposure to international fixed interest investment.

KiwiWealth's chief investment officer Simon O'Grady said responsible investing concerns were a "very important consideration and something our members have said they want us to take a lead on".

O'Grady said KiwiWealth was managing indirect exposures through indices by setting up its own global shares index fund, which he expected would be fully operational by the end of the month.

Fisher Funds, the last of the big six, said there had been a "groundswell of interest in responsible investing".

The firm's chief investment officer Mark Brighouse said it had updated its responsible investment policy over the past month, and recently added thermal coal producers to its exclusion list.

Brighouse emphasised the active nature of Fisher's management: "We aim to invest in companies that our clients can feel proud to own."