A major KiwiSaver provider says it will exit its tobacco investments by March but another has no exclusions for cigarettes, cluster munitions or nuclear investments on most of its funds.

Since 2016 when the Herald revealed the extent to which KiwiSaver providers were invested in controversial weapons and tobacco there has been a big movement to exclude certain companies.

But research from governance advisers MyFiduciary shows there is now a huge gulf between what different funds offer when it comes to ethical investing.

It found three providers - ASB Bank, SuperLife and Aon - had few or no exclusions on most of their KiwiSaver funds while others have moved beyond exclusion to actively choose companies who follow good environmental, social and governance practices.

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Chris Douglas, principal at MyFiduciary, said KiwiSaver providers were now having to make conscious decisions about their responsible investment approach.

"It's no longer good enough to sit on their hands and do nothing. So whether they have a responsible investment framework or not is now a deliberate decision."

ASB Bank, which already excludes companies linked to nuclear weapons and cluster munitions manufacturing from its KiwiSaver portfolios, still has money invested in tobacco companies.

But a spokeswoman said that would be changing after it had recently finalised its principles of responsible investing.

"We have agreed our framework for excluded investments and will subsequently be excluding tobacco from our investment portfolios.

"Each of our underlying managers will be instructed to exclude tobacco from the portfolios that they manage on our behalf. We expect to have this largely implemented by the end of the first quarter of 2019."

But others will potentially remain invested in controversial areas.

Smartshares, a company owned by the NZX which manages the SuperLife KiwiSaver scheme, has no exclusions on its general funds which means it can have investments in companies involved in tobacco, nuclear weapons or cluster munitions.

A spokeswoman for Smartshares said it did not currently invest in any offshore companies itself and gained exposure to offshore markets through passive, index tracking funds.

"We don't make investment decisions based on our view of particular shares or companies."

However, it does offer a specific ethical fund called the Ethica Fund which MyFiduciary rated as one of only three funds as having positive inclusions.

"This fund option goes well beyond the overly simple 'exclusion' methods used by many low-cost KiwiSaver providers.

"For example, by allocating greater investment to the most sustainable parts of the global energy industry, our investment managers have reduced the CO2 emissions associated with the international shares portfolio by more than 74 per cent when compared with the index.

"With this more mindful approach, we expect Ethica will create more positive change than simplistic, headline-chasing funds that exclude without care or consideration," the spokeswoman added.

The other two funds which rated highly were AMP's Responsible Investment KiwiSaver and the Booster KiwiSaver SRI Funds.

Aon KiwiSaver also did not have a specific exclusion policy.

Its responsible investment statement says: "The schemes are designed to appeal to a broad range of New Zealanders, whose views on what constitutes Responsible Investment will vary and may differ from those of Aon.

"Therefore Aon New Zealand will not exclude particular companies or sectors from investment funds on ethical grounds, other than aiming to ensure that all of the underlying managers avoid investing in any company whose activities would be deemed to be unlawful under New Zealand law, notwithstanding that the investment might be domiciled in another country."

But a spokeswoman for Aon said it was a global signatory to the United Nations Principles for Responsible Investment, and therefore recognised the importance of incorporating environmental, social and governance (ESG) issues into investment processes.

"Aon is committed to providing, developing and promoting services that support implementation of these principles."

The spokeswoman said all of its underlying managers were also UN PRI signatories.

"Aon New Zealand, as well as its underlying investment managers, seek out companies with good ESG practices, to provide our scheme members with funds that meet member's needs and expectations."

Douglas said socially responsible investing (SRI) had become part of the mainstream over the last few years as evidence had mounted that it at least does no harm to returns and can improve them in some cases.

"The vast majority of KiwiSaver providers have responded by at least excluding investments in companies that cause harm."

"However, our analysis shows that there are still only a few options for investors that want a comprehensive socially responsible approach across all their investments."

How ethical is your KiwiSaver fund?

• Minimal/No exclusions: ASB, Aon KiwiSaver, SuperLife KiwiSaver

• Some Exclusions: AMP, ANZ, Booster, BNZ, Mercer, Milford, Simplicity, Summer, Westpac.

• Comprehensive exclusions Fisher Funds, JUNO, Kiwi Wealth

• Positive Inclusions AMP Responsible Investment KiwiSaver, Booster KiwiSaver SRI fund, SuperLife KiwiSaver Ethica.

- source: MyFiduciary