Poor disclosure is not always greenwashing. But it’s far from ideal and makes it difficult for the average Kiwi to invest ethically.
That’s the view of Paul Gregory, the Executive Director, Response and Enforcement for the Financial Markets Authority (FMA).
FMA research last year shows that 68 per cent of New Zealand investors preferred their money to be invested ethically and responsibly. However, of those investors, only 26 per cent had selected a fund manager based on ethical credentials, while 51 per cent had not and 23 per cent had looked into it but not taken any action.
What’s clear is that New Zealanders want funds that match their ethics or values, but find decision-making difficult, says Gregory: “This reinforces the scale of the information advantage fund managers have over investors.”
He says it’s even harder for investors to spot greenwashing (the act of making consumers believe a company or product is more ethical or environmentally friendly than it actually is).
“Investors give themselves the best chance of being confident their investments are in line with their values if they are very clear on what those values are and do their research – including getting help and speaking to providers.
“First, it’s about being clear about what you want and how your values are best served by your investments. Ask yourself, what are your non-negotiables? For example, you might not want your money invested in companies that do animal testing or in companies involved with fossil fuels.
“It’s unlikely that any investment will be 100 per cent aligned to your values, so you might need to make a trade-off. For example, an investor might say no to funds connected with tobacco or oil but pharmaceuticals could be in the mix, which might involve animal testing. It’s about working out where your values can best be served.”
Meanwhile, funds that advertise and/or label their products as being sustainable or considering environmental, social and governance factors should adequately explain what they mean by those terms and substantiate they are actually delivering on those promises, he says.
“Where funds often fall down is ensuring that the information is high-quality, lucid and easy for investors to find,” he adds. “Funds need to get better at explaining themselves and making it easy for investors to research that information. Being vague or imprecise doesn’t help investors who are clearly hunting for ethical investments.”
“The FMA doesn’t have a view on what Kiwis should invest in,” says Gregory. “Our focus is on whether investors have been misled by funds that advertise their investments as, for example green or ethical, but the reality of what they invest in doesn’t line up with their claims. If a consumer is going to align their values to an investment and pay for it, then that product should be delivered.
Government intervention, such as the Climate-Related Disclosures (CRD) amendments which came into effect in January this year, means investment managers have another good reason to “sharpen up their disclosure; as well as not misleading their investors, investment managers must also report the emissions footprint and climate transition plans for their funds from April 2024″.
Which should come as some reassurance to Kiwi investors, though Gregory says people still need to be mindful of how to invest ethically. Finding out as much as possible about the fund can help to avoid a jump scare – such as finding out in 10, 15 or 20 years that your values have been compromised and your investments have contributed to harming people, animals or the environment.
He suggests contacting the particular fund manager for further clarity: “If they’re as passionate and dedicated about ESG as they say, they should be available and willing to have that conversation.”
Greenwashing is hard to pick for investors, but Gregory maintains being sceptical about especially aggressive claims is most useful: “If, to use an extreme example, a product is claiming to help save the world, then clearly some investigation is needed.”
World Investor Week, which runs from October 2-8, is a good time to check how your money is being invested and how it aligns with your personal standards and values – and how to get the answers you need from your fund manager.
For more information on how to make ethical investing decisions, visit fma.govt.nz/yourvalues