What if, when it comes to weapons, it was the “responsible” thing for a KiwiSaver manager to buy shares in companies producing defensive weapons? A recent Mindful Money survey found 80% of New Zealanders don’t want their money in weapons.
But the moral landscape is shifting for some as the industrialisation and digitisation of warfare change the goalposts, with drones and anti-aircraft batteries protecting innocent Ukrainian civilians while chips meant for microwave ovens end up in Russian missiles.
Despite their members’ reluctance to support arms manufacture, KiwiSaver companies’ investments in weapons have surged by 40% in the past year.
Mindful Money’s annual stocktake of which pots of gold our KiwiSaver and other managed fund investments are chasing found total weapons investments by KiwiSaver companies reached $392.4 million for the year to March 2025.
In data released exclusively to the Listener, the responsible investment charity found that of a total $128 billion invested by 406 KiwiSaver funds, $11 billion is invested in activities that New Zealanders say they want their savings to avoid. Apart from weapons, these include human rights violations, environmental harm, animal cruelty, fossil fuels and social harms such as tobacco, gambling and pornography.
The charity’s founder, Barry Coates, says the chase for higher returns is behind the increase. In addition to direct investment in weapons companies, KiwiSaver providers are also increasing their holdings in non-weapons companies supporting operations in Gaza, such as bulldozer maker Caterpillar and Amphenol, which makes hi-tech connectors, sensors and antennas.
Our KiwiSaver funds’ exposure to weapons has increased mainly because defence and weapons stocks have done particularly well in the current geopolitical environment. There is money to be made selling to governments involved in Ukraine, Gaza and other wars. In short, money pours into stocks likely to surge in value, and that has happened with weapons in 2025. The same happened for fossil fuels when the Ukraine war broke out.
This creates tensions for many investors. Although it is tempting for fund managers to go for short-term financial returns, most Kiwis don’t want to invest in weapons, as Mindful Money’s 2025 survey of 1000 people in February confirmed. Many of them realise the companies that sell weapons to our friends also sell weapons to others who pass them on to our enemies. Ukraine has analysed Russian bombs and drones and found that the components come from weapons producers around the world.
The weapons investment surge isn’t limited to KiwiSaver funds. The trend is mirrored across New Zealand’s broader investment and fund management sector. Mindful Money uses the Companies Office Disclose Register to source data to match investments with its database of companies of concern.
Drawing the line
This country’s most ethical KiwiSaver and other fund managers aren’t going to start investing in weapons any time soon. But they’re willing to discuss it, something investors might find confronting. Some of the questions discussed at the Responsible Investment Association of Australasia’s annual conference in Auckland last month included: “Are they controversial weapons?” “Who are the end users?” “Do they have dual-use technologies?”
At the conference, Kate Turner, the association’s chair, said understanding of the nuance was in its infancy. Turner, who is also global head of responsible investment at First Sentier Investors, cited an example that one of her investment management clients was grappling with. “One of our clients has a 10% revenue threshold on weapons investing. They were saying to me how nonsensical that they could theoretically have a company that is deriving 9.9% of its revenue from providing controversial weapons, say, to a government that is engaging in war crimes, but they couldn’t invest in a company that is deriving 100% of its revenue from providing bulletproof vests to police. There is no black and white here.”
New Zealander David Rodin, an Oxford-based expert on conflict ethics, told the KiwiSaver providers, fund managers and institutional investors at the conference by video link that the rules of war are changing. Traditional ideas about just wars – who can fight, what counts as a threat and what is proportionate – are under strain, as is the question of what is ethical to invest in.
“It’s not enough to ask whether a company makes bombs,” Rodin said. “You have to ask how, by whom, and under what conditions those products are used. Weapons built for defence can be misused, changing the ethical calculus.”
Investors must consider legitimacy, accountability, proportionality and necessity, he said.
Grey zones
Some ethical investing commentators, such as Sebastian Gehricke, director of the climate and energy finance group at the University of Otago, argue this discussion arises only because less than ethical fund managers want the huge profits coming from weapons manufacturers currently.
Ethical funds say it’s impossible currently to differentiate weapons manufacturers. John Berry, of Pathfinder KiwiSaver, who chaired the conference discussion on grey zones, said weapons manufacturers don’t distinguish between defensive and offensive, or just and unjust wars. They sell to whoever will buy. “When you’re investing in weapons companies you don’t get to choose.”
The question of what a weapon even is these days is becoming increasingly difficult, he tells the Listener. “You’ve actually got to think beyond the makers of the components that go into the weapons.
“Your Amazon, IBM, Microsoft giving assistance to militaries around the world through data processing, data storage and analytics capability – they are enabling war.”
Components can have dual civilian and military use, either intentionally or unintentionally, Turner told the conference. “One of our investment teams had an example of a company that makes chips for microwaves, and then those chips ended up in Russian bombs. Is that a weapon? And where do you draw the line?”
During the past couple of months, fund managers have scrambled to divest Caterpillar shares after the company’s bulldozers were filmed demolishing homes in Gaza. The Caterpillar case highlighted the moral hazard: companies may not control, or even know, how their products are ultimately used.
Climate change
During the past two decades, fund managers have found their mojo and begun using their muscle to support New Zealand’s shift to a low-carbon economy.
That starts with simple exclusions from their funds, such as fossil fuels, says Kōura Wealth’s Rupert Carlyon. “By having a fossil fuel exclusion, what fund managers are effectively doing is withholding capital.” That makes it more expensive for the companies in question to raise money for new projects, Carlyon says. Conversely as more money finds its way into renewables investments, it makes it easier for them to grow.
Some funds actively invest in renewables and therefore climate transition. Generate KiwiSaver Scheme, for example, invested $20m in the Icehouse Ventures Fund II, which in turn backs Kiwi clean energy companies OpenStar Technologies, Vessev and Zincovery.
The NZ Super Fund, with $88b under management, has far more money to deploy than individual KiwiSaver providers and isn’t hampered by fickle private investors who switch at the sniff of a poor quarter’s returns. Co-chief investment officer Will Goodwin told the conference the Super Fund sees climate change as both a risk and an opportunity.
“Climate action within an investment context is often seen as a defensive measure, focused on managing risk rather than as a forward-looking investment opportunity,” he said. “The reality is different. Yes, while the risks are growing, so, too, are the opportunities.”
One example is offshore wind, where the Super Fund partnered with Copenhagen Infrastructure Partners to invest in Taranaki Offshore Partnership’s windfarming proposal.
Agriculture is another area where the Super Fund sees opportunities to decarbonise and develop new land-use models, said Goodwin. “For example, we’re converting dairy farms in central Canterbury into apple orchards through our manager, FarmRight. The resulting conversions deliver 40% less water usage, 80% less nitrogen and 90% lower overall CO₂ equivalent emissions.”
Nature & human rights
Although climate action became a focus for fund managers after the 2015 Paris Agreement and is now well embedded in the fund manager psyche, new frontiers are emerging all the time. Two of those are “nature”, the ecosystems and resources that businesses rely on, and “human capital”, the people who drive and sustain those businesses.
Until the late 2010s, biodiversity and ecosystems were largely left to conservation NGOs. But from 2018 onwards, fund managers have started to take note.
It matters, says Harbour Asset Management senior manager for responsible investing, Sue Walker, because the loss of ecosystems and biodiversity affects the bottom line of companies that fund managers invest in.
“Nature matters, because we live in one world and its functioning well is important to everyone,” says Walker. “From a fund manager perspective, it absolutely can have an impact on a company’s ability to do business and to continue to operate. If we’re destroying ecosystems, how do crops survive? Which is very important to a country like New Zealand.”
Forestry, farming and utility providers that are dependent on water are all considerations for fund managers in this regard.
Since January 2024, the London-based Taskforce on Nature-related Financial Disclosures has asked financial institutions to report on their impact on nature under an international framework. Most New Zealand companies aren’t yet disclosing on nature, although the Lyttelton Port Company is a notable exception.
The other new frontier that fills conference rooms is “human capital”, the idea that a company’s workforce and human rights approach are inseparable from its long-term value.
“A company that looks after its employees well, and the employees are highly engaged, and has a diverse workforce, is often the higher performer within its sector or peer group,” says Walker.
“Conversely, those that treat people poorly, don’t pay them fair wages, let sexual harassment or bullying go unchecked, aren’t managing their supply chain [for] things like child labour and slave labour, that comes out in the press and from a reputational perspective can impact their share price quite significantly. Often, there will be litigation, which is very costly to the company as well.”
Data & reporting
In 2025, “data” is the four-lettered word creating a headache for anyone involved in ethical investing. Back when being ethical involved simply excluding investments such as weapons, tobacco, alcohol and gambling, it was relatively easy to identify which companies to include and which to leave out, says Gehricke.
But ethical investing has become way more complex. Fund managers – as well as the companies they invest in – need vast amounts of data to understand the real-world effects of their investments and to avoid greenwashing that pretends to be ethical. Data is the glue that allows responsible investing to function effectively.
The problem is that much of the data to measure carbon emissions, environmental impact, human rights practices, employee wellbeing and overall sustainability is inconsistent, incomplete or reported in ways that are hard to compare, making it extremely challenging to make fully informed, responsible investment decisions.
Ratings companies have stepped in to provide environmental, social and governance (ESG) scores, which measure how well fund managers’ investments are doing against their sustainability and responsibility benchmarks, says Gehricke.
Greenwashing, where misleading environmental claims are made, has risen hand in hand with ethical investing.
The trouble is that large companies understand the financial and PR value of having high ESG scores and have found ways to game the system. If a company in the gambling industry treats its employees well, for example, and lowers its environmental impact, its ESG score jumps.
The scoring systems can produce some truly Orwellian results. “There’s a famous story in The Wall Street Journal where Tesla had a lower score than [oil and gas corporation] Exxon,” says Gehricke. Or take multinational tobacco company Phillip Morris, which raised its ESG score from 64 to 85 out of 100 in the S&P Global Corporate Sustainability Assessment by treating its staff better, improving governance and providing better transparency. But that reflected management practices, not necessarily a lessening of the negative health consequences of its products.
The case is an example of greenwashing, where a company or a fund claims to be environmentally responsible or ethical but those claims are misleading, exaggerated or untrue. It has risen hand in hand with ethical investing.
The term first emerged in the 1980s but grew in prominence from the early 2000s.
Some KiwiSaver providers took to greenwashing in the early days like ducks to water until the media rolled them (see “Ethical evolution”, opposite) and the Financial Markets Authority (FMA) stepped in to encourage more honesty.
The KiwiSaver funds had claimed to have exclusions for tobacco, gambling, fossil fuels and weapons but the third-party funds they invested in often still held shares in companies that violated their stated ethical principles.
Measuring emissions
Another big issue for fund managers is that they need to be able to measure the emissions of companies they invest in. That’s not easy. The Greenhouse Gas Protocol, which dates back to 2001, set out a framework for this with Scope 1, 2 and 3 emissions. Scope 1 is direct emissions, for instance, from manufacturing or fuel burnt in company vehicles; Scope 2 is energy purchased for the firm’s operations; and Scope 3 is upstream and downstream emissions – from extraction and production by suppliers at one end to transportation and waste disposal methods at the other.
Scope 3 is the most challenging yet can represent the bulk of a company’s footprint. Fund managers must estimate the financial value of the emissions by the companies they invest in, but this data isn’t always readily available and gathering it can be challenging.
Financial advisers Forsyth Barr reported at the end of last year that Scope 3 reporting by listed companies in New Zealand had jumped from 33% in 2017 to 85% in 2024.
Since 2023, large NZ financial institutions including fund managers have been required to make annual climate-related disclosures to the FMA, drawing on the Task Force on Climate-related Financial Disclosures framework.
Just how reliable the reporting actually is remains uncertain, but Gehricke says emerging technology will help improve the picture. Satellites, for example, can help measure the output from a company’s facilities. Machine learning can interpret the satellite images, and AI (as it becomes more reliable) can assess the quality and completeness of companies’ climate reports.
The emerging field of “spatial finance”, as it’s called, is not an exact science – yet– says Gehricke. Linking satellite images to a company is one bottleneck that is slowly easing.
While still evolving, these tools give fund managers more clarity on the true impact of their investments.
Over time, the managers should be better placed to make investments that reap financial rewards without helping the bad guys.
Ethical Evolution: How fund managers caught on to leveraging their pots of money for good