Fund label system needed to avoid KiwiSaver 'greenwashing'

Monday, 30 September 2019

KiwiSaver ditched most tobacco companies in 2017, but there's still a lot of 'sin stocks' in KiwiSaver funds. Each KiwiSaver fund invests in a different mix of companies. This video shows total combined holdings across all KiwiSaver funds.

KiwiSaver funds which claim to be environmentally and socially responsible should face independent auditing, a report prepared for the taxpayer-funded Commission for Financial Capability says.

There's been a proliferation of claims by KiwiSaver funds that they are socially and environmentally responsible, but after studying the market, it found KiwiSaver scheme's documentation to be 'confusing' when it came to establishing their true ethical credentials.

KPMG, which earns fees from consulting with banks, insurers and fund managers, suggested following the European Union (EU) method for cutting through this confusion, and introducing a labelling scheme to help consumers choose funds that match their personal moral make-ups.

An increasing number of investors want green growth, where they good returns, but know they are not harming the planet.

'The European Union is leading this charge in an effort to protect well-intentioned retail investors and enable the financial sector to play its part in the transition to a sustainable economy,' KPMG said.

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'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,' said interim retirement commissioner Peter Cordtz.

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'Efforts in New Zealand have lagged behind,' it said.

The report was prepared as part of three-yearly Review of Retirement Income Policies being undertaken by CFFC.

New Zealanders may be poorly served in knowing how to judge KiwiSaver funds that claim to be ethical and not invested in categories such as animal cruelty, worker exploitation, controversial weapons or fossil fuels, said interim Retirement Commissioner Peter Cordtz.

KPMG found 'ambiguous and inconsistent terminology' which varied between and even within KiwiSaver fund providers, and which could confuse investors.

Cruelty to animals tops KiwiSavers' list of corporate practices they do not wish their money to back. Whaling is also high up their list, but whaling is no longer an activity that it is easy for KiwiSaver to invest in.

Former Green Party MP Barry Coates is fighting to lift the profile of socially and environmentally responsible KiwiSaver funds.

It also conducted a review of studies on financial returns. It's conclusion was that investors who chose more ethical funds had not been losing out and getting lower returns.

KPMG recommended CFFC ask government to introduced 'clear and consistent' definitions for responsible investment, and that there should be a classification and labelling system, with consumer-focused guidance so the public could be certain they were choosing a fund that met ethical criteria.

'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 CFFC added another piece of evidence to the growing body of proof that women are leading the charge to invest responsibly.

In separate research of 2000 people conducted by CFFC, 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 to 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 of men).

This research parallels research funded by former Green MP Barry Coates which found animal cruelty to be the biggest ethical concern for KiwiSaver.

Coates has launched the Mindful Money social enterprise to help investors find ethical KiwiSaver schemes.