The KiwiSaver scheme 'controversy-rating' all its investments

Monday, 28 October 2019

All the companies in the CareSaver KiwiSaver scheme's funds have been through a 'controversy' screen.

The screening is done by Dutch company Sustainalytics, which assigns controversy scores between one and five to the activities of over 15,000 companies worldwide.

There's been a rise in public interest in where KiwiSaver funds have invested money, and CareSaver is using the controversy ratings as part of its bid to have the most ethically unimpeachable KiwiSaver on the market.

​CareSaver used Sustainalytics to help it avoid companies in industries its investors wish to avoid: tobacco, factory farming, controversial as well as civilian weapons, fossil fuels, gambling, and Kiwi investors Bête Noire, animal-testing.

**READ MORE:

* KiwiSaver funds still have exposure to nuclear arms industry

* Animal cruelty worse than bombs and tobacco to KiwiSavers

* Women are more likely to invest 'responsibly'**

But, said CareSaver, co-founder John Berry: 'The other screen we run is what's called a controversy rating.'

The theory behind controversy ratings is that companies whose actions have been courting controversy, and a pattern of negative headlines in the media, may not be good long-term investments.

'Your share price will already start taking a hit, but we are looking for controversies that have a long term impact,' Berry said.

Any company that scored a five on the controversy scale was an avoid, or immediate sell, Berry said.

'If something scores a four, we have to make a decision to hold or sell,' he said.

An example of a current five was pharmaceutical company Johnson & Johnson, which Sustainalytics said was facing a staggering 102,250 claims relating to seven of its products at the end of 2018, including baby powder.

Another that rocketed up the controversy ratings was Volkswagon in 2018 when it was revealed it has been testing diesel emissions by locking monkeys in perspex boxes and exposing them to diesel exhausts.

While there was a growing interest in ethical investing, especially among women in KiwiSaver, there's also been mounting concern that some KiwiSaver providers may be branding themselves as more ethical in their investing than they really are.

It had even led the Financial Markets Authority (FMA) to begin a consultation on regulating 'ethical', 'responsible', 'sustainable' investing claims as demand for responsible KiwiSaver products had led to concerns investors were being mislead.

'The FMA is consulting on this. They are trying to get some control of the use of these terms,' Berry said.

Last month, it Nick Kynoch, the FMA's general counsel, said: 'While the FMA supports the development of the market for these products, there are associated risks and issues, largely arising from the lack of common understanding of what makes an investment responsible.'

'With the growing popularity of these products we want to ensure investors are protected from 'greenwashing' and have a clear understanding of what is on offer,' he said.

Berry believed KiwiSaver providers needed to prove their ethical claims, and demonstrate how they did their research on the ethics of the companies they invested in.

Just how confusing claims can be emerged earlier this month when Mindful Money, a not-for-profit developed by former Green Party MP Barry Coates, revealed that despite public protests several years ago, many KiwiSaver funds still had investments in companies linked the the nuclear weapons industry.

But those companies included some that people relied on in their everyday lives, like Boeing and Airbus.