Responsible investing means many different things to different people.
Responsible investing means many different things to different people.
COMMENTby Richard Klipin, Financial Services Council CEO
As KiwiSaver settles into its second decade we're getting a lot more comfortable with asking some important questions about our investment.
What's the right level of fees we should be paying? What's the right contribution level? Should it be compulsory?What is my fund investing in? These types of conversations are great and I'm delighted that Kiwis are gradually gaining a voice on these important issues.
It demonstrates that the debate is maturing and that we are increasingly engaging on and understanding where our money goes and how it is being invested.
Perhaps one thing that continues to confuse many of us is the vexed issue of responsible investing and what KiwiSaver funds should and shouldn't be investing in.
That's why the FSC welcomed last week's launch of the "Mindful Money" platform and its aim to make it easier for people to see what their KiwiSaver fund is investing in.
That said, claims of KiwiSaver funds invested in "sin stocks" like weapons or tobacco make easy headlines and even easier condemnation. The reality is complex, and more a case of 50 shades of grey (or green) than black and white.
For a start, I don't believe that today a single KiwiSaver manager deliberately sets out to invest in stocks that are unambiguously "unethical".
When this does happen, it is generally because of a KiwiSaver fund being invested indirectly via investments in third party or indexed funds.
When relatively small NZ funds invest in large global indexed funds their ability to control what investments are held at any point in time is limited. And exclusion isn't the only approach. Some managers prefer owning stock to influence change; others support companies transitioning their business from say oil to green energy.
It's also important to recognise that responsible investing means many different things to different people.
Kiwisaver update
All of us would agree that it's not okay to invest in a company that makes cluster bombs, many of us would not want to invest in a tobacco company, but what about a wine company? Or a company that has gaming, tourism and leisure assets, or a manufacturing company that makes many common household products but also just happens to have a small defence business?
These types of investment decisions can be ethical to one person, unethical to another. Yet KiwiSaver fund managers have the unenviable job of navigating through these types of investment decisions every day.
We also know that diversification is key to good investment outcomes. That means your hard working KiwiSaver money is likely invested in companies around the world. Tech companies, global financial services companies, and yes occasionally companies which may run businesses that you disagree with: e.g. genetically modified food, alcohol and defence companies.
Ultimately, though, when it comes to responsible investing it is you – the consumer – who is in the driver's seat.
Want to know what your KiwiSaver fund does or doesn't invest in? Ask. Not happy with the guidelines your KiwiSaver provider has in place for ethical investing? Don't hesitate to move to one of the specialised socially responsible KiwiSaver funds that are now available and align with your philosophy.
Consumer choice rules and ethically-focused KiwiSaver funds are here and here to stay. In fact, Kiwis are increasingly voting with their feet and moving to these funds in record numbers.
This shows that Kiwis are embracing the choice on offer in KiwiSaver funds and wanting to have their retirement savings invested in line with their values. Initiatives like Mindful Money will only help this process.
It is fantastic to see consumers asking the hard questions, exercising their right to choose a KiwiSaver provider, and generally engaging with what is one of the most important financial decisions they'll make over their lifetime.
As an industry, we welcome this increased level of engagement and an informed, rational debate on responsible investment. Let's just ensure, though, that it's one driven by facts and information, not the latest headline or trending topic on twitter.
The Financial Services Council represents the interests of the New Zealand financial services industry including KiwiSaver providers, major life insurers and fund managers.
