Simply put, the average performance of ESG funds is high or on-par with their non-ESG predecessors. There's no need to exclude ESG funds from your portfolio on the basis of performance. If you want to do good and do well, the evidence suggests you can.
Historically, ESG funds were the domain of the wealthy or those who were happy to pay more for the bespoke-themed management of their investment capital and thus receive a lower net return. Those days are now well in the past, with ESG funds being both widely available and with no discernible difference in cost.
Ethics is a strong foundation for long-term success. We have long championed operating ethically and upholding our legacy toward corporate and social responsibility.
Having this outlook not only ensures considered decision-making but also means a more sustainable direction, as the two go hand-in-hand. That's why we now have our Simply Sustainable™ initiative, which has included changing to an EV fleet, installing solar power at our Hastings office, creating the Te Rehe Solar Network, and evaluating our waste reduction strategies and water management.
We are also members of Cefex (Centre for Fiduciary Excellence), which means we have independent, third-party eyes on us making sure we act in the best interest of our clients.
Essentially, we believe in practising what we preach. This extends from our physical office space to our investment offerings. For example, we have made recent changes to the composition of the underlying assets in the three Booster Asset Class KiwiSaver (ACKS) Funds.
These will better answer the call for sustainable investment opportunities which avoid companies with poor ESG metrics. It also means a consistent application of measurable ESG criteria across the whole portfolio – while still adhering to sound, science-based investment principles.
One of the reasons ESG is becoming mainstream with companies and institutions is that they can see the writing on the wall in terms of both legislation and demand. Whereas it may have been all right to simply exclude certain areas and go about business as usual, there's now greater scrutiny – and criticism – of what qualifies a fund as ESG.
Specifically here at home, we recently saw the passing of the Financial Sector (Climate-related Disclosures and Other Matters) Amendment Act 2021. This sets both precedent and requirements for climate-related disclosures in New Zealand financial organisations.
Currently, the majority of large New Zealand financial organisations provide limited to no information on what climate change might mean for them or are reporting in inconsistent ways. This lack of information causes what the Productivity Commission termed in their Low Emissions Economy report "an ongoing and systemic overvaluation of emissions-intensive activities".
From the 2023 financial year on, it will be easier to tell if financial institutions are overvaluing their activities (or greenwashing, as the more colloquial term has it) with mandatory reporting.
For many of us, KiwiSaver is the main vehicle for our retirement savings. It's also often the first or only experience you may have in investing for long-term goals – and you have the power to decide which fund you are in, and why, should your current fund not align with your goals and your values.
Late last year the Government implemented a switch-up on KiwiSaver providers. Part of this change was made to exclude investments in fossil fuel production or controversial weapons for the default funds. The new default providers are BNZ, Booster, BT Funds Management, Kiwi Wealth, Simplicity and Smartshares; these are the ones the Government considers as offering the most bang for your buck according to current criteria.
If you're looking at aligning your KiwiSaver fund with more "green" values, here are some things to look for:
1.) Disclosure
Disclosure and transparency are pretty key parts to all of this. You want to be able to see what kinds of things your investment is funding, and crucially what it will not fund. If you can't get a clear answer either way, that's an answer in itself.
2.) Research and analysis
While past performance shouldn't be relied upon for future success, there should be metrics available to indicate whether the assets have been stress-tested and the rationale behind expectations for the future.
3.) Diversity
As always, a diverse portfolio is your friend. KiwiSaver is a great tool to help future-proof your finances, and as such your fund should hold a variety of assets to help weather future volatility. Choosing ethical and sustainable investment options should not change this.
As always, a great place to start is by examining your current situation. Are you in the appropriate fund for your timeframe and goals? Are you comfortable with your risk, and with what your money is being invested in?
As with all investing, talking to a trusted fiduciary is a great place to start.
• Adam Deck is a Financial Adviser at Stewart Group, a Hawke's Bay-based Cefex-certified financial planning and advisory firm. Stewart Group provides personal fiduciary services, Wealth Management, Risk Insurance & KiwiSaver solutions.
• The information provided, or any opinions expressed in this article, are of a general nature only and should not be construed or relied on as a recommendation to invest in a financial product or class of financial products. You should seek financial advice specific to your circumstances from an Authorised Financial Adviser before making any financial decisions. A disclosure statement can be obtained free of charge by calling 0800 878 961 or visit our website, www.stewartgroup.co.nz
