KEY POINTS:
Climate change is big news. Yet the average Kiwi is still investing in companies that destroy our oil reserves, grow tobacco, offer gambling, or brew the demon drink.
It would seem that the average Kiwi cares less about the vices of the companies they invest in than most people in other wealthy countries. It's a bit strange in a country that prides itself on being clean and green.
Socially responsible investing (SRI) comes in two main flavours - what is in effect an opt-in, or an opt-out system. Funds and investors either choose companies that adhere to ethical, religious, humanitarian or environmental standards, or they choose to invest in any companies providing they don't directly invest in socially irresponsible activities such as gambling or open-cast mining.
There are also funds and community groups that invest in less than desirable companies in the hope of pressuring them to change their ways. Nomura, a Japanese company, for example, was forced to change its attitudes towards women after Swedish Government investment funds put it under pressure, says Robert Howell, CEO of the Council for Socially Responsible Investment.
Each investor has his or her priorities. Some investors are driven by avoiding arms manufacturers and those companies that supply them. There are also international funds that cater for investors with a variety of religious beliefs.
So why don't we invest with our consciences? To a certain degree it's because we are too small as an investing nation to support non-mainstream investments and several attempts in recent years have failed. There is one NZ-based SRI fund: Asteron's Socially Responsible Investment fund, launched in 2002, is still in the land of the living, although take-up has not been spectacular with just $2 million under management.
It may also be that we're a tight-fisted bunch. Binu Paul, general manager of Fundsource Research, says: "In New Zealand, while socially responsible investing has found favour with some institutional clients such as churches and charities purely from a philosophical standpoint, individual retail investors have not bought into the idea, given the opportunity costs of excluding shares of certain companies in their portfolio, especially when some of the sectors in which those companies operate, such as gambling and liquor, have seen strong growth."
It's not an argument that everyone agrees with. Howell says you don't have to sacrifice returns to invest responsibly.
A case in point is Asteron's fund, says Rod College of Investment Marketing. The fund has returned 11.8 per cent per annum after tax for the three years to September 30, which he says compares favourably with the NZSX 50 Gross (adjusted for tax) index performance of 10.85 per cent per annum.
Research by the University of Queensland Business School published this year found no evidence that investing in a portfolio of socially responsible firms means lower returns for investors.
Darren Lee, lecturer at the business school, analysed the Dow Jones Sustainability World Index and found that returns on leading sustainability firms were the same as that of a portfolio of "lagging sustainability firms".
Howell says that few financial planners are equipped to give advice about socially responsible investing. Some financial planners will simply pooh pooh socially responsible investing. Others, such as Grant Thornton, actively promote their knowledge of this subject.
One financial planner who promotes it to clients is David Yates, of Integrate Financial Services in Takapuna. Yates says he clients who are "very green" and are concerned how their funds are invested.
For such clients, Yates recommends a number of Australian fund-based investments such as the "deep green" Australian Ethical funds and "lighter green" investments such as Hunter Hall's Value Growth Trust.
Yates says there is an argument that not taking into account sustainability in their investment criteria is tantamount to increasing the risk to investors because issues such as carbon taxes and public perception could put companies out of business in the long run.
Investors who want all of their money invested in socially responsible investments face a number of hurdles. First of all, says Yates, it is difficult to fully diversify their SRI investments within New Zealand.
What's more, taking your money overseas after April 1 next year will have added complications thanks to new rules, which will mean that equity and fund investments outside Australasia will have a form of capital gains tax applied to them. But with few options locally, you're damned if you do and damned if you don't.
Funds, of course, are not the only way to invest in socially responsible activities. Individuals can choose their own equities. In general, says IRG Research's managing director David McEwen, companies on the NZX have less environmental and social impact than companies in other industrialised nations - partially because we have so few manufacturing companies.
McEwen's pick of the five most socially responsible companies on the NZX are (in no particular order):
* Windflow Technology, which manufactures wind turbines
* Comvita, beauty and natural remedies
* Just Water, which supplies drinking water
* Tenon, manufacturer of wood products from plantation forests
* Wellington Drive Technologies, an energy efficient market research and development company.
Five of the more sinful stocks on the NZX were:
* Rakon, maker of quartz crystals, which could potentially be used for military purposes
* Sky City Entertainment, which provides gambling among other services
* 42 Below, booze
* Heritage Gold, mining
* Nuplex Industries, which manufactures chemicals and resins
Property investors are sometimes seen as exploiting tenants. Investing in housing, however, could be viewed as socially responsible, says financial planner Lisa Dudson.
Increasingly, says Dudson, landlords are treating their tenants as clients in a business-like manner.
Outside of property and equity-based investments, there are other alternatives with small socially responsible funds such as Quaker Investments Ethical Trust (QIET) and Nelson Enterprise Loan Trust (Nelt), which take deposits and subsequently lend in an environmentally and socially responsible way.
At Nelt, says manager Bruce Dyer, some investors choose not to take interest payments because they support the aims of the organisation - which lends to small businesses in its region. Deposits in QIET earn between zero and 5 per cent interest.
Investors with very specific requirements, such as Muslims who follow strict Sharia law-based investment, which doesn't allow them to invest in companies that offer or pay interest, or those with very stringent environmental concerns, may need to look overseas to find suitable investments. Another option is to invest directly into the businesses locally of those who hold the same beliefs as yours.
You could invest directly in overseas funds that meet your needs. Both the US and Britain have highly developed socially responsible fund industries and it's also possible to buy individual equities. Databases of such stocks can be found by searching the words "socially responsible stocks" on Google, and funds can be found by searching on Trustnet.com and Funds-sp.com.
