According to recent research from the Responsible Investment Association Australasia (RIAA), 73% of Kiwi investors surveyed expect their investments to be ethical or responsible. And 62% would like their money to make a positive difference in the world.
So, if you’re looking for a KiwiSaver fund that aligns with your values, here are some key things to know.
ESG takes many shapes and forms
Environmental, Social and Governance (ESG) investing means different things to different people, but essentially, it’s about using your money to have a positive impact on the society and/or the environment. What you choose to invest in – or not invest in – is up to your personal moral code.
For example, the RIAA found that human rights violations, labour rights abuses, and environmental damage are the top three practices that Kiwi investors want to dodge. And that’s just the tip of a much bigger iceberg: there are 16 social and environmental issues that over half of New Zealanders seek to avoid. These include anything from companies who evade taxes to animal testing for non-medical purposes, weapons and firearms, tobacco, gambling, fossil fuels, adult entertainment and more.
Everyone approaches ethical decision-making differently, and some of these issues may be closer to your heart than others. But if ESG investing is important to you, then it’s worth taking the time to check if your KiwiSaver money is invested in places that align with your values. We’ll get to this in a second.
Beware of ‘green washing’
As demand for ESG investments grows, experts warn of a growing risk of so-called ‘green washing’ – the practice of making unsubstantiated and misleading ESG claims, as a form of marketing spin.
It’s a legitimate concern, and that’s why New Zealand regulators have been increasing scrutiny of fund managers over the past few years, to ensure that they live up to their ethical promises.
Of course, spotting greenwashing isn’t always easy. So, one way to ensure that your KiwiSaver money is in ‘good hands’ is to seek financial products that are certified or labelled as ethical/responsible by an independent third party.
Mindful Money, for example, is an independent New Zealand not-for-profit that tracks and compares investments and KiwiSaver providers based on their ESG standards. Their mission is to ‘make money a force for good’, by promoting ethical investment through information and research. So, if a provider gets their ‘Mindful Funds’ badge, you can rest assured that they passed the test.
Being ethical is just one of the criteria
When it comes to choosing your KiwiSaver funds, your values matter. But there are also other key factors to consider, like:
- Your risk profile – KiwiSaver funds come with their own level of (likely) risk, ranging from defensive to aggressive with conservative, balance and growth in between. Your risk profile is determined by the combination of the level of risk you’re willing to take (based on your emotional response to money loss), the risk you need to take (based on your goals), and the risk you can take (based on how long your investment horizon is). Not quite sure what your risk profile is? Get in touch: we can help you understand it.
- The level of services you want – Is your KiwiSaver provider offering the support and communication you need from them?
- The fees you’re paying – All KiwiSaver providers charge fees for managing your money, which vary widely. While choosing providers based on fees alone is not a good strategy, you may at least want to understand how much you’re paying and make an informed decision about it. Once again, we can help you with this.
Making an active choice of fund based on these criteria (especially your risk profile) is one of the most important steps that you can take in your retirement planning journey. Remember: if you don’t recall ever selecting your own fund, you’re likely to be invested in a ‘default’ balanced fund – which may or may not align with your needs and goals.
Like to explore your options?
Contact us today. As financial advisers, we can help you work out your risk profile, research where your KiwiSaver stands against ESG standards, and make a well-informed decision about your financial future.
Disclaimer: Please note that the content provided in this article is intended as an overview and as general information only. While care is taken to ensure accuracy and reliability, the information provided is subject to continuous change and may not reflect current developments or address your situation. Before making any decisions based on the information provided in this article, please use your discretion and seek independent guidance.