Over NZD 264 billion in assets now back anti-slavery laws and ethical supply chains, according to a January 2026 joint statement from 30 major investors. That figure signals something real: the money flowing into values-based investing in New Zealand has moved well beyond a niche trend. But the rules around what counts as “ethical” are still catching up. The Financial Markets Authority (FMA) released finalised guidance in May 2026 that replaces the old term “Integrated Financial Products” with “sustainability-related” investing, and it sets out four principles issuers must follow. The catch is that the word “ethical” itself remains unregulated in KiwiSaver and managed funds, which means providers define their own standards.
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This article is general information only and does not constitute professional advice. For your specific situation, consult a qualified professional.
The FMA’s guidance is not aimed at everyday investors. It is written for issuers and their advisers, and it lays out what the regulator expects when a fund calls itself sustainable, green, or socially responsible. The four principles are straightforward: claims must be clear, substantiated, consistent, and supported by effective management of third-party involvement. But the detail matters. The guidance includes extensive examples of misleading practices alongside good practice, and it clarifies that unsubstantiated claims in a Product Disclosure Statement or register entry are treated differently from other representations. For anyone trying to figure out whether their KiwiSaver or managed fund actually does what it says on the label, the practical question is how to check. Here’s what you actually need to know.
The central concept you need to understand is sustainability-related investing. The FMA uses this term to cover any investment product that claims to reflect personal values, ethical considerations, or environmental and social objectives. It includes what people commonly call ethical, sustainable, responsible, ESG, green, social, and transition investing. The approaches differ slightly, but the regulator treats them all under the same disclosure framework. What I tend to notice is that investors often assume these terms mean the same thing across different providers. They don’t. One fund’s “ethical” screen might exclude fossil fuels entirely, while another uses a best-in-class approach that includes the best-performing fossil fuel company. The only way to know is to read the sustainability-related investing documentation the fund provides.
When a fund’s claims do not match what it actually holds, the consequences can be financial and reputational. The FMA’s guidance makes clear that misleading or unsubstantiated claims in disclosure documents or register entries are treated seriously. The regulator can require corrections, issue public warnings, or take enforcement action. For investors, the practical risk is that a fund marketed as “green” or “ethical” may hold companies involved in fossil fuel extraction, gambling, or weapons manufacturing, depending on how the provider defines its exclusions. The ethical KiwiSaver fund types page explains that some providers apply only light screening, excluding just cluster munitions and tobacco, while others exclude a much broader set of industries. Without reading the fine print, you could be investing in exactly the industries you wanted to avoid.
The compliance exposure for providers is real. The FMA’s ethical investing disclosure guidance received 20 written submissions during consultation, and the final version removed sections on climate-related disclosures and financial advice that were in the draft. That suggests the regulator was willing to adjust based on feedback, but it also means the guidance is a living document. For a business or individual investor, the safest approach is to treat every claim as something that needs verification, not belief.
Three gaps where ethical investing claims fall short
Vague language that sounds meaningful but isn’t
The FMA’s guidance lists nine aspects of what “clear” claims look like, and the first is plain language. In practice, many fund documents use terms like “ESG consideration” or “responsible approach” without explaining what that means for the portfolio. A fund that says it “considers” ESG factors may not actually exclude any companies. It might simply note ESG risks in its analysis without acting on them. The FMA’s examples of misleading practices include funds that use green imagery and sustainability language in marketing but hold significant fossil fuel assets. Worth weighing against the marketing material is what the fund’s ethical investing in NZ documentation says about exclusions, thresholds, and how it handles breaches.
Best-in-class screening that includes fossil fuel companies
Best-in-class is a common ethical approach that selects the top ESG-performing companies within each sector. That means a fossil fuel company with strong ESG disclosures can be included alongside a renewable energy company. If your goal is to avoid fossil fuels entirely, this approach does not deliver. The ethical KiwiSaver providers comparison shows that some funds use best-in-class while others use negative screening to exclude entire sectors. The difference is not obvious from the fund name alone. You have to look at the Statement of Investment Policy and Objectives (SIPO) or the Responsible Investment Policy to see which method is used.
Silence on what happens when a holding breaches the criteria
Funds that apply ethical screens need a process for when a company they hold no longer meets the criteria. Some funds sell immediately, while others engage with the company and wait for a specific period before divesting. The FMA’s guidance expects issuers to explain this process. If a fund’s documentation is silent on what counts as a breach, whether there are thresholds, and how quickly the fund acts, that is a red flag. The FMA recommends asking providers directly about their engagement versus exclusion policy. If the answer is vague, the fund may not be as ethical as it claims.
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| Provider | Approach | Fee (approx.) | Key exclusions |
|---|---|---|---|
| Pathfinder | Negative + positive screening | 1.25%–1.35% | Weapons, tobacco, gambling, fossil fuel extraction, material ESG controversies |
| Simplicity | Light negative screening | 0.31% | Cluster munitions, tobacco |
| Booster | Negative screening | ~1.15% | Weapons, tobacco, gambling, fossil fuels, nuclear power |
| Generate | ESG integration | ~1.20% | None fixed; ESG considered in active management |
| BNZ | Negative screening | ~0.90% | Cluster munitions, anti-personnel mines, biological and chemical weapons, tobacco manufacturing, gambling |
How to assess an ethical fund before you invest
Start with the fund’s own documents, not the marketing
The Product Disclosure Statement (PDS) and the Statement of Investment Policy and Objectives (SIPO) are the legal documents that define what a fund actually does. The FMA’s guidance requires that claims made in these documents are accurate and substantiated. Look for a section that lists specific exclusions, explains how the fund defines “involvement” with excluded industries, and states whether the exclusions apply to shares, bonds, and indirect holdings. If the document uses vague terms like “may consider” or “where practical,” the fund’s ethical commitment is weak. Some fund managers also publish a separate Responsible Investment Policy that provides more detail than the SIPO.
Check RIAA certification as a benchmark
The Responsible Investment Association Australasia (RIAA) runs the world’s longest-running certification program for responsible investment products. RIAA-certified funds must adhere to rigorous standards including negative screening and active engagement with companies. The certification is not a government regulation, but it provides a consistent benchmark that the FMA’s guidance does not. The top 5 sustainable funds for Kiwis list includes several RIAA-certified options, and the certification gives you a baseline for comparison. If a fund is not RIAA-certified, ask why. There may be a valid reason, but you need to understand the gap.
Compare fees and performance across a realistic timeframe
Ethical funds in New Zealand tend to charge higher fees than passive index funds, with fees ranging from 0.31% for Simplicity to 1.35% for Pathfinder. Over a 30-year KiwiSaver balance, that difference compounds significantly. The research shows that over 3–5 year periods, ethical growth funds have broadly matched or slightly underperformed conventional growth funds. The Kernel Generation Fund, with a fee of 0.95%, delivered an 11.8% p.a. five-year return to early 2026, beating many peers. But past performance does not guarantee future results, and higher fees create a drag that is difficult to overcome. If you are comparing two funds with similar ethical approaches, the lower-fee option is likely to deliver better long-term net returns. For a more detailed look at building a values-driven business or investment approach, the building a brand that Kiwis trust article covers how authenticity drives long-term credibility.
Upcoming regulatory changes to watch
The Financial Sector Amendment Act 2026 tweaks climate reporting thresholds, moving to a $1 billion market cap test, and removes managed schemes from certain reporting requirements. It also offers “no action” relief and shields directors from liability if standards are met. The Overseas Investment Act has also been streamlined with a risk-based national interest test for ethical foreign assets. These changes mean that the regulatory environment for ethical investing in NZ is still evolving. The FMA’s guidance is likely to be updated again as the market develops. If you are choosing a fund now, check whether the provider has updated its documentation to reflect the May 2026 guidance. If it has not, that is a sign that the provider may be behind the curve on compliance.
Frequently asked questions about ethical investing in NZ
Does the FMA certify funds as ethical? ▾
Can I switch KiwiSaver to an ethical fund without penalty? ▾
Do ethical funds perform worse than conventional funds? ▾
What is the difference between ESG and ethical investing? ▾
How do I check what a fund actually holds? ▾
What happens if a fund’s holdings breach its ethical criteria? ▾
The real shift is in disclosure, not labelling
The FMA’s May 2026 guidance replaces one label with another, but the substance is about what issuers must prove. Claims need evidence, marketing needs to match documentation, and third-party involvement needs active management. The label “sustainability-related” may not be perfect, but the underlying expectation of substantiation is a genuine step forward. For anyone investing in KiwiSaver or managed funds, the practical takeaway is that the burden of verification has shifted. The provider now has to back up its claims. Your job is to read what they provide and compare it to what you actually want your money to do.
Remember: this article is general information only. For advice on your specific situation, speak to a qualified professional.
If this was useful, you might also want to read Innovation in Aotearoa: Fostering a Culture of Creativity and Problem-Solving.
Sources and Further Reading
Harnessing the Power of Collaboration: Building a Strong Team in the NZ Context — Explores how team culture and shared values drive business outcomes, relevant to the collaborative approach needed in ethical investing decisions.
Future of Work in NZ: Remote, Hybrid or Back to Basics? — Covers how evolving workplace values are reshaping business strategy in New Zealand.
Financial Markets Authority (2026). Sustainability-related investing. 🔗
Dentons (2026). Ethical investing disclosure guidance goes sustainable. 🔗
Moneybalance (2026). Ethical and socially responsible investing in KiwiSaver. 🔗
Lifetimes (2026). Ethical investing in NZ: Top 5 sustainable funds for Kiwis. 🔗
