Ethical investing in New Zealand allows you to invest your money in companies and funds that align with your personal values, whether it’s environmental sustainability, social justice, or good governance. It’s about making conscious choices about where your money goes and ensuring it’s contributing to a better future rather than supporting harmful practices. This article explores how you can get started, what to consider, and how to navigate the ethical investment landscape in Aotearoa.
Understanding Ethical Investing in New Zealand
Ethical investing, also sometimes called socially responsible investing (SRI) or impact investing, goes beyond simply seeking financial returns. It incorporates Environmental, Social, and Governance (ESG) factors into investment decisions. This means considering the impact of a company’s operations on the environment, its relationships with its employees and communities, and the ethical standards of its leadership and management.
In New Zealand, there’s a growing demand for ethical investment options. Many Kiwis are increasingly aware of the social and environmental impact of their investments and want to ensure their money supports businesses that are making a positive contribution. As a result, a wider range of ethical funds and investment platforms are becoming available.
Ethical investing is very personalized. What one person considers ethical, another may not. For example, someone might prioritize investing in renewable energy companies while another focuses on companies promoting fair labor practices. The key is identifying your own values and finding investments that reflect those values.
Different Approaches to Ethical Investing
There isn’t a single “right” way to engage in ethical investing. Here are some common approaches:
Negative Screening: This involves excluding investments in companies or industries that are considered to be harmful or unethical. This could include companies involved in tobacco, weapons manufacturing, gambling, or fossil fuels.
Positive Screening: This focuses on investing in companies that are actively contributing to positive social or environmental outcomes. This could include companies involved in renewable energy, sustainable agriculture, or affordable housing.
ESG Integration: This involves incorporating ESG factors into the analysis of all investment opportunities. This means considering the environmental, social, and governance risks and opportunities of each investment, even if it’s not explicitly labeled as an “ethical” investment.
Impact Investing: This involves making investments with the specific intention of generating a measurable social or environmental impact alongside financial returns. This could involve investing in social enterprises, community development projects, or clean technology start-ups.
Shareholder Advocacy: This involves using your position as a shareholder to influence company behavior through voting rights and engagement with management on ESG issues. Active ownership is one of the emerging trends in ethical investments globally.
Getting Started with Ethical Investing
Embarking on your ethical investing journey is easier than you think. Here’s a step-by-step guide:
1. Define Your Values: The first step is to clearly identify your values and what issues are most important to you. What industries do you want to avoid? What positive impacts do you want to support? Consider what kind of legacy you want to create through your investments.
2. Research Investment Options: Once you know your values, you can start researching different investment options that align with them. Several resources can help you with this, including:
Fund Managers: Contact fund managers directly and ask about their ethical investment policies and criteria. Look for fund managers that are transparent about their investment process and willing to provide detailed information about their holdings. A good fund manager will readily provide insights and be able to clearly articulate the benefits and risks of the investment.
Online Platforms: Explore online investment platforms that offer ethical investment options. Many platforms allow you to filter investments based on ESG criteria or specific ethical themes.
Financial Advisors: Consider working with a financial advisor who specializes in ethical investing. They can help you assess your risk tolerance, understand your investment goals, and recommend appropriate investment options. New Zealand’s Financial Advice Code requires financial advisors to act in the best interests of their clients.
Industry Certifications: Look for funds that have been certified by independent organizations, such as the Responsible Investment Association Australasia (RIAA). RIAA certification indicates that a fund has met certain standards for responsible and ethical investing.
3. Understand Investment Costs and Fees: Be sure to carefully review the fees and expenses associated with any investment before you commit. Higher fees can eat into your returns, so it’s important to understand the cost structure of different investment options. Look for funds with reasonable expense ratios and transparent fee structures. Management Expense Ratios (MERs) can vary by over 1% even for similar funds.
4. Diversify Your Portfolio: As with any investment strategy, it’s important to diversify your portfolio to reduce risk. Don’t put all your eggs in one basket. Spread your investments across different asset classes, industries, and geographical regions. Even within the ethical investing space, ensure you are not overly concentrated in any single sector or company.
5. Monitor and Review Your Investments: Regularly monitor your investments to ensure they continue to align with your values. Track the performance of your investments and make adjustments as needed. Revisit your ethical criteria periodically to ensure they still reflect your priorities and values. The world changes quickly, and new information may become available that affects your ethical considerations.
Ethical Investment Options in New Zealand
New Zealand offers an increasingly diverse range of ethical investment options, including:
KiwiSaver Funds: Many KiwiSaver providers now offer ethical or socially responsible investment options. These funds typically exclude investments in industries like fossil fuels and tobacco and may prioritize investments in companies with strong ESG performance. KiwiSaver is a great way to start on your ethical investing, and most providers offer details on their approaches in the fund’s Product Disclosure Statement (PDS).
Managed Funds: Several fund managers in New Zealand offer managed funds that focus on ethical investing. These funds may use a variety of strategies, such as negative screening, positive screening, and ESG integration. For example, Pathfinder Asset Management is a New Zealand fund manager that focuses exclisuvely on ethical and impact investing.
Listed Companies: You can also invest directly in publicly listed companies that have strong ESG performance. Research companies that align with your values and consider adding them to your investment portfolio. Look into reports to see how well these companies manage their emissions and support diversity.
Bonds: There are a number of “green bonds” issuing in New Zealand with a focus on funding projects like renewable energy or low-emission transport. Before investing in such bonds, look at the specific use of funds detailed in the bond’s ‘Use of Proceeds’ section. New Zealand Green Bonds standards are aligned with international best practices. For example, Kāinga Ora issued green bonds to fund energy efficient and climate-resilient homes.
Peer-to-Peer Lending: Some peer-to-peer lending platforms allow you to invest in loans to individuals or businesses that are focused on social or environmental impact. This can be a way to directly support projects that align with your values.
Impact Investments: Direct investments in companies committed to addressing some of the biggest issues we face. For example, contributing capital to support the development of sustainable aquaculture, or zero-emission transport technology.
Case Studies: Ethical Investing in Action
Let’s look at some real-world examples of how ethical investing is playing out in New Zealand:
Pathfinder Ethical KiwiSaver: This KiwiSaver fund focuses on investing in companies that are making a positive impact on the environment and society. The fund excludes investments in industries like fossil fuels, tobacco, and weapons and prioritizes investments in companies with strong ESG performance. They actively disclose their holdings for both their Balanced and Growth funds each quarter, demonstrating transparency.
Simplicity KiwiSaver: Simplicity KiwiSaver offers a Sustainable Investment option that excludes investments in fossil fuels, controversial weapons, and companies with significant environmental damage. They have been vocal about using their influence as a shareholder to promote ESG principles, actively engaging in responsible investment. The fund’s PDS outlines the screening criteria that Simplicity have used since 2016.
Community Finance: Community Finance arranges loans to social enterprises improving the lives of vulnerable kiwis, building stronger communities, and protecting Aotearoa’s diverse environment. Since 2005, it has helped social enterprises access over $30 million in capital from purpose-led investors across Aotearoa.
Challenges and Considerations
While ethical investing offers many benefits, it’s important to be aware of some of the challenges and considerations:
Greenwashing: Be wary of “greenwashing,” which is when companies or funds make misleading claims about their ethical credentials. Always do your own research and critically evaluate the claims made by investment providers. Look for independent certifications and transparent reporting. It’s important to dig deep and understand the underlying investments of funds. Look for specific metrics and data to support claims of ethical behavior.
Conflicting Values: It can be challenging to find investments that perfectly align with all of your values. You may need to make trade-offs and prioritize certain values over others. Consider using a tiered approach, using negative screening to exclude the most objectionable industries and positive screening to identify companies that are actively contributing to your top priorities.
Potential for Lower Returns: While studies have shown that ethical investing can deliver competitive returns, some ethical funds may have lower returns than conventional funds due to their investment restrictions. This is not always the case, and in some cases, ethical funds may outperform conventional funds over the long term. Remember that ethical investing is about more than just financial returns; it’s about aligning your money with your values.
Impact Measurement: It can also be difficult to measure the social and environmental impact of your investments. Some funds provide impact reports that detail the positive outcomes generated by their investments. Look for funds that are transparent about their impact measurement methodologies and provide clear and meaningful data.
The Future of Ethical Investing in New Zealand
Ethical investing is poised for continued growth in New Zealand as awareness of social and environmental issues increases and more investment options become available. The trend towards responsible investing is likely to continue, driven by younger generations who are particularly concerned about the impact of their investments.
We can expect to see more innovation in the ethical investing space, with new investment products and strategies emerging to meet the evolving needs of ethical investors. Increased regulatory scrutiny and standardization of ESG reporting will also help to improve transparency and reduce the risk of greenwashing. Investor demand will be the key driver in encouraging more companies to adopt sustainable and ethical practices. Engagement with companies through shareholder activism and other forms of dialogue will play an important role in driving positive change.
Resources for Ethical Investors in New Zealand
Here are some useful resources to help you on your ethical investing journey:
Responsible Investment Association Australasia (RIAA): RIAA is the leading industry body for responsible investment in Australia and New Zealand. They offer a range of resources for investors, including information on ethical investment funds and tips for choosing a financial advisor.
Mindful Money: Mindful Money has a fund comparison tool that shows how KiwiSaver funds are invested across different sectors and ESG considerations (including how funds perform in areas like climate change, human rights, and weapons production). The site is funded by grants and designed to enable thoughtful investment choices.
Sorted: The Sorted website, run by the Commission for Financial Capability, provides independent and impartial information on financial matters, including ethical investing.
Financial Markets Authority (FMA): The FMA is the government agency responsible for regulating financial markets in New Zealand. They provide information on investor rights and how to make informed investment decisions.
FAQ Section: Frequently Asked Questions
What is the difference between ethical investing and conventional investing?
Conventional investing primarily focuses on maximizing financial returns, without necessarily considering the social or environmental impact of investments. Ethical investing, on the other hand, integrates environmental, social, and governance (ESG) factors into investment decisions, seeking to align investments with personal values and contribute to positive societal outcomes alongside financial returns.
Is ethical investing more expensive than conventional investing?
Not necessarily. While some ethical funds may have higher fees due to the additional research and analysis required to assess ESG factors, there are also many ethical funds with fees that are comparable to conventional funds. It’s important to compare the fees and expenses of different investment options before making a decision.
Can I still achieve good returns with ethical investing?
Yes. Studies have shown that ethical investing can deliver competitive returns, and in some cases, ethical funds may outperform conventional funds over the long term. The key is to choose well-managed funds that are aligned with your values and diversified across different asset classes.
How can I be sure that a fund is truly ethical?
Look for funds that have been certified by independent organizations like the Responsible Investment Association Australasia (RIAA). Check the fund’s investment policy and holdings to ensure they align with your values. Be wary of greenwashing and do your own research to verify the claims made by investment providers. Understand how their methodology works and what data is used. Ask for transparency—if they can’t provide details then proceed with caution.
What if my values conflict with each other?
It’s common to have values that may conflict with each other. In such cases, you may need to prioritize certain values over others or seek out investments that strike a balance between different ethical considerations. For example, you might prioritize investing in renewable energy companies even if they are not perfect on all social or governance issues.
How do I find a financial advisor who specializes in ethical investing?
Ask friends, family, or colleagues for referrals. You can also search online directories of financial advisors or contact professional organizations like Financial Advice NZ. When interviewing potential advisors, ask about their experience with ethical investing and their understanding of ESG factors.
Is ethical investing only for wealthy investors?
No. Ethical investing is accessible to investors of all income levels. Many KiwiSaver funds and managed funds offer ethical investment options with low minimum investment amounts. You can start small and gradually increase your investments over time.
Can ethical investing really make a difference?
Yes. By investing in companies and funds that align with your values, you can help to support positive social and environmental outcomes. Ethical investing can also encourage companies to adopt more sustainable and responsible practices. Combined with shareholder activism, ethical investment provides a way to directly impact business decisions.
What should I do if I’m not sure how to get started?
Start with research! Read articles, visit websites of ethical fund managers, and compare the ESG criteria of different KiwiSaver options. Consider talking to a financial advisor who specializes in ethical investing to get personalized advice based on your financial situation and values. Small steps today can lead to significant impact over time.
Call to Action
The power to shape a better future lies in your hands. By choosing to invest ethically, you’re not just growing your wealth – you’re contributing to a world that aligns with your values. Don’t wait any longer to make a change. Start exploring your options today, talk to a financial advisor, and begin aligning your money with your values. Together, we can create a more sustainable, equitable, and prosperous Aotearoa for generations to come. Take that first step and unlock the potential of ethical investing. Your values—and your wallet—will thank you.
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References:
Responsible Investment Association Australasia (RIAA)
Mindful Money
Sorted
Financial Markets Authority (FMA)
Pathfinder Asset Management
Simplicity KiwiSaver
Community Finance
Kāinga Ora
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