Ethical investing in New Zealand isn’t just about feeling good; it’s about putting your money where your mouth is, aligning your investments with your personal values, and potentially contributing to a better future while still aiming for financial returns. It’s also about understanding the unique landscape of the New Zealand market and making informed choices that resonate with your beliefs.
What Exactly is Ethical Investing?
Ethical investing, also known as socially responsible investing (SRI) or sustainable investing, involves considering ethical and environmental factors alongside financial factors when making investment decisions. It’s about deliberately choosing to invest in companies and projects that align with your values and avoiding those that don’t. This could mean favouring companies with strong environmental practices, good labour relations, ethical sourcing, or those actively involved in social good.
Why Should Kiwis Care About Ethical Investing?
New Zealanders, by and large, tend to be a values-driven bunch. We pride ourselves on our clean, green image and our commitment to fairness. Ethical investing allows us to put our money where our values are, supporting businesses that reflect these principles. Beyond personal satisfaction, ethical investing can also yield potentially better long-term financial outcomes. Companies that prioritize sustainability and ethical practices are often better managed, more innovative, and more resilient to risks, which can translate into stronger financial performance over time. Research suggests that companies with high environmental, social, and governance (ESG) ratings can outperform those with lower ratings in the long run. For example, a report by MSCI highlights the long-term performance advantage of ESG-focused investments.
Understanding the New Zealand Ethical Investment Landscape
The New Zealand financial market is relatively small compared to global markets, which means the options for ethical investing may initially seem limited. However, the sector is growing rapidly, with increasing awareness among investors and a corresponding rise in the number of ethical investment products available. KiwiSaver, our national superannuation scheme, plays a significant role. Many KiwiSaver providers now offer ethical or sustainable investment options, allowing members to align their retirement savings with their values. For example, Finder NZ provides a comparison of different KiwiSaver ethical funds.
Types of Ethical Investment Strategies in New Zealand
Here are some common approaches to ethical investing you’ll find in New Zealand:
- Negative Screening: This involves excluding certain industries or companies from your investment portfolio based on ethical concerns. Common exclusions include tobacco, weapons, fossil fuels, gambling, and companies with poor human rights records.
Example: You might choose a fund that excludes all companies involved in the extraction or processing of fossil fuels.
- Positive Screening: This involves actively seeking out and investing in companies that meet certain ethical criteria. This could include companies with strong environmental practices, fair labour standards, or those involved in renewable energy or social enterprise.
Example: You might choose a fund that focuses on investing in companies developing and deploying renewable energy technologies.
- ESG Integration: This involves considering environmental, social, and governance (ESG) factors when making investment decisions, alongside traditional financial metrics. It’s a more holistic approach than simply excluding certain industries.
Example: A fund manager using ESG integration might analyse a company’s carbon footprint, labour practices, and board diversity, alongside its financial performance, to assess its overall investment potential. They might favour a company with a slightly lower short-term profit margin but a stronger commitment to sustainability and ethical practices.
- Impact Investing: This involves investing in companies or projects that are specifically designed to generate positive social or environmental impact, alongside a financial return. This could include investing in affordable housing projects, renewable energy infrastructure, or businesses that provide employment opportunities in disadvantaged communities.
Example: Investing in a social enterprise that provides job training and employment for at-risk youth.
- Shareholder Advocacy: This involves using your power as a shareholder to influence company behaviour and promote ethical practices. This could include voting on shareholder resolutions, engaging with company management on ESG issues, or filing shareholder proposals.
Example: Joining a shareholder advocacy group that lobbies companies to reduce their carbon emissions.
Getting Started with Ethical Investing in New Zealand: A Step-by-Step Guide
Ready to align your investments with your values? Here’s a practical guide to getting started:
- Define Your Values: What issues are most important to you? Are you passionate about environmental protection, social justice, animal welfare, or something else? Reflect on your personal values and identify the types of companies or industries you want to support and those you want to avoid. This is the crucial first step. Without clearly defined values, it’s difficult to make informed investment decisions.
- Research Investment Options: Explore the different ethical investment products available in New Zealand. This includes ethical KiwiSaver funds, managed funds, and direct investment opportunities. Look for funds that align with your values and have a strong track record of ethical performance. Money King NZ offers resources on ethical investing options.
When researching options, pay close attention to the fund’s investment mandate, screening criteria, and reporting practices. A robust investment mandate will clearly define the fund’s ethical objectives and the criteria it uses to select investments. Screening criteria specify which industries or companies are excluded or favoured. Transparent reporting practices ensure that the fund regularly discloses its holdings and performance, allowing you to assess whether it’s truly aligning with your values. Don’t be afraid to ask questions of the fund manager to gain a deeper understanding of their ethical investment approach.
- Consider Your Risk Tolerance: Ethical investing doesn’t mean sacrificing financial returns. However, it’s important to consider your risk tolerance and investment time horizon. Ethical funds, like any investment, can experience fluctuations in value. Choose investments that are appropriate for your risk profile and your financial goals. Generally, younger investors with a longer time horizon can afford to take on more risk, while older investors closer to retirement may prefer more conservative investments. Diversification is key to managing risk. Even within ethical investing, consider spreading your investments across different sectors and regions.
- Understand Fees: Like all investments, ethical funds charge fees. Be sure to understand the fee structure and how it will impact your returns. Fees can vary significantly between funds. Compare the fees of different ethical funds and consider the value you’re receiving for those fees. A slightly higher fee may be justified if the fund has a strong track record of ethical performance and a robust investment process. However, always be mindful of the long-term impact of fees on your investment returns. Some KiwiSaver providers have lower fees, such as Simplicity.
- Start Small and Diversify: You don’t have to invest all your money ethically at once. Start with a small portion of your portfolio and gradually increase your exposure over time. Diversify your investments across different ethical funds and asset classes to reduce risk. Diversification is crucial for managing risk and maximizing returns. By spreading your investments across different sectors, regions, and asset classes, you can reduce the impact of any single investment on your overall portfolio. Diversification can also help you to capture a wider range of ethical investment opportunities.
- Stay Informed: The ethical investment landscape is constantly evolving. Stay informed about new ethical investment products, changes in company behaviour, and emerging ethical issues. Read industry publications, attend webinars, and follow ethical investment experts on social media. Engaging with the ethical investing community can help you stay up-to-date on the latest trends and best practices. It can also provide you with opportunities to network with other ethical investors and share ideas.
- Seek Professional Advice (Optional): If you’re unsure where to start or how to make informed ethical investment decisions, consider seeking advice from a financial advisor who specializes in ethical investing. They can help you assess your financial goals, understand your risk tolerance, and choose ethical investments that are appropriate for your needs.
Specific Ethical Investment Options in New Zealand
Let’s explore some of the specific ethical investment options available to New Zealand investors, broken down by category:
Ethical KiwiSaver Funds
As mentioned earlier, many KiwiSaver providers offer ethical or sustainable investment options. These funds typically use negative screening, positive screening, or ESG integration to select investments. Some popular ethical KiwiSaver funds include:
- Pathfinder Ethical KiwiSaver: This fund is known for its strong focus on sustainable practices and positive impact. They actively engage with companies to improve their ESG performance.
- CareSaver: Another ethical KiwiSaver option with a focus on responsible investing across a range of asset classes. They also donate a portion of their fees to charity.
- Simplicity: Offers a socially responsible investment fund option alongside their standard funds. They are well known for competitive fees.
- Booster Socially Responsible Investment KiwiSaver Scheme: Committed to investing in companies that contribute positively to society and the environment.
When choosing an ethical KiwiSaver fund, carefully review the fund’s Product Disclosure Statement (PDS) to understand its investment mandate, screening criteria, and ethical performance.
Ethical Managed Funds
A number of managed funds in New Zealand also offer ethical investment options. These funds are typically managed by professional investment managers who have expertise in ethical investing. Some examples include:
- AMP Capital Sustainable Growth Fund: Aims to deliver long-term capital growth by investing in companies that meet certain sustainability criteria.
- Milford Ethical Fund: Employs a rigorous screening process to exclude companies involved in harmful activities and favour those with strong ESG performance.
- Nikko AM Global Corporate Bond ESG Fund: Specializes in investing in corporate bonds that meet specific environmental, social, and governance criteria.
Managed funds offer a convenient way to diversify your ethical investments and benefit from the expertise of professional fund managers.
Direct Investment in Ethical Companies
For investors who prefer a more hands-on approach, direct investment in ethical companies listed on the New Zealand Stock Exchange (NZX) is an option. However, this requires more research and due diligence. Some New Zealand companies that are often considered ethical investments include:
- Meridian Energy: A leading renewable energy generator.
- Contact Energy: Another significant generator of renewable energy in New Zealand.
- Kathmandu: An outdoor clothing and equipment retailer that is increasingly focused on sustainability.
Before investing directly in any company, be sure to conduct thorough research and understand the risks involved. Consider factors such as the company’s financial performance, ESG practices, and competitive landscape.
Community Finance Initiatives
Another avenue for ethical investing in New Zealand is through community finance initiatives. These initiatives provide funding for local projects and businesses that have a positive social or environmental impact. Examples include:
- Community Finance: This organization provides loans to community organizations and social enterprises that are working to address social and environmental challenges.
Community finance initiatives offer a unique opportunity to invest directly in projects that are making a difference in your local community.
The Challenges of Ethical Investing
While ethical investing offers numerous benefits, it’s not without its challenges:
- Greenwashing: This is the practice of companies falsely claiming to be ethical or sustainable in order to attract investors. Be wary of companies that make vague or unsubstantiated claims about their ethical performance. Always do your own research and look for independent verification of a company’s ESG practices.
- Lack of Standardization: There is no universal definition of what constitutes an ethical investment. Different funds and investment managers may have different criteria for selecting investments, making it difficult to compare options. Familiarize yourself with the specific screening criteria and investment mandate of each fund to ensure it aligns with your values.
- Data Availability: Reliable and comprehensive ESG data can be difficult to obtain, especially for smaller companies. This can make it challenging to assess the ethical performance of potential investments. Look for funds that use independent data providers and have robust research processes to assess the ESG performance of their investments.
- Potential for Lower Returns (Sometimes): While studies suggest that ethical investing can lead to comparable or even better returns in the long run, some ethical funds may underperform traditional funds in the short term. This is often due to the exclusion of certain high-performing (but unethical) industries. Be prepared for the possibility of short-term underperformance and maintain a long-term perspective.
Costs Involved in Ethical Investing in New Zealand
The costs associated with ethical investing in New Zealand are similar to those of traditional investing. These costs typically include:
- Management Fees: These are fees charged by fund managers to cover the costs of managing the fund. Management fees are typically expressed as a percentage of the fund’s assets under management.
- Administration Fees: These are fees charged to cover the costs of administering the fund, such as accounting, legal, and regulatory compliance.
- Transaction Fees: These are fees charged when the fund buys or sells investments.
It’s important to compare the fees of different ethical funds and consider the value you’re receiving for those fees. Some ethical funds may have slightly higher fees due to the additional research and screening required to select ethical investments. However, always be mindful of the long-term impact of fees on your investment returns. Don’t only focus on the fees—consider the long-term strategy for returns and positive impact when evaluating the total value you’re receiving.
Real-World Examples of Ethical Investing in Action in New Zealand
Let’s look at some real-world examples of how ethical investing is making a difference in New Zealand:
- Funding Renewable Energy Projects: Ethical KiwiSaver funds are investing in renewable energy projects, such as wind farms and solar power plants, helping to reduce New Zealand’s reliance on fossil fuels.
- Supporting Sustainable Agriculture: Ethical funds are providing capital to farmers who are adopting sustainable agricultural practices, such as organic farming and regenerative agriculture, which can improve soil health, reduce water pollution, and enhance biodiversity.
- Investing in Affordable Housing: Community finance initiatives are funding affordable housing projects, providing homes for low-income families and addressing the housing crisis in New Zealand.
- Promoting Fair Trade: Ethical investors are supporting companies that adhere to fair trade principles, ensuring that producers in developing countries receive fair prices for their goods.
These are just a few examples of how ethical investing is creating positive social and environmental impact in New Zealand.
The Future of Ethical Investing in New Zealand
The future of ethical investing in New Zealand looks bright. As awareness of the importance of sustainability and social responsibility grows, more and more investors are seeking to align their investments with their values. This increasing demand for ethical investment options is driving innovation and growth in the sector.
We can expect to see:
- Greater Transparency: Increased pressure for greater transparency in the ethical investment industry, with more detailed reporting on ESG performance and impact.
- More Sophisticated Products: Development of more sophisticated ethical investment products that cater to a wider range of investor needs and preferences.
- Increased Collaboration: Greater collaboration between investors, companies, and policymakers to promote ethical and sustainable business practices.
- Mainstream Adoption: Ethical investing becoming increasingly mainstream, with ethical considerations integrated into all investment decisions, not just those made by dedicated ethical funds.
Ethical investing is not just a passing trend; it’s a fundamental shift in the way we think about investing. By aligning our investments with our values, we can create a more sustainable and equitable future for all.
FAQ Section
Here are some frequently asked questions about ethical investing in New Zealand:
What if I don’t have a lot to invest?
You don’t need a large sum of money to get started with ethical investing. Many ethical KiwiSaver funds have low minimum investment amounts. You can also start with a small amount and gradually increase your investment over time. Starting small is better than not starting at all. Even small investments can make a difference over time. Consider dollar-cost averaging, which involves investing a fixed amount regularly, regardless of market conditions. This can help to reduce risk and smooth out returns over time.
How do I know if a fund is really ethical?
This is a valid and important question due to the risk of “greenwashing.” Carefully review the fund’s Product Disclosure Statement (PDS) and investment mandate to understand its screening criteria and ethical performance. Look for funds that are independently certified or audited by a reputable third-party organization. Consider engaging with the fund manager to ask questions about their ethical investment approach. Research the companies the fund invests in to see if they align with your personal values. Diversifying across different funds increases the chances of achieving the impact you intend.
Can ethical investing really make a difference?
Yes, ethical investing can make a significant difference. By directing capital towards companies that are committed to ethical and sustainable practices, you can help to incentivize positive change and create a more sustainable and equitable future. Ethical investing sends a strong signal to companies that ethical behaviour is valued by investors. It also supports projects and initiatives that are addressing social and environmental challenges. Collectively, ethical investors can create a powerful force for change, pushing companies to adopt more responsible business practices.
Is ethical investing more expensive?
Ethical investing may sometimes have slightly higher fees due to the additional research and screening involved. However, the cost difference is often minimal, and the potential benefits of ethical investing, such as long-term financial performance and positive social and environmental impact, can outweigh the higher fees. Compare the fees of different ethical funds and consider the value you’re receiving for those fees. Some ethical funds may also have lower fees than traditional funds, so it’s important to shop around.
What if my values conflict with each other?
It’s common for values to conflict. For example, you may support renewable energy but also want to invest in companies that provide affordable energy to low-income communities. In such cases, you need to prioritize your values and make informed decisions based on your personal circumstances and beliefs. You can also look for funds that address multiple ethical concerns or that have a balanced approach to ethical investing. It’s important to be realistic about the trade-offs involved and to choose investments that align with your most important values.
References List
- Money King NZ. (n.d.). Ethical Investing in New Zealand.
- MSCI. (n.d.). MSCI ESG Indexes.
- Finder NZ. (n.d.). Compare KiwiSaver Ethical Funds.
You have the power to shape a better future with your investments. Ethical investing in New Zealand is more than just a financial strategy; it’s a way to express your values, support businesses that are making a positive impact, and contribute to a more sustainable and equitable world. Take the first step today. Research the ethical investment options available, define your values, and start aligning your wealth with your beliefs. Your money can be a powerful tool for change. Don’t let it sit idle in investments that contradict your values. Start building a truly ethical portfolio and become part of a movement that’s creating a better future for New Zealand and the world.
