Investing for good in New Zealand means putting your money into ventures that not only bring financial returns but also contribute positively to society and the environment. It’s about aligning your investments with your values, supporting companies and projects that demonstrate ethical practices, and promoting sustainable development within Aotearoa.
What Does “Investing for Good” Really Mean in New Zealand?
Investing for good, sometimes called ethical or sustainable investing, encompasses a range of strategies. At its core, it involves considering environmental, social, and governance (ESG) factors alongside traditional financial metrics when making investment decisions. In New Zealand, this often translates to supporting Māori businesses, renewable energy projects, companies with strong employee rights, and initiatives that protect our unique natural environment.
ESG investing doesn’t have a one-size-fits-all definition. For one investor, it might mean completely avoiding investments in fossil fuels or weapons. For another, it might mean actively seeking out companies that are leading the way in environmental stewardship or social responsibility, even if they operate in sectors with potential risks. The key is to define what “good” means to you and then find investments that align with those values.
Understanding ESG Factors
Let’s break down the key components of ESG:
- Environmental: This considers a company’s impact on the environment, including its carbon footprint, resource usage, waste management, and pollution control. Are they taking steps to minimize their environmental impact? Are they investing in renewable energy?
- Social: This looks at a company’s relationship with its employees, customers, suppliers, and the community. Do they have fair labor practices? Do they promote diversity and inclusion? Are they committed to human rights?
- Governance: This assesses a company’s leadership, management structure, shareholder rights, and ethical conduct. Do they have strong corporate governance policies in place? Are they transparent in their operations?
These factors provide a more complete picture of a company’s performance and potential risks and opportunities beyond just its financial statements. Several frameworks and rating agencies, such as MSCI ESG Ratings, assess companies based on these criteria, providing investors with valuable insights.
Ethical Investment Options in New Zealand
New Zealand offers a range of ethical investment options, catering to different risk profiles and investment goals.
KiwiSaver Funds
Many KiwiSaver providers now offer ethical or sustainable investment funds. These funds typically screen investments based on ESG criteria, ensuring that your retirement savings are contributing to positive outcomes. Some popular options include:
- Pathfinder Ethical KiwiSaver: This fund invests in companies that align with strict ethical principles, excluding industries such as fossil fuels, tobacco, and weapons. They also have a strong focus on positive impact investments.
- CareSaver: CareSaver is a socially responsible KiwiSaver fund that prioritizes ethical and sustainable investments, with a strong emphasis on environmental protection and community development.
- Booster Socially Responsible Investment KiwiSaver Scheme: Booster’s SRI KiwiSaver scheme actively seeks out companies that are making a positive contribution to society and the environment.
Before choosing a KiwiSaver fund, it’s crucial to carefully review the fund’s investment strategy, ethical screening process, and performance history. Be sure to understand what the fund does invest in, as well as what it excludes.
Procedure: You can typically switch KiwiSaver funds online through your existing provider’s website or by completing a transfer form. There are generally no fees associated with switching KiwiSaver funds. Compare the fees charged by different funds, as these can impact your long-term returns. KiwiSaver members can have only one account at a time, but providers are required to meet switch requests. If you choose a fund with a higher growth focus, keep in mind your risk tolerance and timeframe for retirement. A balanced approach may better suit those closer to retirement.
Listed Companies on the NZX
The New Zealand Stock Exchange (NZX) also offers opportunities to invest in companies with strong ESG credentials. Some companies are actively pursuing sustainability goals, and others integrate principles of good practice.
Meridian Energy (MEL): A significant renewable energy generator in New Zealand, Meridian Energy produces electricity from hydro and wind power. Investing in Meridian aligns with supporting the transition to a clean energy economy. Their annual reports extensively detail their sustainability initiatives and environmental performance.
Contact Energy (CEN): Another major player in the renewable energy sector, Contact Energy invests in geothermal and hydro power generation. They have publicly stated goals for reducing their carbon emissions and promoting sustainable development. Contact Energy provides considerable detail about its sustainability strategies, targets, and achievements within its annual reports and on its corporate website.
a2 Milk Company (ATM): While not solely focused on sustainability, a2 Milk has been actively implementing measures to improve the environmental sustainability of its supply chain and reduce dairy farming impacts. The company discloses information about these impacts and their environmental strategies in their annual corporate responsibility reports.
When evaluating listed companies, use caution if relying solely on ESG ratings. Often, companies with favorable rankings are large entities that have both high ESG efforts and significant negative footprints. Conduct thorough research into companies’ sustainability reports and their actual activities. Consider supporting companies that demonstrate genuine commitment, even if their overall ratings appear lower, if they have fewer direct impacts.
Procedure: To invest in listed companies on the NZX, you’ll need to open a brokerage account with a registered provider, such as ASB Securities or Sharesies. You can then research and select companies based on their ESG performance and investment potential. Remember to diversify your portfolio to manage risk. The initial deposit or minimum investment can vary significantly, from a low $50 with platforms like Sharesies, up to $5,000 with traditional brokerage services. Brokerage fees (i.e., amounts charged each time you buy or sell shares) are typically very low. When purchasing shares, monitor the market regularly, but focus on a long-term investment horizon. Keep in mind that dividend payments may be subject to tax.
Impact Investing
Impact investing goes a step further than traditional ethical investing. It involves intentionally investing in companies, organizations, or funds with the specific goal of generating positive social or environmental impact, along with a financial return. New Zealand’s impact investing landscape is growing.
Community Finance: Community Finance provides investment to community housing providers, social enterprises, and other organizations working to address social and environmental challenges in New Zealand. They offer opportunities for investors to directly support projects that are making a tangible difference in communities.
Ākina Foundation: While not a direct investment vehicle, Ākina supports social enterprises and impact investors in New Zealand. They provide resources, training, and networking opportunities to help grow the impact investing ecosystem. Their website offers an ideal resource for finding local high-impact investments.
Impact investments often involve a higher degree of risk and lower liquidity than traditional investments. However, they offer the potential to achieve significant social and environmental outcomes while still generating a financial return. Some investments may provide financial rewards below standard market rates as a tradeoff for greater community support. Before investing in high-impact projects, consider the potential for delays in completion or other unexpected pitfalls.
Green Bonds
Green bonds are fixed-income instruments that are specifically earmarked to finance projects with environmental benefits. These projects can include renewable energy, energy efficiency, sustainable transportation, and green buildings. Several organizations in New Zealand have issued green bonds, providing investors with the opportunity to directly support environmentally friendly initiatives.
Kiwibank: Kiwibank has issued green bonds to finance sustainable lending, including projects related to renewable energy, energy efficiency, and sustainable agriculture. Investing in Kiwibank’s green bonds allows investors to contribute to a greener economy while earning a fixed return.
Auckland Council: Auckland Council has issued green bonds to finance environmentally beneficial projects, such as sustainable transport and green infrastructure. Investing in these bonds supports the development of a more sustainable city.
When evaluating green bonds, it’s crucial to carefully review the issuer’s green bond framework and reporting to ensure that the proceeds are being used for legitimate green projects and that the environmental impact is being properly measured and reported. Look for certification by independent organizations such as the Climate Bonds Initiative for added assurance.
Procedure: Green bonds can be purchased through brokerage accounts or directly from the issuer (if available). The minimum investment amount may vary depending on the issuer. The bond terms, including the interest rate and maturity date, will be detailed in the bond prospectus. Keep an eye on the bond’s credit rating, as this reflects the issuer’s ability to repay the debt. While green bonds present lower risk than equities, they are not without risk, particularly those issued by non-governmental entities.
Investing in Māori Businesses
Supporting Māori businesses can have a significant positive impact on New Zealand’s economy and society. Māori businesses are often deeply rooted in their communities, with a strong focus on sustainable practices and cultural values.
Poutama Trust: Poutama Trust supports Māori businesses by providing access to capital, mentoring, and business development services. While not a direct investment vehicle, they can connect investors with Māori businesses seeking funding. Consider attending Māori business events and engaging with local Māori organizations.
Direct Investment: Some Māori businesses may seek direct investment from individuals or organizations. This can be a rewarding way to support Māori entrepreneurship and contribute to the economic development of Māori communities. However, it’s important to conduct thorough due diligence before making any investment.
Investing in Māori businesses is not merely about financial returns; it’s about supporting cultural preservation, economic empowerment, and sustainable development. Look for businesses that are committed to upholding Māori values and contributing to their communities. These may involve sustainable agriculture, cultural tourism, or indigenous arts and crafts.
Real Estate – Sustainable Homes and Developments
Investing in sustainable real estate can also align with your values. This could mean purchasing a home with energy-efficient features, investing in green building developments, or supporting projects that prioritize environmental sustainability. Real estate offers further long-term collateral, and new builds in New Zealand often conform to enhanced environmental standards.
Passive House Standard: Look for homes built to the Passive House standard, which is a rigorous energy efficiency standard that results in ultra-low energy consumption. Passive Homes incorporate superior insulation and heat recovery ventilation to drastically reduce reliance on heating and cooling. Many newer housing developments around New Zealand adhere to these standards.
Green Building Council NZ: Support developments that have achieved certifications from the Green Building Council NZ, such as Homestar and Green Star. These certifications assess the environmental performance of buildings and promote sustainable building practices.
Procedure: Partner with real estate agencies specializing in sustainable properties or conducting thorough research into the environmental features of homes prior to purchase. Consider obtaining an energy audit to assess existing houses’ energy efficiency and make necessary improvements. Factor in the long-term operational cost savings associated with sustainable properties, such as reduced energy and water bills. Ensure compliance with local building codes and environmental regulations to protect your investment and contribute to community sustainability goals. New building laws are often designed to align construction with sustainability initiatives.
Due Diligence and Research
Before making any ethical or sustainable investment, it’s vital to conduct thorough due diligence. This involves researching the company or fund’s ESG performance, understanding its investment strategy, and assessing its track record. Don’t just rely on marketing materials; delve deeper into the underlying data and policies.
- Read the fine print: Carefully review the investment prospectus, fund fact sheet, or other offering documents to understand the investment’s objectives, risks, and fees.
- Check ESG ratings: Use ESG rating agencies like MSCI ESG Ratings or Sustainalytics to assess a company or fund’s ESG performance. However, remember that ratings are just one piece of the puzzle. Ratings will vary over time.
- Review sustainability reports: Many companies publish sustainability reports that detail their environmental and social performance. These reports can provide valuable insights into a company’s commitment to sustainability.
- Seek independent advice: Consider consulting with a financial advisor who specializes in ethical and sustainable investing. They can help you assess your investment goals and find investments that align with your values.
Remember, there is no universally accepted definition of “ethical” or “sustainable,” so it’s important to do your own research and decide what matters most to you.
Potential Challenges and Considerations
While ethical and sustainable investing offers many benefits, it’s essential to be aware of the potential challenges:
- Greenwashing: Some companies may engage in “greenwashing,” which involves exaggerating or misrepresenting their environmental performance. Be skeptical of companies that make unsubstantiated claims and look for evidence to support their claims.
- Performance concerns: Some investors worry that ethical investing may lead to lower financial returns. However, studies have shown that ESG-integrated investments can perform as well as or even better than traditional investments over the long term.
- Limited options: The range of ethical and sustainable investment options may be more limited than traditional investment options, making it more challenging to diversify your portfolio. However, the market for ethical investments is rapidly growing.
- Subjectivity: Defining what is “ethical” can be subjective. What one investor considers ethical, another may not. It’s important to define your own values and find investments that align with them.
Despite these challenges, the growing demand for ethical and sustainable investments is driving innovation and creating more opportunities for investors to align their investments with their values.
Case Studies: Successful Ethical Investments in New Zealand
Examining successful examples can illustrate the tangible impacts and financial viability of ethical investing in New Zealand.
Case Study 1: Sustainable Wine Production
Investment: Equity investment in a Marlborough-based winery committed to organic and biodynamic farming practices.
Ethical Impact: Reduced pesticide use, improved soil health, and enhanced biodiversity. The winery provides fair wages and supports local community initiatives.
Financial Outcome: The winery experienced increased demand for its sustainably produced wines, leading to higher sales and profitability. Investors achieved a competitive return while contributing to environmental sustainability.
Lessons Learned: Supporting businesses with transparent and verifiable sustainable practices can yield both environmental and financial rewards. Consumers increasingly seek eco-friendly products, driving demand and creating growth opportunities.
Case Study 2: Renewable Energy Micro-Grid Project
Investment: Green bond investment in a community-owned renewable energy micro-grid project in a rural New Zealand town.
Ethical Impact: Reduced reliance on fossil fuels, lowered carbon emissions, and improved energy independence for the community. The project created local jobs and boosted the local economy.
Financial Outcome: The green bond offered a stable return, and the project generated long-term cost savings for residents through reduced electricity bills. The project also attracted additional funding from government grants and philanthropic organizations.
Lessons Learned: Green bonds can be an effective way to finance environmentally beneficial projects and generate a positive social impact. Community-owned projects can foster stronger stakeholder engagement and ensure equitable distribution of benefits.
Case Study 3: Social Enterprise Supporting Employment of Disadvantaged Youth
Investment: Impact investment in a social enterprise that provides training and employment opportunities for disadvantaged youth in Auckland.
Ethical Impact: Reduced youth unemployment, improved social mobility, and decreased crime rates. The social enterprise creates a supportive and inclusive work environment for its employees.
Financial Outcome: The social enterprise generated revenue through its products and services, allowing them to scale their operations and reach more young people. Investors accepted a lower-than-market return in exchange for the significant social impact achieved.
Lessons Learned: Impact investing can address pressing social issues and create opportunities for marginalized communities. Combining business acumen with social purpose can result in both financial sustainability and meaningful social impact.
FAQ: Ethical and Sustainable Investing in New Zealand
What are the specific regulations in New Zealand that govern ethical investing practices?
Currently, New Zealand doesn’t have specific regulations uniquely governing “ethical investing” as a distinct legal category. However, existing financial market regulations apply, ensuring transparency and investor protection, and these indirectly influence ethical investment practices. The Financial Markets Authority (FMA) sets and enforces regulations for financial products and services. It emphasizes ‘responsible investing,’ which includes considering ESG factors. The Securities Act 1978 and the Financial Markets Conduct Act 2013 require disclosure of material information, impacting how funds and companies present their ESG considerations to investors. Upcoming regulations focused on climate-related disclosures are also expected to influence investment strategies. These rules will require certain organizations to report on climate-related risks and opportunities, pushing them toward more sustainable practices.
How can I tell if a KiwiSaver fund or other investment is truly ethical or if it’s just “greenwashing”?
To assess whether a KiwiSaver fund or investment is genuinely ethical, several steps can be taken: First, thoroughly review the fund’s Product Disclosure Statement (PDS), where the investment strategy and any ethical screens should be clearly described. Pay close attention to what the fund excludes and, equally important, what it actively invests in. Second, examine the fund’s holdings to see if they align with their stated ethical principles. Most providers will publicly list their investments. Third, check for independent certifications or ratings, such as those from Responsible Investment Association Australasia (RIAA) or similar bodies. These can lend credibility to the fund’s claims. Finally, compare the fund’s policies and performance against industry benchmarks and standards. Be wary of vague language or unsubstantiated claims, as these could indicate greenwashing. Also, remember that different investors have different ideas about ethical business practices, so you should personally investigate whether the entities the fund is investing in align with your values.
What are the average costs or fees associated with ethical investment options in New Zealand (compared to non-ethical options)?
The costs associated with ethical investment options in New Zealand can vary. Some ethical funds might have slightly higher management fees due to the additional research and screening processes involved in ESG analysis. However, this isn’t always the case. KiwiSaver funds often have comparable fees between standard and ethical options, though fees can vary considerably across providers. For example, some passive, low-cost KiwiSaver funds can charge as little as 0.25% per year, while actively managed ethical funds might charge between 0.75% to 1.5% or higher. When investing directly in shares, brokerage fees are generally the same regardless of whether the company is ethical or not. It’s essential for investors to compare the fees and performance of ethical funds with non-ethical alternatives to make an informed decision. Also, consider the long-term returns and the potential positive impact on society and the environment, which are harder to quantify but still valuable.
What resources are available in New Zealand to help me find and evaluate ethical investment options?
Several resources are helpful for finding and evaluating ethical investment options in New Zealand. The Responsible Investment Association Australasia (RIAA) provides certification for responsible investment products. The Financial Markets Authority (FMA) website offers resources on responsible investing and investor information. Fund providers like Pathfinder, CareSaver, and Booster offer detailed information on their ethical fund options. Online investment platforms such as Sharesies or Hatch can help to diversify your investments and monitor ESG performance. The Ākina Foundation supports social enterprises and can guide one toward high-impact investment options. Independent financial advisors specializing in ethical investments can give personalized advice based on individual circumstances. Publications and events focusing on sustainable business and finance may also provide additional leads and evaluation benchmarks on local options. The Sustainable Business Council provides various resources as well.
References
- Financial Markets Authority (FMA)
- Responsible Investment Association Australasia (RIAA)
- MSCI ESG Ratings
- Sustainalytics
- Kiwibank Green Bond Framework
- Auckland Council Green Bond Framework
Ready to make a difference with your money? It’s time to take the next step and explore the world of ethical and sustainable investing in New Zealand. Start by researching your KiwiSaver options, considering companies listed on the NZX with strong ESG credentials, and exploring impact investing opportunities. Speak with a financial advisor specializing in ethical investments to create a personalized investment strategy that aligns with your values and financial goals. Remember, every investment, no matter how small, can contribute to a more sustainable and equitable future for Aotearoa. Make your money matter!
