Green labelling system proposed to end KiwiSaver confusion

A report is calling for a labelling system for “green” KiwiSaver funds to end consumer confusion over which are ethical.

This is one suggestion up for discussion in the three-yearly Review of Retirement Income Policies, being undertaken by Interim Retirement Commissioner Peter Cordtz.

A background paper on responsible investment in New Zealand prepared for the Review by KPMG found New Zealanders may be poorly served in knowing how to judge KiwiSaver funds that claim to be ethical and not invested in categories such as animal cruelty, worker exploitation, controversial weapons or fossil fuels. KPMG found “ambiguous and inconsistent terminology” which varied between and even within KiwiSaver fund providers, and which could confuse investors. Few KiwiSaver funds provided details about monitoring processes, and there was a misconception that ESG investing (based on environmental, social and governance principles) was purely ethical and may compromise financial returns. Research over the past decade showed that responsible investment was not necessarily less profitable.

KPMG suggested the Retirement Commissioner include in his recommendations to government that clear and consistent definitions for responsible investment be established, including themed investments such as “impact” and “green” investment. There should be a classification and labelling system, with consumer-focused guidance so members could be assured they were selecting a fund that met ethical criteria, and fund managers should be required to provide clear and consistent reports on their responsible investment funds.

KPMG pointed to pension funds overseas that were leading the way in ethical investing, and whose practices could be “critical signposts” for the broader investment community. Examples include the California Public Employees Retirement System, the French public service additional pension scheme, Norway’s Government Pension Fund Global, and the Dutch PGGM Asset Management.

Since KiwiSaver was launched in 2007, it had grown from $767 million in 2008 to $56 billion now. Membership had grown from 1.1 million in 2009 to 2.8 million now, and 51% of members were women.

Cordtz said the growth of KiwiSaver and the rise in members’ interest for their funds to be invested ethically made the issue of clarity and consistency across the fund management industry important.

“We’ll consider KPMG’s suggestions along with public submissions in forming our recommendations to government,” said Cordtz. “Our aim is to help New Zealanders build a good standard of living in retirement, and if they want to do that ethically there should be a framework that enables that.”

In separate research of 2000 people conducted by Cordtz’s office, the Commission for Financial Capability (CFFC), women were found to be more likely than men to want certain categories banned from KiwiSaver funds.

Topping the list were Animal Cruelty (83% of women want this category banned compared to 73% of men); Worker exploitation (80% of women and 70% of men); Whaling (77% of women and 69% of men) and Weapons (70% of women and 57% men).

Other categories included nuclear power, pornography, fossil fuels, gambling, alcohol, genetic engineering and tobacco. In every category, more women than men wanted it banned from their KiwiSaver fund.

Out of both men and women KiwiSaver members, 74% were interested in ethical investment.

Among the Review’s terms of reference was a requirement to finding out which investments New Zealanders think should be excluded from KiwiSaver funds, and whether New Zealanders thought enough providers offered ethical fund options – 70% thought they did.

Public submissions are open until October 31. Cordtz will deliver his report with recommendations to government in December.

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