KiwiSaver Funds Are Investing Billions Of Dollars In Companies That Most Of The Public Want To Avoid

Most KiwiSaver funds and other investment funds claim to be investing ethically. However, as the FMA pointed out in its report on 27 July, very few funds provide evidence.

Mindful Money is today releasing new analysis on the most important objective measure of ethical investment – where the money is invested.

Barry Coates, CEO of Mindful Money commented: “This is the crucial measure of whether funds are really ethical.”

“Most KiwiSaver fund managers claim they are acting responsibly, but the evidence shows that billions of dollars of the public’s hard-earned KiwiSaver and retail investment funds are still being invested in companies that the public wants to avoid.”

The gap between what the public wants and what fund providers invest in

Annual surveys of the public show that a large majority of the New Zealand public want to avoid investments in companies that don’t align with their values:

• 90% want to avoid human rights and environmental violations, but there are KiwiSaver investments totalling $1.1bn in companies that harm workers, local communities and/or the environment
• 84% want to avoid companies that test their products on animals, but KiwiSaver investments total $2.7bn mainly in cosmetic and chemical companies that undertake animal testing
• 73% want to avoid investing in fossil fuels that cause climate change but KiwiSaver investments total $1.3bn in companies that explore, produce, refine, and transport oil, gas and thermal coal

Barry Coates commented: “Instead of making empty promises about being ethical and responsible, fund managers need to walk the talk and match their rhetoric with the reality of their portfolio holdings.”

Despite apparent commitment to ethical investment, more money is being invested in companies of public concern

Mindful Money’s analysis of the past six months to March 2022 shows that, far from reductions in the investments that most members of the public want to avoid, there have been substantial increases.

This latest update of portfolio holdings shows increases over the past 6 months in investments that Kiwis want to avoid:

• fossil fuel investments: 28% increase for KiwiSaver funds and 64% for retail investment funds
• companies that test their products on animals: 10% increase for KiwiSaver funds and 19% for retail investment funds
• alcohol companies: 7% for KiwiSaver funds and 26% for retail investment funds

Barry Coates commented: “The latest trends in New Zealand investment are worrying. After several years of reducing holdings in companies that the public want to avoid, fund providers have invested even more in companies that violate human rights and cause environmental damage; test products on animals; produce fossil fuel, weapons, palm oil and GMOs; and invest in companies making tobacco, alcohol, gambling and pornography.”

Mindful Money has seen a huge increase in the number of investors checking portfolios on the Mindful Money website - it is quick, easy and free for the public to find out what’s in their funds.

The FMA has sounded the alarm

The Financial Markets Authority (FMA) has recently released its analysis showing there are widespread claims of ethical performance by fund managers that are not supported by evidence and may be misleading.

Barry Coates commented: “The FMA report is welcome, and it is important to have the FMA in a watchdog role, challenging misleading information and calling for evidence to be provided.

“However, there also needs to be more information available to the public, in addition to the portfolio transparency provided by Mindful Money, so investors can be enabled to make informed decisions.

“KiwiSaver and retail investment providers should have an obligation to tell the public about what they are doing with regard to reducing their harmful impacts on the climate, the environment and society, and their investments that finance positive benefits.”

Barry Coates commented: “There needs to be proper disclosure of social and environmental impacts of company operations. Reporting should be consistent and comparable, using clear standards, as there are for reporting on financial issues like fees, returns and benchmarks.”

Mindful Money is calling on the government to strengthen its proposals for reporting on climate impacts as part of the new Climate Disclosure legislation, and to introduce similar mandatory reporting requirements for the social and environmental issues that are of most concern to retail investors and the New Zealand public.

Claims of climate action and net zero are not supported by the evidence

Barry Coates commented: ”The massive increase in fossil fuel investment is of particular concern. The transition to renewable energy is urgent and New Zealanders’ investments should be supporting growth in clean energy rather than propping up the declining fossil fuel sector.

“Claims by fund providers that they are moving towards net zero emissions must include action to divest from major emitters, including fossil fuel producers. Research has shown that no major fossil fuel producer is on a pathway consistent with a 1.5 degrees temperature rise. It is deeply worrying that fund managers have doubled down and invested far more in coal, oil and gas over the past six months.”

“They are chasing illusory short term gains from oil price rises at the expense of sound climate risk management and responsible investment. Fossil fuel companies have been terrible investments over the past decade and climate risk is increasing further.”

Information on Mindful Money’s website shows fossil fuel holdings for all KiwiSaver and retail funds, as well as a listing of those funds that are ‘fossil free’, without fossil fuel investments.

Claims of engaging and influencing companies need to be backed by evidence

In some cases, fund managers do not exclude all companies in harmful sectors, but instead engage with companies they invest in, with the aim of influencing them to adopt higher social and environmental standards. That is a valid approach. But few KiwiSaver funds report on how they are doing this or examples of the companies that have changed. As the FMA reported, by failing to show evidence of their engagement and the outcomes, they are opening themselves up to charges of greenwashing.

It is evident that the public perceives there is a real risk of greenwashing. Mindful Money’s latest annual survey of the NZ public, jointly with RIAA, reveals that over half the public are concerned about greenwashing and 63% want to know where their funds are invested.

Notes:

Portfolio analysis

Mindful Money analyses the portfolios of all New Zealand retail investment funds, covering 352 KiwiSaver funds and 440 non-KiwiSaver managed investment funds. The data is sourced from six-monthly filings with the Companies Office Disclose Register, supplemented by further analysis undertaken by Mindful Money. The data is sent to fund providers for checking before publishing on the Mindful Money website.

The latest Mindful Money data update is to 31 March 2022. The data has recently become available from the government filings and was published on the Mindful Money website on 28th July 2022.

Investment in the ten top priority issues of concern identified in public surveys was $6.4bn for KiwiSaver funds and $5.0bn for retail investment funds at March 2022. This is 7.0% of total KiwiSaver funds and 7.1% of retail investment funds.

Investment in issues of concern increased for both KiwiSaver and investment funds for KiwiSaver and investment funds in the six months from September 2021 to March 2022, in absolute terms and as a proportion of total funds.

Fossil Fuel data

There has been a short term increase in share prices of the oil and gas sector, partly as a response to Russia’s invasion of Ukraine. But these are likely to be short term gains. Over the decade to 27 July 2022, the value of oil and gas companies (measured by the US Oil and Gas Index) fell by 4.2% annually, compared to a rise in the average shares (measured by the S&P 500 Index) of 11.4%.

Climate risks are likely to be even more severe in future. There are massive risks of unusable oil, gas and coal reserves as economies around the world transition to clean energy.

Transition Pathway

According to analysis by the Transition Pathway Institute, no major oil and gas producers are in line with the with the Paris Agreement’s 1.5C pathway. The only oil and gas firms now operating in line with the pathway are Eni, TotalEnergies and Occidental. Most of New Zealand fossil fuel investments are in companies that are not aligned with the 1.5C pathway, with exposure to high levels of climate risk.

An article in Nature estimates that nearly 60 per cent of oil and fossil fuel gas reserves, and 90 per cent of coal, must remain unextracted to keep within a 1.5 °C pathway.

Financial returns for Ethical Investment

Research shows there isn’t necessarily a trade-off with returns when funds are managed to take account of social, environmental and governance risk. In fact, most evidence from the past two decades shows that companies with higher sustainability standards have lower risks, and their returns have been at least as high as conventional funds.

Annual Surveys

Mindful Money and the Responsible Investment Association of Australasia jointly undertake annual surveys of the New Zealand public on ethical and responsible investment. The latest survey was released in March 2022.

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