Now, more so than ever, we have seen a shift in how we consume and how we invest. When investing funds in KiwiSaver, many of us are curious about what companies and sectors our KiwiSaver funds are investing in and whether these are sustainable or not. You would have heard a lot of talk regarding Ethical Investing.
But what is Ethical Investing?
Ethical investing is aligning your investment decisions with your moral and personal beliefs. Most ethical investing takes into account issues such as climate change and resource scarcity while avoiding investments in things like tobacco, factory farming, and fossil fuels. The level of sustainability and societal impact of an investment can be measured using three factors: Environmental, Social, and Corporate Governance (ESG).
Pros and Cons of ESG
In the past, it was seen that responsible investments produced lower returns as there were fewer companies to choose from when investing – limiting the potential profit. However, over time, the view on ethical investing has changed. Now, ethical investing is also seen to have a practical purpose by helping investors identify long-term growth opportunities and material risks.
Ethical investing can also allow investors to avoid companies whose practices could signal risks such as BP’s 2010 oil spill and Volkswagen’s emissions scandal. Both these events shook the company’s stock price and resulted in billions of dollars worth of losses. Looking at a company or industry’s ethical concerns can help you better understand a company’s future financial performance and ultimately, your investment return.
Apart from simply looking at the exclusions list (a list of companies and industries your KiwiSaver fund avoids investing in), it’s also important to look at factors such as your KiwiSaver provider's exclusionary policies and how they determine what ESG companies to invest in. In the next blog, we'll dive into what ethical investing really means for CareSaver’s KiwiSaver scheme as an example.
Look Closely at the KiwiSaver Ethical Investing Options
Although the ESG metrics can help investors identify which companies align with their ethos, any fund manager with a policy of considering ESG factors can claim to be socially responsible. As a result, fund managers can be ‘considering’ investments such as gambling and tobacco but investing in them anyway. This is why taking a deep look into ethical investing options and what your KiwiSaver fund is investing in can make a big difference.
At National Capital, we don't just look at ethical investing as a checkbox exercise, but engage with various KiwiSaver providers, to really understand what their ethical investing stance is and how it translates into their investments.
We want to help and we’re here to help. National Capital’s mission is to help 1 million Kiwis become financially secure. If you want to ensure that your KiwiSaver money is both ethically invested and still suits your goals, the first step is to submit our KiwiSaver HealthCheck.