Tammy Peyper is the Financial Markets Authority’s Manager, Investor Capability. In this article she shares her own experience choosing an ethical KiwiSaver fund.
'Ethical investing', 'sustainable investing', 'ESG (environmental, social, governance)'. Whatever you call it, many people are keen to align their values and their investments.
I decided to look for a new, more ethically focused KiwiSaver provider. What I thought would be a quick job turned out to be quite time-consuming. Here’s some tips from my ethical investment journey which may help you in yours.
First things first: what is ethical investing?
There is no standard definition, but generally, ethical investing is when you choose investments based on your personal values. To cater for this, many KiwiSaver providers offer investment funds that exclude investments in certain industries or support beneficial social outcomes.
My experience: I did find the jargon confusing, but I found the ethical investment guide on Mindful Money useful.
Understand what matters to you
There are industries I would simply never invest in. I called these my ‘no way’ industries.
Think about what you might be willing to compromise on to stick to your non-negotiables. The more rigid your approach, the more limited your options. Spend time weighing up what issues really matter to you and use this to guide your selection criteria.
My experience: I found it a bit confronting to weigh up my values like that! But overall, I think you shouldn’t let trying to be perfect stand in the way of being better.
Decide your route
How you want to tackle the task of finding investments that match your criteria really comes down to how much time and effort you want to put in. There are generally two options – do it yourself or ask a financial adviser to help you.
DIY (do it yourself): Many providers allow you to open or switch investments online. However, going DIY will require you spend a sizable amount of time conducting research.
Use a financial adviser: A financial adviser can help with the heavy lifting by exploring investment options that suit your criteria.
My experience: I decided to go the DIY route.
Do your research
There’s a lot of information out there - here’s how I tackled the information overload.
Honing in on potential investments
It can be a struggle to create a shortlist of potential investments as there are so many. However, using your selection criteria with the fund finder tools on Mindful Money and Smart Investor, can help to narrow down your options and make a manageable list to research further.
If you’ve had a recommendation from a friend, or seen a particular product advertised, it’s still important to do your own research and see what else is out there.
Sources of information
I believe in using a wide variety of sources when making an investing decision. However, I do not give each source of information the same weight. Articles, product reviews and promotional statements about the provider’s ethical credentials may be useful to gain an overall impression.
However, an in-depth review should include looking at the information a provider is legally obliged to share with you. I found these documents the most important:
- The product disclosure statement (PDS) describes how a product works and provides information about the organisation that is offering it.
- Managed funds must have a Statement of Investment Policy and Objectives (SIPO) that sets out what the fund is trying to achieve and the rules about what the fund can and cannot invest in.
If you cannot find these documents on the provider’s website, ask for a copy.
Think about not only what these documents say, but what they do not say. For example, if they are silent on assets linked to fossil fuels, there is likely no restriction on the fund investing in that industry.
Read the fine print and ask the provider if something is unclear. For example, if there is an “exclusion” on investment in fossil fuels, what does this mean in practice?
Decide on an investment
The usual investment decision-making process applies to ethical investments. Once you’ve nailed down some options that meet your ethical criteria, think about how they align with your preferences for risk, return, cost, and your personal financial situation and goals. The FMA’s guide to understanding the basics of investing can help you to think through what’s right for you.
My experience: I eventually selected a fund whose investing philosophy I was satisfied did align with my personal values. My ‘no ways’ were excluded, industries I support were part of their portfolio and part of my fee went to charity. While no investment is perfect, I feel my money is doing better for the world.
For more information on ethical investing and providers obligations:
visit the FMA ethical Investing page
