27 July 2022

FMA review of ethical investing claims in managed funds

Media Release
MR No. 2022 – 24

The Financial Markets Authority (FMA) – Te Mana Tātai Hokohoko has completed a review of 14 KiwiSaver and other managed funds to establish how well they are applying the FMA’s integrated financial product (IFP) guidance.

The review was conducted against a backdrop of FMA research that found retail investors find it difficult to make informed decisions about ethical investing.

Paul Gregory, FMA Director of Investment Management, said: “New Zealand fund managers face a significant challenge with the growing popularity of ESG investments. While investors want these products, our research suggests they find decision-making difficult. This underlines the need for industry to provide accurate and high-quality information to explain and support any ESG claims.”

FMA research¹ shows 68% of New Zealand investors prefer their money to be invested ethically and responsibly. However, of these investors who prefer their money invested ethically, only 26% have selected a fund manager based on ethical credentials; 51% have not, and 23% have looked into it but not taken action.

The findings complement separate, qualitative focus group research² by the FMA to better understand how investors make decisions about ethical investments. The research found most investors do not fully read a Product Disclosure Statement (PDS), instead relying on fund managers’ websites and marketing materials, as well as the opinions of friends.

“Investors were overwhelmed by technical jargon and often relied on a leap of faith in choosing an ethical investment,” said Mr Gregory. “Others abandoned the search as ‘too hard’ and did not choose an investment at all.”

Mr Gregory encouraged industry to consider the research findings to better understand what retail investors were looking for and to also study the FMA review of fund managers’ disclosures of ESG-labelled products.

Thematic disclosure report

The FMA conducted a high-level review of 14 KiwiSaver and non-KiwiSaver funds claiming to be ethical, responsible, sustainable or otherwise considered ESG-oriented³, to evaluate fund managers’ uptake of the FMA’s integrated financial product (IFP)⁴ guidance, issued in December 2020.

The review focussed on how well fund managers had applied the guidance to their formal and informal disclosures. It did not inspect ESG funds’ actual investment allocations. Directors and supervisors are liable for ensuring the actual investment allocations match promises made in fund labelling.

Report findings include:

  • The need for fund managers to explain why their funds had chosen to exclude certain companies or sectors, and also how they would decide whether to exclude companies based on future developments, such as sanctions on Russia.
  • We observed some “blurring of the line” between financial and non-financial factors, as many factors regarded as non-financial will have a financial impact over time. For example, it is commonly argued failing to address climate change will eventually affect company returns, or that a diversity or inclusion policy will reduce a company’s staff turnover. This blurring complicates comparing funds and makes clear disclosure even more important.
  • Fund managers using a ‘positive screening’ approach (where a fund ‘tilts’ investment toward activities it regards as contributing to positive non-financial objectives or outcomes) need to do more to explain how the fund will select investments consistent with their approach.
  • In some cases, descriptions of the fund’s non-financial benefits or objectives were so high level or subjective as to be of no value, for example saying that “the fund’s returns will be financial and a reduced climate impact”, or that the fund will have a “climate impact” or engage in “active ownership”.
  • Funds failed to provide adequate information on measurement of performance, reporting and the consequences of breaches. Investors would find it difficult to understand what a fund would do in the event of a breach of its policies, and how, or even if, a fund is meeting its objectives.

“New Zealanders are clearly hunting for funds that match their ethics or values, but their due diligence is still brief. This reinforces the scale of the information advantage fund managers have over investors.

“We will continue to provide information and help investors make good decisions about investment products which align with their values, while also working with providers to ensure they are also helping potential and existing investors with better quality information and disclosures.”

Qualitative research

The focus group research revealed that, once committed, ethical investors generally do not monitor the ongoing ethical performance of their chosen fund, nor do they consider replacing it with another.

Other key findings from the focus group research included:

  • While some investors consider an ethical investment because they want to choose something which matches firmly held values, or because they want to have a specific impact, others consider an ethical investment from a general sense of not wanting to ‘feel guilty’.
  • The ESG category is difficult to navigate and people are not confident about what to look for.
  • The terminology used when describing ethical investment options is diverse and confusing to people. Most respondents use the word ‘ethical’ when describing these options, as opposed to ESG or ‘green’ and other similar terms.
  • People are less likely to purchase an ethical product the longer it takes to conduct research.
  • Smaller providers are more likely to be seen as ethical than larger ones.


¹ The FMA commissioned a nationwide survey online among a representative sample of 2,509 New Zealanders aged 18 and over between 15 March and 11 April 2022.

² The research contains findings from a qualitative study interviewing a range of New Zealanders about their experience with ethical investments.

³ The sample of funds was selected based on keywords in the fund name or fund description indicating the fund’s promotion as an IFP fund, such as socially responsible, impact, ESG and environmental.

⁴ Integrated Financial Product is the FMA’s term for the practice of considering ESG risks and opportunities within an investment process.



Media contacts:

Andrew Park
FMA Media Relations Manager
[email protected]
021 220 6770

Campbell Gibson
FMA Senior Adviser, Media Relations
[email protected]
021 945 323