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Call for KiwiSaver to follow Super Fund on ethical investing

New Zealand's newest KiwiSaver provider is calling on the rest of the industry to adopt standard responsible investing protocols.

Wednesday, August 24th 2016, 6:00AM 5 Comments

by Susan Edmunds

KiwiSaver investments have been in the spotlight over recent days after a political outcry over revelations that some default funds are invested in companies making bombs and land mines. 

Sam Stubbs, of new KiwiSaver provider Simplicity, said it would make sense for the whole industry to follow the NZ Super Fund's policy on responsible investment.

The fund has an extensive responsible investing programme, including exclusions for companies involved in the manufacture of cluster munitions, manufacture or testing of nuclear explosives, anit-personnel mines, tobacco or whale meat.

Stubbs said it was an elegant solution that was already set up and ready to be applied to KiwiSaver, too. "We have a Kiwi solution that is world class," he said.

Simplicity is to use Vanguard funds for its KiwiSaver investments.

That would breach the NZSF rules in its current form - Grosvenor has had to move to drop its investment in the Vanguard Index Fund because of its exposure to cluster bomb manufacturers.

But Stubbs said it should be straightforward to get other KiwiSaver providers to agree to follow the principles, and they could then go to Vanguard to ask for it to apply the exclusions to investment vehicles used by KiwiSaver providers. Only a small number of shares would need to be excluded, he said.

"I hope they all fall into line," he said. "I can't see why you wouldn't. It's a very easy way to approach it that would solve the problem in a robust way."

A University of Auckland researcher, Matheson Russell, has been calling for some time for all default schemes to be invested responsibly.

He said there should be a legislative mandate for all schemes to work to a framework in the same way that the Super Fund did. "There is a history of neglect in this industry and the chickens are coming home to roost as people realise what they are invested in."

He said it was naive to suggest that investors should pay attention to where their money was going. "We need to be realistic about how much effort people put into it."

The managed funds industry had changed with the advent of KiwISaver, he said, and was now a much more mainstream product and the expectations on providers should reflect that.

IFA chief executive Fred Dodds said it was not the responsibility of advisers to drill down to the underlying investments of funds. Instead, they would try to get an overall view of what a client would be comfortable with.

"I don't think it is necessary for advisers to drill down to the specific issues of armaments, alcohol, tobacco, pornography, nuclear Power - that would be a challenging exercise. On the basis that an adviser's role is to determine the requirements of a client then I would imagine many advisers would have this issue come up in initial discussions around financial goals and educating clients on how to achieve them This would include overviews of different investment types and the issues of responsible and ethical investments."

Tags: KiwiSaver responsible investing

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Comments from our readers

On 24 August 2016 at 7:53 am Steven Popodopolus said:
I dont follow. The guy setting up a new KiwiSaver on ethical lines has a model that invests in unethical investments makes a call that all KiwiSavers should be ethical?
On 24 August 2016 at 9:25 am Craig Simpson said:
The Simplicity product is not "ethical" per se but the manager is calling on their underlying manager Vanguard to come up with a product that is suitable and meets the guidelines of the NZSF. Sounds like a pretty good strategy to me if Vanguard are receptive to such a demand from NZ investors.
On 24 August 2016 at 5:02 pm John Milner said:
I find it somewhat amusing that Sam and others are calling for change now, when the issue has existed for as long as anyone can remember. And to actually want the government to dictate what we can and cannot invest in is beyond belief. Mind you, Sam has always been good at getting free advertising. Well done Sam for that at least.
On 24 August 2016 at 5:09 pm smitty said:
All good publicity for the new KS provider. Though Steven you are correct, as it stands you will be invested in less than socially responsible investments.
On 25 August 2016 at 3:33 pm Matt Mimms said:
Some comments from RIAA (The Responsible Investment Association of Australasia, the local industry body that champions responsible investing in NZ and Australia)...

The recent media interest highlights the growing importance and relevance of issues concerning a more responsible approach to investing.

The recent RIAA NZ 2016 Benchmark report (link http://responsibleinvestment.org/resources/benchmark-report/2016-auckland/ ) highlights the growth and interest in responsible investing in NZ; $78bn of funds are now invested responsibly. This is made up of a strong uptake by institutions along with a growing retail interest.

RI is becoming mainstream globally ($21 trillion in assets invested responsibly according to the Global Sustainable Investment Alliance) as investors of all kinds recognise the economic importance of integrating environmental, social and governance factors in to the investment decision-making process. In addition, more and more people and institutions are making investments that are better aligned to their values (note the massive increase in the divestment movement away from areas such as fossil fuels and tobacco)

For most “mum and dad” investors, Kiwisaver is the main way they will accumulate wealth (outside of their home). Already, Kiwisaver providers must disclose their approach (if any) to responsible investing. As an organisation promoting responsible investing, RIAA welcomes interest and growth in responsible and sustainable Kiwisaver funds.

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