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ESG an empty buzzword

KiwiSaver provider Kōura welcomes fund managers moves to adopt ESG policies but says many are useless and more regulation is required.

Wednesday, August 11th 2021, 9:45AM 5 Comments

In its latest newsletter Kōura welcomes ESG: "While it’s amazing to see an old dinosaur of an industry that at times has lacked a moral compass start to stand for something, we should hold off on celebrating just yet."

The emerging issue with ESG is that it’s turning into an empty buzzword that lacks backing by any solid regulation.

Kōura says KiwiSaver providers and fund managers marketing their ESG investing policies are already pulling the wool over the eyes of consumers, because the definition of ESG is a regulatory grey area.

A couple of examples are provided.

"One KiwiSaver provider advertises that you can ‘invest your money and do good for the world’  because they follow an ESG investing strategy. Their ESG policy is quite extensive and so their investments exclude weapons, gambling, tobacco, whaling, fossil fuels, and companies that are in breach of human rights.

"Another provider advertises the exact same claim as the provider above. Except this provider’s ESG policy is less extensive. They only exclude weapons and fossil fuels.

"In a 15 second ad, these two KiwiSaver providers look and sound like they have the same thing going for them. But in reality, it’s not the case and the second provider is arguably engaging in a whole lot of greenwashing."

Kōura says t’s almost impossible for consumers to easily do their own ESG research on individual providers

"Most KiwiSaver providers now have a section on their website that mentions they follow an ESG investing policy, but most lack depth and clear information as to what funds (all, some or only one!?) that the policy applies to."

"To make matters even more confusing, there are some providers that have ESG policies that only apply to the investments that they make directly, meaning their ESG policy doesn’t apply to underlying funds that they invest in.

"One fund that we recently reviewed claims they have the most extensive ESG policy in the market, though when we looked at their investments, over 50% of the fund was invested in funds that did not have matching ESG criteria."

Kōura gives a shout out to online comparison platform Mindful Money, but warns investors to be careful as the site earns a fee when investors switch using its service.

"As with any platform where money is exchanged in order to be on a ratings/rankings list, we recommend viewing everything with a pinch of salt and a small grain of cynicism."

"For example, we would argue that Generate’s Growth fund should be on the Mindful KiwiSaver list (with only 1.7% of the fund's investments being in areas of concern) instead of Kiwi Wealth’s Growth Fund which is on the list yet holds 12.97% of its investments in areas of concern.

"Consumers should also remember that the Mindful KiwiSaver list isn’t comprehensive and ‘other funds also meet the threshold of Mindful Money's criteria for responsible investment but have not yet joined the platform'.”

Kōura says ESG should not become an empty term

"ESG investing could be a powerful force. It’s a way for consumers to literally vote with their dollar and have their ethics and morals match up with their actions.

"The more consumers who chose ESG investing, the more likely we are to drive positive change in industries that cause a lot of harm. But with ESG being thrown around as an empty buzz term, not only are consumers being duped, so are future generations that have to live in the world we’re busy funding."

Kōura says it is usually the bureaucracy police and dislikes regulation for the sake of regulation, but the rising misuse of ESG warrants more rules and guidelines when advertising it.

"At the very least, clearer, and more readily available information to consumers around what a KiwiSaver providers' ESG policy actually entails."

Kōura says its ESG policy is not perfect either.

"Our holdings reports aren’t yet downloadable on our website (they’re coming), our website has fluffy marketing material about our ESG exclusions, and we’re adding to the noise when it comes to advertising our ESG investing stance."

However, it is "proud" of its policy.

"We employ a two-step process for choosing investments, we avoid the nastiest industries in totality and then we only pick the most sustainable and ethical of the remaining companies based on extensive MSCI research."

It says it will "continue to raise the bar for ourselves." 

Tags: ESG greenwashing

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Comments from our readers

On 11 August 2021 at 10:49 am Murray Weatherston said:
s129 of the Kiwisaver Act says as follows.
Whose job is it to ensure the adequacy of the responses?
Are you alleging they are failing to do so?

129 Product disclosure statements must contain responsible investment
statement

(1) Every product disclosure statement relating to an offer of interests in a KiwiSaver scheme or a complying superannuation fund must contain a statement in
the following form if it is a scheme that takes responsible investment, including
environmental, social, and governance considerations, into account in the
investment policies and procedures of the scheme:
“Responsible investment, including environmental, social, and governance
considerations, is taken into account in the investment policies and procedures
of the scheme as at the date of this product disclosure statement. You can
obtain an explanation of the extent to which responsible investment is taken
into account in those policies and procedures at the issuer’s Internet site at
[specify Internet site address].”

(2) Every product disclosure statement relating to an offer of interests in a KiwiSaver scheme or a complying superannuation fund must contain a statement in
the following form if it is a scheme that does not take responsible investment,
including environmental, social, and governance considerations, into account
in the investment policies and procedures of the scheme:
“Responsible investment, including environmental, social, and governance
considerations, is not taken into account in the investment policies and procedures of the scheme as at the date of this product disclosure statement.”
On 12 August 2021 at 7:17 am Murray Weatherston said:
Possible answers to my first question "whose job is it to ensure the adequacy of the [ESG] responses?
Pick one
(a) the management of the investment manager
(b) the Board of the investment manager
(c) the trustee of the offer
(d) the regulator
(e) all of the above (a) to (d)
(f) other
(g) no-one
On 13 August 2021 at 5:26 am Barry Coates said:
Regulation is needed to provide investors with more disclosure about what is meant by ESG management or responsible investment. Promotion of funds using claims of being ethical, sustainable or responsible need supporting evidence, and it is not sufficient just to rely on the FMA challenging misleading information.

Fund providers that attract EU investors will need to do so anyway under the EU's Sustainable Finance Disclosure Regulation.

The article also talks about Mindful Money's criteria for 'Mindful Funds' featured on the platform. The criteria are transparent at https://mindfulmoney.nz/pages/12/methodology/.

A fee is paid to contribute to the costs of the platform (Mindful Money is a charity), but it is kept low to ensure no funds that meet the criteria are precluded from joining.
On 13 August 2021 at 8:44 am Murray Weatherston said:
wouldn't a simpler intervention be to ban EU investors from investing in Kiwisaver funds?
On 13 August 2021 at 8:53 am Murray Weatherston said:
Also I think funds and platforms that are organised as charities should be required to publish their charitable donations not later than 30 days after the end of each 6 month period.
Sceptical ol' me believes/knows there are plenty of ways to siphon the surpluses out of charitable businesses before the residual crumbs are distributed to charity.

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