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InvestNow takes aim at Mindful Money

A stoush has broken out between digital investment platform InvestNow and ethical investment charity Mindful Money over the moveable posts of ESG.

Wednesday, February 15th 2023, 6:38AM 4 Comments

by Andrea Malcolm

InvestNow CEO and founder Anthony Edmonds has taken umbrage with Mindful Money for repeatedly increasing its inhouse rating on exposure to ‘sin stocks’ for InvestNow’s Foundation Series Balanced and Growth Funds.

Last year Mindful Money upgraded the ‘issues of concern’ rating on companies in the Foundation series portfolio, three times; from 8% to 14% and 19%, respectively.

Edmonds says because the Foundation funds are designed to offer investors low-cost, tax-effective exposure to a broad range of global share and fixed income markets, it’s no surprise that some of the holdings trigger some ESG alarms but questions the changing criteria and asks where it will all end.

Mindful Money founder Barry Coates acknowledges the increases and says following global trends, Mindful Money widened its fossil fuels criteria from fossil fuel producers to include energy generators for their intense use of fossil fuels.

Coates says the criteria are updated every six months in March and September when fund managers report their holdings to the government’s Disclose Register. He says fund managers are widely consulted each time and sent a draft analysis of updates.

“When fossil fuels widened we had one or two fund managers who said this is quite a big increase but most accepted that this reflected people’s concern about climate change and we live in a world where burning of fossil fuels by electricity utilities is one of the major causes of climate change.”

Coates says Mindful Money has also been working on, and will be updating information on the website to include information on which energy companies have plans underway to transition away from fossil fuel use. “We are quite keen to differentiate between the fossil fuel companies that are increasing their production versus those that are transitioning towards net zero on a pathway that’s consistent with keeping global temperature under 1.5 degrees.”

In response to rhetorical questions raised by Edmonds about how wide the definitions might go, for example will they eventually include the likes of Air New Zealand and Mainfreight for being heavy users of fossil fuels, Coates says the answer is no.

Mindful Money’s issues of concern methodology is primarily based on annual consumer research conducted with the Responsible Investment Association of Australasia (RIAA) which has annually tracked consumer investment preferences since 2018. Other issues of concern research draws on proprietary and public research. The full methodology is outlined on its website.

Edmonds questions Mindful Money’s “purist” exclusionary approach, echoing a wider public ESG debate that it is better and more pragmatic for investors to continue investing in such companies as long as they are moving to transition away from non-ESG practices and outcomes. Ideally this would be driven by active ownership through investor voting rights and fund manager engagement with company boards and executives.

But Coates says Mindful Money’s aim is to provide transparency about holdings rather than advocate for exclusion.

“If investors trust their fund managers to engage with the companies they’re investing in they should stay with the fund. We’ve taken the issues that NZers say they're concerned about and said let’s look at the investments in those areas.

“We do a lot of education on the way investors can take action and have a number of seminars on engagement. We’re not arguing with that, it’s a valid strategy for fund managers to use.”

The argument highlights a widely acknowledged lack of globally recognised definitions for the ESG label and associated terms such as ethical, sustainable, socially responsible, impact and in this case issues of concern. Added to that is the currently disparate ways in which companies and fund managers measure and collect ESG data.

As well as its in-house Foundation Series, InvestNow offers many ESG-style funds including Pathfinder, Mint and Harbour.

Good Returns has yet to reach Edmonds for further comment.

Tags: Mindful Money

« Pathfinder gets into bonds - green and orangeAustralian watchdog sues Mercer in first greenwashing case »

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Comments from our readers

On 15 February 2023 at 9:00 am Murray Weatherston said:
What will be the consequences if the ESG purists are proven by history to have been wrong about many of their fundamental beliefs.
Also the world would be in a far different (I would argue much worse) state if mankind had never harnessed fossil fuels.
The ESG movement to me has a "religious" fervour.
On 15 February 2023 at 10:14 pm Anthony Edmonds said:
Apologies that I missed your call GoodReturns - so I missed my opportunity to comment. I was busy with various team members whose families had been impacted by the flooding, especially in the Hawkes Bay.

Hardly a stoush!

ESG is a really important development in the funds management industry; a change InvestNow fully supports with a growing range of products offered by reputable regulated managers who are best-placed to shape the ESG future.

We are huge supporters of ESG and super excited about the growth investment options that we can provide our clients with.

The original article we wrote wasn’t being negative towards ESG, rather it was to generate debate as to whether companies like Contact, Genesis, L’Oréal and Estée Lauder, should be being labelled as “companies of concern”.

While Mindful Money have said L’Oréal and Estée Lauder do animal testing - both of these companies emphatically publicly have said they don’t. Can Mindful Money provide evidence that they do?

Also, where would NZ be without Genesis and Contact at the moment? Would being without power be a major concern for Kiwis? I am picking having no electricity would be more concerning for most people than whether their KiwiSaver providers provide capital to these two companies.

In terms of the investment management industry, the area of ESG investment has continued to develop and mature. The concept of labelling and excluding companies as being bad or companies of concern is now old school. Rather, the investors who are making real differences in this area are proactively engaging with the companies that they invest in and helping to drive positive change. In doing so they can get a return premium and benefit from this.

Obviously Government Schemes like NZ Super are different in the way they operate and exclude companies and sectors for weird reasons - but these politically charged groups shouldn't be used to represent "best practice" within the investment industry. The NZ Government profits hugely from tax on petrol, alcohol, and tobacco - while also excluding these sectors in the various investment portfolios they control. This behaviour is odd to say the least - not best practice.

The key point here is let's not hold Government agencies up as being the things that everyone else should strive to follow from an investment perspective.

The investment managers we talk to who are leaders in this area are frustrated with a black and white approach to labelling companies as “companies of concern”.

On 16 February 2023 at 10:43 am Barry Coates said:
Thansk Murray, I am more worried about if the purists are right about issues such as climate change and the investment sector does nothing about it. Then we will have more climate-related disasters like Cyclone Gabrielle, and far worse.
On 20 February 2023 at 5:11 pm Barry Coates said:
The comment above asks for evidence of how companies are categorised by Mindful Money.

Firstly animal testing is an issue that is of importance to a large proportion of the New Zealand public. Many are not persuaded by companies saying they only test on animals when required by regulation (such as by China), especially since a growing number of companies refuse to sell their cosmetics or other products into those markets.

L'Oréal: In L'Oréal’s Code of Ethics document, the company states: "L’ORÉAL no longer tests on animals any of its products or any of its ingredients, anywhere in the world. Nor does L’ORÉAL delegate this task to others. An exception could only be made if regulatory authorities demanded it for safety or regulatory purposes." Sustainalytics and other financial research providers therefore assess L'Oréal as involved in animal testing.

Estée Lauder: In Estée Lauder’s Position Against Animal Testing on their website, the company states: “We don’t test our products on animals and we don’t ask others to test for us. We acknowledge our brands are sold in countries where animal testing on cosmetics or cosmetic ingredients is required by law.” Thus, Estée Lauder is considered by Sustainalytics and others to be involved in animal testing.

On fossil fuels, a company is defined by Mindful Money as being in this category if more than 5% of their revenue comes from producing coal, oil or gas, or using these fossil fuels for generation.

Contact Energy: Contact’s website shows that generated electricity from natural gas, accounted for 17.6% their electricity output. This is above the 5% threshold. Analysis in the recent Generating Scarcity report shows that Contact Energy distributed 177% of their net profit as dividends to shareholders in the 2014-2021 period, with little investment in renewable energy. However, Contact Energy has recently announced plans for expansion of renewable energy, and has been assessed by Science-Based Targets initiative (SBTi) as being on a transition pathway. It will be identified as a fossil fuel company in transition on Mindful Money’s website.

Genesis Energy: Their 2022 Annual Report shows 58% of Genesis electricity generation was from fossil fuels. This is well above the 5% threshold. In addition, Genesis has a 46% interest in the Kupe oil and gas field situated off the south Taranaki coast. Genesis Energy has invested little in renewable energy in the recent past. They distributed 191% of their net profit as dividends to shareholders in the 2014-2021 period. However, Genesis Energy has recently announced plans for expansion of renewable energy, and has been assessed by Science-Based Targets initiative (SBTi) as being on a transition pathway. Genesis will be identified as a fossil fuel company in transition on Mindful Money’s website.

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