Methodology

Introduction: What does Mindful Money do?

Mindful Money aims to change the ways that New Zealanders think about their KiwiSaver fund and investment funds, and to help them invest in line with their values. We use radical transparency to inform investors about portfolio holdings, provide education and capability building on ethical investing, and analyse the policies and practices of KiwiSaver and investment funds. Our objective is to be a catalyst for changing company practices and shifting funds from exploitation and pollution towards better outcomes for people and our planet.  

Our platform enables users to take an informed choice about the impact of their KiwiSaver and investment funds:

• We show users what companies are in their current portfolio, categorised into issues that are of concern to New Zealanders
• We provide information on ethical policies, past financial returns, fees and other measures for all current KiwiSaver and investment funds
• We identify Mindful Funds that meet our ethical standards, supported by verification
• We provide information that helps investors to align their investments with their values, through switching their KiwiSaver account or opening a new KiwiSaver or investment account

In addition, this platform provides research, education, opinion, events, videos, podcasts and news on investing responsibly.

How do we do it? Our methodology

This Methodology sets out how Mindful Money has researched issues of concern to New Zealand savers and investors, analysed KiwiSaver and investment fund portfolios against those issues, selected 'Mindful Funds' to participate on this platform, and identified the funds that most closely match investors' criteria. 

Consumer research on issues of concern to New Zealand investors

The starting point is the annual consumer research undertaken by Mindful Money together with the Responsible Investment Association of Australasia (RIAA). Our baseline survey in 2018 identified the main areas of concern for New Zealand investors, and we have tracked changing consumer investment preferences in subsequent reports in 2019, 2020 and 2022. The issues that members of the public want to avoid in their investment is shown below, drawn from the 2022 survey.

The survey responses have been remarkably consistent over the past four years. The issues of concern that are shown on Mindful Money’s platform are those identified as important by more than 61% of the population, and for which there is company data. They are:

• human rights & environmental violations
• animal testing 
• weapons
• fossil fuels
• tobacco
• gambling
• alcohol
• pornography/adult entertainment
• palm oil
• GMOs

Other issues, like junk food, that registered a high level of concern, have been tracked in successive annual surveys, along with new issues such as predatory lending, diversity on corporate boards, and privacy concerns related to social media.

Definition of the issues of concern

In order to define the list of 'companies of concern', the two parameters that are most important to establish are the definition of the issue of concern and the threshold (or level of ‘materiality’). Some issues are complex because of a lack of accepted standards, as well as research on which companies breach those standards.

For example, animal cruelty was the issue that New Zealanders most wanted to avoid in the 2018 survey and has remained one of the highest concerns subsequently, but as yet, few New Zealand KiwiSaver or investment funds exclude animal cruelty. The companies currently identified on the website are those using animals for testing non-pharmaceutical products, harmful factory farming (initially poultry), live exports, fur and specialty leather and the use of animals for entertainment.

There are dilemmas in the choice of each of the definitions. For example, some argue that the definition is too broad, citing the fact that a few countries (eg. China) have government regulations that require testing on animals for some kinds of non-pharmaceutical products (eg. cosmetics). In response, a number of companies with high standards of animal welfare have made the decision not to sell into those markets. 

From another perspective, some NGOs and members of the public argue that the definition is not wide enough - they consider animal testing to be cruel, whether or not the product is used for medical treatment or pharmaceuticals that may have human health benefits. Mindful Money has adopted the standard of highlighting companies that test their products on animals for non-medical reasons.

Invariably the choice of the definition and the level of materiality is a judgement call and there is no ‘right answer’. Mindful Money’s view is that it is better to try to find the level that most of the public would be comfortable with, and the standard that is acceptable across a large portion of the ethical investment providers, rather than dismissing the definitions as too difficult and ignoring public concern.

The current definitions and materiality for each of the issues are outlined below:

These definitions are tested and reviewed on an annual basis, along with the review of whether these are the issues of greatest public concern. Mindful Money consults with fund providers in advance of any proposed changes to these definitions and levels of materiality.

Research into companies of concern

Mindful Money undertakes research on global companies in each of the issues of concern, drawing on published and unpublished sources, proprietary research undertaken by ratings services, notably one of the leading global agencies, Sustainalytics, and Mindful Money research. The public sources vary across the different issues and include some specialised agencies. The following sources have been analysed in the preparation of Mindful Money’s company list, and some (but not all) of these sources have been included:

• Norges Bank (Norwegian Superannuation Fund)
• New Zealand Superannuation Fund
• Bloomberg
• Morningstar
• Storebrand
• DNB Financial Services
• Wespath
• Carbon Underground
• As You Sow
• Cruelty Free Investing
• PETA
• International Service for the Acquisition of Agri-Biotech Applications
• GeneWatch

Developing this database is complex, and it has taken years of research and analytics. Mindful Money is unable to publish the exclusions lists in their entirety because they include research that has been provided under non-disclosure agreements.

Analysis of fund portfolios

The starting point for analysis is regulated disclosures from fund providers. A listing of the companies held within each New Zealand fund portfolio is filed six-monthly on 31st March and 30th September to the Ministry of Business, Innovation and Employment (MBIE) and posted on the Disclose Register, along with quarterly financial updates. This is the primary source of data for the analysis of portfolios and performance of those portfolios.

Many of the funds available to investors invest in other funds. This is common practice, not only for so-called 'passive funds' that invest only in other funds, but even for the funds that are called 'active funds'. To provide a complete breakdown of investments in each portfolio, including the funds within the portfolio, Mindful Money has researched the 'inside funds', and the funds inside those funds. We are able to analyse almost all of the fund portfolios (for around 98% of inside funds) and top ten holdings of most other inside funds. This full portfolio view is not available to the public from other sources.

A raw list of company names by itself is difficult or impossible for most investors to interpret. Mindful Money matches the companies in the portfolios with the companies identified in each of the issues of concern. This is an iterative process, using security identification numbers (such as ISIN numbers), automated fuzzy logic matching of company names and manual verification. 

In some cases, a company may be cited for more than one issue of concern, such as for fossil fuel production and human rights violations. This means that totalling scores across issues of concern may be misleading in terms of proportion of the portfolio that is of concern - if it includes companies that give rise to concern in more than one category, the total score would be over-stated. Because of this, Mindful Money avoids aggregation across the issues of concern when reporting data.

The data that results from this analysis is what forms the bedrock of portfolio transparency on the Mindful Money website. Each KiwiSaver and investment fund in New Zealand has a Fund Detail page on the website, which shows the percentage of fund value in each issue of concern, a list of each of the company names and the share of its portfolio held in that company. There is a threshold value of 0.01% of the portfolio applied to the company listing. This means, in some cases, that the total for companies of concern will be higher than the sum of the individual companies listed, since there are often companies with holdings of <0.01%. These are included in the total for the issue of concern, but not individually listed.

Selection of Mindful Funds for the platform

Most investment funds claim to be responsibly managed. However, there is a huge range in practice, from superficial analysis through to strong ethics. Responsible or ethical standards are often not clearly defined and there is, in Mindful Money’s view, widespread exaggeration and misleading claims. Annual surveys show that more than half of the public have concerns over 'greenwashing'. 

Mindful Money's approach is to define a high standard for ethical investment and to require verification of any claims. The funds that meet these criteria and agree to be a part of the Mindful Money platform are designated as Mindful Funds. 

KiwiSaver or investment funds can become Mindful Funds by fulfilling key criteria that align with the strategies above:

1. Avoiding harm - Broad-based exclusions on the issues of concern, that most New Zealanders say they want to avoid in their investments
2. Stewardship and engagement with companies - Evidence that fund managers are exercising their corporate governance responsibilities to influence companies to adopt higher standards. The extent of engagement should be disclosed and evidence provided on the degree to which engagement results in improved ESG practices.
3. Investment in positive impact companies - Evidence that the fund is investing in companies that deliver positive social and/or environmental benefits. This includes direct impacts through the investment itself (such as investments to establish or scale up early stage companies or projects) or indirect impacts through investments in established companies that generate benefits (including listed companies). 
4. Commitment to ethical practices - Evidence of strong commitment to ethical/responsible investing, including through policy documentation, a high level of transparency, prominent messaging about ethical investment on the fund provider's website and in external communications; and strong ethical practices as an organisation, such as organisational inclusion and diversity, action on climate emissions and the environment, and support for financial literacy and financial hardship.

Exclusions to avoid harmful companies are verified by Mindful Money's analysis of the full portfolio, including the indirect investments in other investment funds. Verification of other ethical investment strategies is crucial. Mindful Money undertakes an in-depth analysis of fund information and external sources to assess the accuracy of information on potential Mindful Funds, along with certification by RIAA as an important verification tool. 

Funds that meet these criteria are invited onto Mindful Money's platform as Mindful Funds - Mindful KiwiSaver Funds or Mindful Investment Funds.

Matching funds with investors' criteria

Mindful Money’s online platform helps users to ‘find a fund that fits’ using the Fund Finder. This matches the criteria of investors with the different responsible investment strategies of providers. These are general criteria that should not be interpreted as individual financial advice. Mindful Money's platform calls for users to consult a registered financial advisor if they have questions about their personal circumstances.

The approach is more user-oriented than scoring systems that try to rank funds according to a single measure of responsibility. The Mindful Money approach is not about identifying the best or worst funds, but those that best match the criteria of investors.

Mindful Money’s approach recognises that each investor has a different set of values, preferred investment approach and risk preference. These three factors – values, preferred investment approach and risk preference – are at the heart of the 3-step approach on Mindful Money’s online platform.

• Values - users are invited to select which issues of concern they would prefer to avoid in their investments. These are then matched with the strategies of the funds
• Preferred approach - users are asked to rank their preferred investment approach according to the importance of: avoiding sectors and companies; engaging with companies to raise standards (ESG management); past returns (recognising that past returns are not necessarily a good guide for future returns); and the level of fees.
• Risk preference - users define their risk category as either Defensive & Conservative funds (investment timeframe 0-5 years), Balanced funds (investment timeframe 6-8 years), or Growth & Aggressive funds (investment timeframe 9+ years), drawing on the risk analysis on the Sorted website.

The Fund Finder provides investors with a list of the Mindful Funds that meet their risk preference, ordered by how well the funds match the user’s selection of issues of concern and preferred investment approach. 

Making a referral to a Mindful fund

When they are ready to make an investment decision, users will be linked to the Mindful Fund provider's application form via the Mindful Money Referral page. In practice, those who use the Mindful Money referral page are a small proportion of those that use Mindful Money’s research and then go directly to the provider’s website. 

Investors are encouraged to seek the guidance of a certified Financial Advisor if they are unsure or if they have questions on the right fund for their personal circumstances. The Mindful Money platform includes a list of the registered financial advisors who are certified by RIAA or members of RIAA.  

Mindful Money receives a contribution towards the costs of undertaking research, running the website and promoting responsible investment from Mindful Fund providers, generally in the form of a monthly contribution. This funding currently provides a small proportion of the ongoing costs. The balance of funding is contributed through individual donations, charitable grants, provision of services to financial advisors and institutional investors, and sponsorship of events. 

Mindful Money is committed to providing free and easily accessible information to the public. Transparency in investment decisions is crucial, particularly for the vast majority of investors who want ethical standards in their investment choices. 

Mindful Money seeks donations from members of the public and from members of the financial community. Donations are tax deductible - Mindful Money is a programme of a registered charity, Sustainable Initiatives Aotearoa (CC51919). All funds are used in pursuit of our mission to improve social and environmental outcomes through education and action for ethical investment.