Default funds to go fossil free
2nd March 2020
The government has today taken the decision to require ethical standards for default KiwiSaver funds, including exclusion of fossil fuels. This protects the interests of those who do not make a specific choice of funds when they sign up to KiwiSaver. The government has a responsibility to ensure their money is not invested in fossil fuels and other companies that cause social and environmental harm.
Barry Coates, founder and CEO of Mindful Money commented: “Annual surveys undertaken by Colmar Brunton for Mindful Money show that three quarters of New Zealanders do not want their KiwiSaver funds to be invested in fossil fuels. This new policy on default funds aligns with public values, as well as government policy.”
This policy is an important building block in government support for sustainable finance. Climate action needs money to be directed away from fossil fuels towards clean energy and climate solutions. Through this policy, the New Zealand government is joining with financial institutions around the world that have divested over $12 trillion funding from fossil fuels and governments that have developed sustainable finance policies.
Barry Coates: “Avoiding fossil fuels is not only good for climate stability, it is also good financially. The world cannot burn all the fossil fuel reserves without catastrophic climate impacts, and producers will be left with worthless ‘stranded’ assets. This is a serious risk to the world’s financial system as well as to investors. Excluding fossil fuel producers from default funds protects the interests of those who have not made a specific choice of KiwiSaver fund.”
Research by Mindful Money shows that $1.6 billion of KiwiSaver funds are invested in companies that are engaged in fossil fuel production. Less than 3% of KiwiSaver investments are so far in funds that have a policy of excluding fossil fuels. Mindful Money survey data shows the barriers to investment include a lack of transparency and a lack of objective analysis to compare options. Mindful Money was established to overcome these barriers.
Barry Coates: “As well as adopting minimum standards on excluding investments in fossil fuels and weapons, future default KiwiSaver providers will need to be transparent about their ethical standards. However, this is also important to all 3 million KiwiSaver investors. Minimum standards, transparency and reporting on ethical investment should be applied to the whole KiwiSaver scheme.”
This decision has come after a thorough process of research and consultation by MBIE, including strong contributions from Mindful Money, 350 Aotearoa, the Climate Change Minister and the finance sector. Mindful Money undertook research on ethical investment to inform the review of default funds, made a submission, provided further information and encouraged submissions from the public.
“This is an important decision. The case for excluding fossil fuels has been made on the basis of policy analysis and evidence provided by Mindful Money, including specific policy proposals and survey data. Mindful Money supporters mobilised to make submissions to the process.”
Mindful Money’s work on the default KiwiSaver scheme is part of advocacy work on retirement policy (included in the recent report from the Retirement Commissioner), the FMA inquiry on ethical greenwashing and the Sustainable Finance Forum.
Individuals can find out how much their KiwiSaver fund invests in fossil fuels and weapons by visiting www.mindfulmoney.nz. They will be surprised to find that $4.7 billion is invested in sectors that most New Zealanders want to avoid. Mindful Money’s fund finder tool is a quick, easy and free way for anyone to find a more ethical fund that meets their criteria.
For media enquiries, please contact:
Founder, Mindful Money
Mindful Money is a charity that aims to make money a force for good. Mindful Money brings transparency to KiwiSaver investments. Members of the public can see where their money is invested, across sectors such as fossil fuels, gambling, pornography and weapons. The service is free for users, and is simple and easy to use. www.mindfulmoney.nz
The latest annual survey of the New Zealand public on ethical investment is at https://mindfulmoney.nz/news/entry/survey2019/
Additional information on fossil fuel investing
In addition to the moral case for divestment, the government’s decision reduces the financial risk for investors who may have landed in a default KiwiSaver portfolio. In a landmark speech in 2015, Mark Carney, then Governor of the Bank of England, outlined the financial risks associated with climate change and called for a rethink in the financial sector. He has repeatedly highlighted the risks of ‘stranded assets’ in the form of oil, gas and coal reserves which will be unusable. These represent a huge risk to investors and a potential source of financial instability.
Central banks, sovereign wealth funds, leading investment funds, UN agencies and the Intergovernmental Panel on Climate Change (IPCC) have repeatedly highlighted the growing magnitude of climate risks to financial markets, including in April 2019 estimating stranded asset losses at over US$20 trillion globally by 2050.
These warnings have been validated by a spate of bankruptcies and steep production declines starting in the coal sector but now extending into the oil and gas sector. Meanwhile investment in renewables is growing as they become cheaper as well as lower climate impact. Solar energy prices have fallen by 80% since 2009, and wind energy by 30-40%, according to the International Renewable Energy Agency (IRENA).
The case for divestment from fossil fuels is strong, as evidenced by the broad range of institutions that have divested $12 trillion internationally. Now default KiwiSaver funds are included amongst them.