Monday Thoughts: Fossil fuels, palm oil and animal testing in your Kiwisaver?

This article originally featured on Stuff and was written by John Berry. 

OPINION: Last week C16 Biosciences (a private US company) raised almost $30 million of capital to convert food waste into synthetic palm oil, highlighting how investors enable ground-breaking technologies.

The result can be both great returns and solutions to the world’s toughest challenges. Alternatively, our investing choices can support harm.

Many want their KiwiSaver to avoid activities causing social harm, like gambling or tobacco. But we should also think of avoiding practices harming our environment and the planet.

If an industry or activity is bad as an investment and harmful to the planet, why invest in it?

Fossil fuel companies are bad investments.

The energy sector (coal, oil, natural gas etc) has been the worst performer on the US stock market in five of the last seven years. From 2008 to 2019 the return on capital employed by the largest western oil companies sank by 75 per cent. Not a good outcome if you are holding shares in Exxon-Mobil, Shell or BP.

And if you’re invested in oil companies it’s not good for our future in terms of climate change. Yet many Kiwis are invested - according to Mindful Money, the growth funds of the 10 largest KiwiSaver providers all have fossil fuel companies.

The alternative to fossil fuels is solar, wind and alternative energy companies, like Vestas (wind) and SolarEdge (solar). Alternative energy companies have been particularly strong investment performers.

Companies embroiled in serious environmental violations are both harmful to the planet and higher risk as investments. Over the last decade these companies like Volkswagen (emissions test cheating) and BP (Deepwater Horizon oil spill) have seen a direct share price impact.

Yet the growth funds of the 10 largest KiwiSaver providers all have investments flagged by Mindful Money with human rights and environmental violations.

Palm oil is used in an incredibly wide range of products including food, cosmetics and biofuels. This industry is a driving force behind deforestation, often in places with rich biodiversity.

Clearance from forest fires causes widespread air pollution, habitat loss, removes carbon sinks vital to fight climate change and displaces communities.

Consumers generally don’t want palm oil in their chocolate, investors generally don’t want it in their KiwiSaver.

There is hope from new technologies, like C16 Biosciences’ process to replace plant-based palm oil with a synthetic version. If scaled commercially this will be a game changer for the environment as well as very profitable.

KiwiSaver providers have reduced investment in companies connected with palm oil. Of the 10 largest KiwiSaver providers, the growth funds of only four include companies linked to palm oil (and thankfully the exposures are small).

There are other controversial activities impacting our environment, animals and ecosystems that you may want your KiwiSaver to avoid. For example, growth funds of the top 10 KiwiSaver providers each have between five and 53 exposures to companies engaged in animal testing like for cosmetics, consumer goods and pharmaceuticals.

We can change the world for the better by consumers rethinking spending choices, by scientists advancing technologies and, when we need it, by governments enacting new regulations.

Another less recognised way to make change in the world is by focusing on how we invest. With our KiwiSaver savings collectively adding up to around $70 billion we should aim for impact on top of making more money.

- John Berry is co-founder and CEO of ethical KiwiSaver provider CareSaver KiwiSaver and ethical investment manager Pathfinder Asset Management