Press Release: Accelerating Mainstream Investment for Positive Impact

Most Kiwis are interested in the potential to use their investment money to do good. With KiwiSaver funds now totalling around $100 billion, even a partial allocation of funding can make a huge difference, especially if it is applied to meeting urgent social and environmental challenges. Already, mainstream KiwiSaver and managed investment funds are being invested in companies developing solar and wind power, building the circular economy or providing social housing.

The challenge is to ramp up this funding. Mindful Money’s report ‘Mainstreaming Impact investment’ shows that the major fund providers are interested in investing more in companies that have a positive impact, but there are constraints. The report analyses these constraints and ways they can be overcome.

Read the full report

Barry Coates, CEO of Mindful Money commented: “Annual surveys show there is growing interest from investors to support investment in positive impact. Last year, a large majority of New Zealanders said they would be interested in investments with a positive impact. However, until recently, there have been few funds available, especially to retail investors. One of the challenges is to convert the interest from institutional and retail investors into tangible demand for positive impact opportunities. This will require confidence amongst investors that the promised social and environmental benefits are real and can be measured and verified.”

Other challenges include constraints on investing in unlisted companies, such the challenge of managing liquidity when investments include growth companies and long term assets that are not regularly traded. Investment in unlisted companies (such as private companies, SMEs or early stage companies) is crucial, since many of them have the most direct connection to generating positive social and environmental impacts. The report identifies a number of potential approaches to managing liquidity, including legislative change, further regulatory guidance for KiwiSaver schemes and improved management by fund providers.

Currently, most KiwiSaver and managed investment funds invest very little in unlisted companies, well below the level of many other OECD countries. The UK government has worked with the major pension funds on an initiative to allocate a higher level of investment in private assets, citing the likelihood of higher returns after fees for investors.

Barry Coates added: “The experience of the UK and many institutional investors shows there is not necessarily a trade-off between positive impact and returns. There is evidence of good returns from investments in companies with positive impact and strong sustainability policies, operating in rapidly growing sectors. Most of the New Zealand fund managers that are ramping up their impact investing aim for high risk adjusted returns, after fees, as well as positive benefits for society and the environment.”

Further challenges identified in the report include overcoming the perception that the best investments are those with the lowest fees. The advice to consumers to look for low fees makes many fund providers reluctant to seek out positive impact opportunities, including in unlisted companies, because it will result in higher costs and fees. While there is additional complexity and cost associated with investing for positive impact, this is often compensated by higher returns. A better measure than lowest fees is value for money, measured by returns after fees, as well as other benefits of importance to consumers.

Coates added: “Currently the drive for lowest fees is leading to a heavy concentration of KiwiSaver and manager fund investments in large global listed companies and ETFs. This means there is limited choice for consumers, and they miss out on the potential to invest in impact and a range of other asset classes.”

“This also means there is limited private sector investment into urgent challenges in New Zealand, such as emissions reductions, resilience, social housing and regeneration of nature. It is important to educate the public about different costs associated with different types of investing, and to make the case for investment that delivers real value.”

A significant challenge identified was the perception that there are not enough investable opportunities, particularly investments for positive impact in New Zealand. There is often a lack of scale for growth companies providing positive impacts, making it difficult for large fund providers to make direct investments. As with the other constraints, the report outlines a number of promising ways that these constraints can be overcome, including building a deeper understanding between the impact companies or funds and the mainstream fund providers.

Barry Coates concluded: “There is strong support for accelerating investment in positive impact and progress is being made by fund providers. However, there are constraints in legislation, regulation, capability and current practices of fund providers. This report is a contribution to overcoming these constraints and mobilising far more KiwiSaver and other investment for the public good.”