Talk is cheap: Kiwi investors aren’t as ethical as they claim

This article originally featured Newsroom and was written by Jess Bell. 

New survey data shows Kiwis want their money put into responsible or ethical investments, but the most popular stocks on the share market might tell a different story

An investing app boss says consumers have investment double standards when it comes to making ethical investment choices around their KiwiSaver funds and shares portfolio, but this view is challenged by others in the sector.

According to a survey of more than 1000 people carried out by Mindful Money and the Responsible Investment Association Australasia, 73 percent respondents expect their KiwiSaver investments to be ethical or responsible.

More than half of respondents say they’re more likely to invest in a fund that is independently labelled as ethical or responsible.

While this is all well and good, the boss of investment app Hatch isn’t seeing this same demand in the platform’s most sought-after shares.

At the time of writing, the top five most traded companies included Tesla, Apple, and the S&P 500 Vanguard EFT.

None were funds or companies that meet any responsibility criteria, or the Environmental, Social, and Governance (ESG) overlay which measures the sustainability of a company.

Hatch chief executive Kristen Lunman believes this comes down to people viewing the money they have tucked away in KiwiSaver-managed funds differently to their self-directed share portfolios.

She’s not surprised people want their KiwiSaver money put towards ethical and responsible investments. However, she says people employ a different strategy when it comes to the money in their control, where people opt for big or growing businesses guaranteed to provide a good return - like the top stocks traded on Hatch.

“I’m not suggesting the top 20 stocks are bad or unethical, but there’s not a clean green energy stock in the top 20 for example, or a fund that has an environment, social, and governance overlay," Lunman says.

“Everyone says they want to invest and do good, but it's not quite reflected in their behaviour.”

But fund management company Pathfinder Asset Management chief executive John Berry says if someone values sustainability or ethical investment, they’ll seek to place their money accordingly.

“Typically, if people have a value set, they want to align that across all their investments, whether it's KiwiSaver or non-KiwiSaver investment,” he says.

If anything, University of Otago senior lecturer and sustainable investment expert Sebastian Gehricke says individual investors will be more stringent about checking where they want to put their money.

“If you’ve got strong ethical values then you’ll be thinking a lot more about those individual companies, compared to a fund manager who works with 5000 companies.”

John Berry thinks there’s a historical perception that choosing an ethical or sustainable investment means losing money, but this is changing as customers begin to value responsible companies.

“Companies that act responsibly tend to have a long-term vision, so they will be transitioning to a low-carbon world and they will be thinking about sustainability,” he says.

“In doing so, they will be strengthening their brand and building customer loyalty.”

Greenwashing continuing concern

The poll highlights widespread concern around misleading claims, with half of respondents surveyed expressing concerns around greenwashing by investment funds.

Sebastian Gehricke wants to see greater transparency from companies on how sustainable and ethical they are as an investment option, as members of the public don’t have access to the same resources as fund managers.

“It’s hard for individual investors to do ethical investing in the same way that fund managers do, as you don't have the same resources and tools to manage a large diversified portfolio,” he says.

“You don't have access to the ESG ratings or other climate metrics, or anything like that. You also don't have the time to do all that research.”

Gehricke says greater transparency through disclosures from fund managers on key and standardised metrics, such as their carbon footprint, is a good place to start.

Consumer NZ chief executive Jon Duffy urges people to ask questions of the companies they’re investing in and to not solely rely on advertising material the company might put forward.

“The days of us handing over money to an investment manager and them providing you with a return, no questions asked, are long gone,” he says.

He thinks consumer demand for greater transparency will continue, and companies should expect to be held under the microscope more in future.

“The more open investment companies or managed fund terms can be about where your money's going, the better it is for them, and the better it is for consumers.”