Transparency and Accountability in Ethical Investment

Mindful Money is a charity dedicated to promoting ethical investment practices and financial transparency in an industry that has historically struggled to provide the public with adequate information on where their funds are invested. 

As our organization has grown and our outreach efforts have expanded, we have encountered an increase in attempts to discredit our work, often based on inaccurate and misleading information. However, we have also received valuable feedback from a number of fund providers. This engagement has led to productive discussions about our methodology and ways to improve the public’s understanding of the impacts of their investments.

Recently, we met with the Boutique Investment Group, comprising most of the non-bank investment providers, to discuss our approach and explore suggestions for enhancing our work. We are pleased to share the notes from Mindful Money and the Chair of the Boutique Investment Group.

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It is clear from surveys that most New Zealanders want to know where their funds are invested. But this is not the whole story. A vexing question that the funds management industry (Including KiwiSaver) is asking is "how do we provide our investors with good information about how their money is being used from an ethical perspective?"

There is plenty of room for different actors with different perspectives to misunderstand each other. We don't have a common vocabulary. There are no accepted standards for disclosure. We approach issues of concern in different ways (and we all think our way is the right way), and we often have different views on whether a particular activity crosses into being a matter of public concern or not.

Against that backdrop the Boutique Investment Group (BIG), which is a forum for most non-bank fund managers, met with Mindful Money, which is one of the most popular platforms for providing retail customers with transparency on portfolio holdings for all KiwiSaver and retail investment funds. Mindful Money is a charity and makes this information available to the public as a free service. Mindful Money also has a set of criteria to show how "mindful" funds are. Our aim at the meeting was to explore whether we could identify useful steps to bring us all closer together, given that it is not uncommon for the Mindful Money website to show portfolio holdings that fund managers consider do not tell the full story, especially when fund managers engage with those companies to improve their environmental, social and governance (ESG) standards. 

One idea we are exploring is when Mindful Money identifies a company of public concern is to add an opportunity for the fund manager to respond. For example, Mindful Money might record a portfolio holding for animal testing in a company that only carries out animal testing because it is legally compelled to by the export market (eg. China), and is actively campaigning to end animal testing. Mindful Money has identified such companies because many of the public do not support animal testing (for non-medical reasons), even under these conditions, especially since many cosmetic companies are choosing not to sell their products to China. The suggested change is that the fund manager would be able to explain their position on the Mindful Money website. From this kind of dialogue, customers would then be able to understand why there are differences between Mindful Money and the fund manager, and that this is not because either side is attempting to mislead.  This concept is subject to being workable from a technical perspective and so is likely to be a few months away.

In order to extend the range on information on ethical investment, Mindful Money is also consulting on how it can incorporate investment practices such as how fund managers undertake stewardship and engagement, whether they invest in companies that generate positive benefits and their actions to reduce climate emissions and build resilience. 

Longer term, we are also thinking about whether we can move toward more commonality in our use of language. It may be helpful to advance this outside regulatory processes in order to provide the terminology that is both relevant to investment practices and understood in the wider world.

Hopefully these steps will lead to more clarity for investors on the ethical matters that are most important to them, and help build confidence in the authenticity of ethical investment claims.

Simon Haines, Chair of the Boutique Investment Group

Barry Coates, CEO of Mindful Money