Want to make your money grow? Evidence shows investing ethically is the smart money choice

Originally published in The Listener

Most Kiwis were appalled by the Russian targeting of civilians and the suffering of the Ukrainian people. But few realised that we were more than innocent bystanders. The charity I founded, Mindful Money, tracks where our money is invested. We revealed that hundreds of Kiwisaver and other investment funds had investments in the Russian government or companies that were funding the invasion. The total was over $100 million. 

The response was amazing. Within days, thousands of Kiwis had visited our website to find out where their money was invested. We listed on our website the names of those funds that were still supporting Putin’s invasion. They were besieged by concerned investors. Within days, almost all of that $100 million had been divested. Subsequently, government sanctions have ensured that there have been no further investments. 

The smart investors were those that had avoided investments in the Russian government and the big oil, gas and coal companies that supported Putin’s regime, for climate reasons as well as political reasons. The not-so-smart investors were those who ignored the clear risks posed by the massing of troops on the Ukraine border. Most of the KiwiSaver and investment funds that were slow to divest lost 80-90% of their investment value. That has served as a painful lesson in the risks of ethical complacency. Those were your savings. 

Ethical Investing: Doing Good and Doing Well

This is one of the many examples that demonstrate that investing ethically is smart investing. There is a huge weight of evidence over decades showing that investing in ethical and sustainable companies has lower risks and generally higher returns. Ethical companies don’t fuel conflict, war and climate change. They have brands that consumers love, employees who are highly motivated and they avoid being sued for environmental damage. As an investor, you can do good and do well by investing ethically. 

There are other conflicts supported by New Zealand investments. There are 88 KiwiSaver funds invested in companies that directly support the Myanmar military, despite their brutal assault on the courageous monks and civilians who are calling for a peaceful transition towards democracy. 

There are also over 400 funds invested in companies supporting the illegal Israeli settlements in the Palestinian Occupied Territories, despite a UN Security Council resolution that was co-sponsored by the New Zealand government. As responsible members of the global community, we should ensure that New Zealanders’ investments do not support or perpetuate violations of human rights and international law.

What Kiwis Want and the Shift Towards Ethical Investing

Few Kiwis want their funds invested in these conflicts. But there are other ethical concerns as well. Mindful Money annually surveys the New Zealand public to ask what investments they want to avoid. For the past five years, they have consistently said they don’t want to invest in companies that violate human rights or practice cruelty towards animals, and they want to avoid fossil fuels, weapons, social harm (such as tobacco, gambling and alcohol) and environmental damage. Even so, $7.9 billion is still invested in those issues. 

The pattern of investment used to be even worse. The good news is that, over the past six months we have seen the biggest shift in investments since the start of Mindful Money five years ago. There was a huge decline in KiwiSaver investment in those issues that the public wants to avoid. Transparency has been crucial. New Zealanders are now able to see, for free, what companies are in their KiwiSaver fund. Fund managers know that, and even the biggest of the fund providers are starting to wake up.

Our surveys show the public is worried about greenwash - everyone is claiming to be ethical. Investors need to look beyond the rhetoric at what they are actually invested in. It’s quick, easy and free to do so on Mindful Money’s website. 

Using Our Money for Good

Despite the greenwash, it is encouraging to see consumer power push ethical and sustainable investment into the heart of our KiwiSaver and investment institutions, banks and institutional investors like trusts and foundations, charities, unions, universities and councils. 

The next phase is even more inspiring. Smart investing also means opportunities to invest in positive outcomes for the climate, people and the environment. The leading KiwiSaver and investment providers are starting on that journey. 

Investing ethically is a sound financial strategy, but it is also the way that we can take responsibility for our money, especially in the midst of the climate crisis. We can take a conscious choice to reduce the emissions that are financed by our savings and fund climate solutions. We can avoid conflict and support peace.  We can use our money for good.