Comparing Ethical Investments
Mindful Money aims to change the ways that New Zealanders think about their KiwiSaver funds, and to help them invest in line with their values. We will shift funds and change practices from exploitation and pollution towards better outcomes for people and our planet.
Our platform enables users to take an informed choice about the impact of their KiwiSaver investment:
- We show users what is in their current portfolio
- We identify the Ethical Investment funds that best match the user's criteria
- We provide information on past financial returns, risks and ethical policies of KiwiSaver funds
- We enable investors to switch their KiwiSaver account or open a new KiwiSaver account
In addition this platform provides research, opinion and news on investing responsibly.
This Methodology sets out how Mindful Money has documented issues of concern to New Zealand savers and investors, analysed KiwiSaver portfolios against those issues, selected investment funds to participate on this platform, and identified the funds that most closely match investors' criteria.
Analysis of issues of concern in KiwiSaver portfolios
The starting point for concerns is the consumer research undertaken by Mindful Money together with the Responsible Investment Association of Australasia (RIAA). This identified the main areas of concern for New Zealand investors.
Mindful Money has compiled research on the companies in each of ten issues of concern, drawing on published and unpublished sources, including lists of exclusions from the NZ Super Fund and the Norwegian Super Fund, ratings agencies, specialist research groups and financial services companies. As well as sectors, the issues of concern relate to company practices, such as human rights violations or testing on animals for non-pharmaceutical products.
The resulting research provides a comprehensive global listing of the companies that operate in each sector. In most cases, a threshold of 10% shareholding in the sector has been used for materiality. This means that a company is deemed to be active in a sector (such as gambling or fossil fuels) if at least 10% of their revenues come from that sector. A lower level of 'any involvement' is used to identify companies engaged in pornography, tobacco production, assault weapons and controversial weapons (such as landmines, cluster bombs and nuclear weapons). Companies are included in the Human Rights and Environmental Violations category if the violations are severe, and in the Animal Testing category if the company is engaged in testing on animals for non-pharmaceutical products.
Analysis of KiwiSaver portfolios
A listing of the companies held within each KiwiSaver portfolio is filed six-monthly to the Ministry of Business, Innovation and Employment (MBIE) and posted on the Disclose Register, along with quarterly financial updates. This is the primary source data for the analysis of KiwiSaver portfolios and performance of those portfolios.
Most KiwiSaver funds invest in other funds for at least part of their portfolio. Mindful Money has undertaken research to map the companies in around 95% of relevant portfolios. Portfolio data from KiwiSaver providers is updated twice a year following the filings on 31st March and 30th September, and the Fund Detail page for each fund has a footnote showing the date of the filing.
The list of companies by itself is difficult for most investors to interpret. Therefore Mindful Money's research has mapped the companies in each portfolio against the major issues of concern to New Zealand savers and investors. This is described more fully in our blog on Avoiding Concerns.
Selection of Ethical Funds for the Platform
There are different strategies to invest ethically, and these suit the preferences of a broad range of investors. They fall into three major approaches:
- Avoid sectors and/or company practices that are inherently damaging ('negative screening')
- Choose the better companies within any sector and engage to improve their standards ('Environmental, Social and Governance ESG management')
- Investing in sectors or companies that are good for the environment and society ('Impact Investing')
There are active debates on which of two approaches of avoidance and ESG is the most effective strategy. In reality, most funds include a combination of the two approaches. For example, after there were concerns in 2016 over tobacco and cluster bombs in KiwiSaver portfolios, most fund managers put in place exclusions to avoid tobacco and 'controversial weapons' (landmines, cluster munitions and nuclear weapons), even if their main approach was ESG management. However, most funds didn't go further and exclude other sectors and companies that are of concern to Kiwis.
There has been a huge rise in the number of investment funds that claim to be responsibly managed. However, the standards are not clearly defined and there is extensive 'greenwashing'. Mindful Money's approach is to require verification of any claims. Funds can achieve this in two ways:
- Broad-based exceptions on the issues that concern most New Zealanders - this is verified by Mindful Money's analysis of their portfolios.
- Evidence that ESG approaches are being used to invest in better companies and/or influence companies to adopt higher standards - this is verified by objective measurement or through certification by RIAA which is currently the only credible certification programme.
KiwiSaver funds that meet these criteria have been invited onto Mindful Money's platform as Mindful Funds.
There is growing interest in impact investing and some options are available for investors in New Zealand. Mindful Money is planning to extend our coverage from KiwiSaver funds to all other forms of investment in 2020. This will include options for New Zealanders to get involved in impact investing (doing good), as well as ethical and responsible investment (more oriented towards avoiding harm). Currently there are no KiwiSaver funds focused on impact investing.
Matching funds with investors' criteria
Mindful Money’s online platform will help users to ‘find a fund that fits’. This matches the criteria of investors with the different strategies of providers. These are general criteria that should not be interpreted as individual financial advice. Mindful Money's platform calls for users to consult a registered financial advisor if they have questions about their personal circumstances.
The approach is more user-oriented than scoring systems that try to rank funds according to a single measure of responsibility. The Mindful Money approach is not about identifying the best or worst funds, but those that best match the criteria for categories of investor.
These categories of investor include those with a range of values, preferred investment approaches and risk preferences. Their choice of fund will be guided by these criteria. These three factors are at the heart of the 3-step approach on Mindful Money’s online platform.
- Values - users are invited to use a sliding scale to indicate which issues are most of concern - these are then matched with the avoidance strategies of the funds
- Approach - users are asked to rank their preferred investment approach according to the importance of avoiding sectors and companies, choosing companies with higher standards (verified ESG management), high past returns (recognising that past returns are not necessarily a good guide for future returns) and the level of fees paid to providers.
- Risk preference - users define their risk category through a combination of their time horizon for investing and their choice of different trade-offs between risk and return. The categorisation of those preferences into different risk categories is based on the criteria used on the Commission for Financial Capability's Sorted website.
Investors are encouraged to seek the guidance of a certified Financial Advisor if they are unsure or if they have questions on the right fund for their personal circumstances. The Mindful Money platform includes a list of the registered financial advisors who are certified by RIAA, members of RIAA or members of the Principles for Responsible Investment (PRI).
The Mindful Money platform provides extensive information on each fund to enable the user to make an informed decision about switching to a more responsible fund or opening a new KiwiSaver account. Most information is drawn from quarterly filings by the Fund Providers on the Disclose database. Further information is drawn from the fund’s website and Mindful Money analysis of KiwiSaver fund policies.
When investors are ready to make a decision, they will be linked to the fund provider to invest. When they do so, through this platform, Mindful Money will receive a contribution towards our costs of promoting responsible investment and research for the platform. Mindful Money is a programme of a registered charity - Sustainable Initiatives Aotearoa (CC51919). All funds will be used for our mission of improving social and environmental outcomes through education and actions by New Zealanders.
Transparency in investment decisions is crucial and even more so in ethical investing. Mindful Money is committed to providing investors with reliable information to enable sound and ethical investment decisions. A more comprehensive version of this paper is available and there is further information on our methodology in the different sections of this platform.
Use the Mindful Money website to find the fund that fits your values.