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Making money while making a difference

Q.           I am interested in sustainable or green KiwiSaver funds. I have been searching for a long time and have not been able to find any. The Sorted website is not helpful at all.  My wife is with ASB’s FirstChoice KiwiSaver (Al Gore's fund) but they no longer take new members. This seems very odd, because from what I can tell, they seem to have among the best returns of any of the funds.  Why isn’t there more information about the availability of sustainable KiwiSaver funds, for example from the Green party?

A.            Sustainable or ethical investments are available, but they are not currently in strong demand. Unlike you, many New Zealanders are not terribly interested in where their money is invested and they do not know what their choices are.

Currently the emphasis is on economies of scale to achieve lower fees, and that is squeezing out the smaller niche funds. The Green Party’s KiwiSaver policy is to push for a single default provider to be managed by the guardians of the NZ Superannuation Fund, in order to save on fees. While at face value there seems to be some merit in this idea, there is a fundamental difference in purpose between KiwiSaver and the NZ Superannuation Fund. KiwiSaver is a retail (rather than wholesale) Scheme with over 2 million individual members each with their own timeframe. Fund managers are required to report to each member individually and track the source of every dollar that comes in. There is obviously a cost in doing this. In comparison, the NZ Superannuation Fund is a wholesale, long term fund which does not need to report to individuals. 

It is the economies of scale argument that has made ASB Group Investments decide to close their smaller active FirstChoice Scheme and move forward with their larger passive ASB Scheme. FirstChoice members have not yet been asked to make a decision to switch to another Scheme, but as you point out they are not taking on new members. Your wife’s fund is the First Choice Global Sustainability Fund. This fund is 100% invested in shares and is ranked Aggressive by FundFinder so it is not for everyone. It has 511 members with just $6.4 million under management, making it a very small fund. 

Sustainability is important to most active fund managers when it comes to building investment portfolios, and not just for those funds with a Green or Sustainable label. Many fund managers will use a negative screening process to avoid investing in companies involved in the manufacture and sales of weapons, gambling, tobacco, the fur trade, pornography, cosmetics involving animal testing, and nuclear energy. They may also screen out companies operating in countries known for human rights abuses including North Korea, Iran, Myanmar and parts of China including the Xinjiang and Tibetan regions; and any country known to be developing weapons of mass destruction.  

Socially responsible funds will apply the negative screen above but also go further with a positive screen. They may invest only in companies that are making a positive contribution to environmental, social, humanitarian and sustainability issues. For example, this positive screening process may allow investment in certain agricultural and forestry activities, products that reduce environmental damage, and renewable energy technologies. They will also look for companies with good employment practices, effective anti-corruption controls, good environmental management and transparent communication.  

There are a few options for KiwiSaver investors who would like to invest in ‘green’ or sustainable areas. You can find them through Sorted’s FundFinder tool. Go to “Check your current fund” and type in “Ethic” “Social” or “Sustain” and the names of various funds will be displayed. You can follow their links to find out the size of each fund and its risk profile.

One example is the Sustainable Growth Fund from ANZ OneAnswer KiwiSaver - a small fund of around $2 million. According to an ANZ spokesperson this fund “invests in a diversified portfolio of shares in companies pursuing a sustainable development policy and combining respect for social principles (such as human rights, non-discrimination and the issue of child labour) and environmental principles with good financial prospects.” 

They admit that returns generally are lower compared to international equity indexes and public demand for this fund has been limited. “However, we believe it is important to offer this type of Fund as more New Zealanders start to take an interest in the area of sustainable investment.”  Hopefully over time investors will realise that they can make money and make a difference too.

Hawkes Bay Today 24 June 2014
 
Shelley Hanna is an Authorised Financial Adviser FSP12241. Her disclosure statement is available on request and free of charge by calling 870 3838. The information contained in this article is of a general nature and is not personalised. Send your KiwiSaver questions to shelley.hanna@peak.net.nz