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Socially responsible KiwiSaver funds

Are there any KiwiSaver funds (or fund managers) that invest on ethical principles? e.g. will not invest in shares or bonds of certain companies such as banks, tobacco, oil & gas, consumer packages companies etc. and/or alternatively will only invest in certain companies which have proven sustainability or ethical principles.

Are there any KiwiSaver funds or fund managers that invest on ethical principles?

Thanks for your question. I will preface my answer by reiterating that I am not in a position to give you financial advice per se. I can only give you some general guidance based on my own experience and also in my capacity as a financial journalist.

Like you, I am also interested in investments of this nature so can share with you what I've learned.

Ethical investing - known in the industry as socially responsible investing (SRI) or environmental, social and corporate governance (ESG) - has exploded in popularity over the last decade particularly since the financial crisis.

People want to make money but they want to make clean money that isn't linked to unscrupulous business practices that despoil the planet or exploit people. As a result, SRI funds worldwide have grown exponentially. (SRI funds under management worldwide are estimated by the United Nations at US$22 trillion).

While this is encouraging on one hand, the definition for what is sustainable or socially responsible is, at best, loose. There is no universal standard. So a company that might be regarded as bad in your books, could be regarded as good in someone else's.

I'll give you an example. I enrolled my two children in the ASB Global Sustainability Fund (this was started by failed U.S. president Al Gore, you remember the guy who won international fame on the back of his documentary an "Inconvenient Truth). My thinking was that I could give the kids an early financial advantage through KiwiSaver but also an education by teaching them (when they are old enough to understand) about how money is made.

It wasn't until much later that I drilled down to find how just what companies this fund invests in. Apparently, the majority of people who take up this fund come through an advisor or else are presumed to be smart enough to have done their own research. I took a leap in faith (never do this with investing) and naively assumed that someone who was trying to save the planet would not invest in anything that was less than 100% clean and green.

I was therefore shocked to find in my holdings a pharmaceutical company, a petrol company and a financial advisory firm for 'high net worth individuals,' not exactly what I'd imagined as green award winners. Okay, so the pharmaceutical company is trying to find a cure for diabetes, the petrol company doesn't have any offshore disasters (as far as I'm aware) and the rich folk who I'm helping to make richer through better advice, are apparently ethical investors themselves but still. You get my drift.  (To read more see Amanda Morrall article's on "How to be Good in KiwiSaver''.

Due to the highly subjective nature of ethical investing, it would be impossible to create a fund that met every investor's expectations of what a socially responsible portfolio should look like. That doesn't mean it isn't possible to find one, it's just a caution about not accepting a SRI at face value.

Before you go shopping you need to first ask yourself what you think constitutes a socially responsible investment (and what kind of companies that would include). When you have those ideas clear in your head, then check out what's on the market and look for a fund that marries your personal values with your financial objectives.

In a previous article on the subject, I noted the various SRI's on offer in KiwiSaver. I'll note them again below. They link back to our website detailing their objectives.

See's profile of the Forsyth Barr Socially Responsible Investment Fund

See's profile of Grosvenor KiwiSaver Socially Responsible Investment Fund

See's profile of the FirstChoice KiwiSaver Global Sustainability Fund

See's profile of the Fidelity KiwiSaver Ethical Kiwi Fund

See's profile of the Craigs kiwiSTART Defined Balanced SRI Fund

See's profile of the SuperLife Ethica Pool

You also asked about fund managers.

As quite a few KiwiSaver funds are managed offshore, you'll have to probe further to check up on their background. One resource you might find useful is the Responsible Investment Association of Australasia Responsible Investment Association Australasia (RIAA).

Fund managers that have undergone formal training in this space to become certified are listed on this website. As part of their membership requirement, they're required to submit a complete list of all the companies that make up their ethical fund portfolios. Believe it or not, this is not routinely done. The argument, by fund managers, is that by publishing a complete list of their holdings, it would put their ideas and strategies at risk of being poached.

It all sounds like hard work but if you know how to google and don't mind making a few phone calls, it's all information that can be readily obtained. The thing is not being scared to ask questions of your provider, ask 10 if you need to, not being satisfied with half-baked answers, and sticking to your principles.

I hope that's useful.

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