Save the world

Whether you keep your money in a bank account, company shares, bonds or a pension fund the organisations that hold it for your invest your cash for their financial gain. This means that, without you realising it, these investments could well be funding activities that damage the environment, or are at odds with your beliefs.

Consider the example of a paper manufacturer who is making paper for the tobacco industry or an electronics company supplying parts to a coal plant in China. It is hard to know where your cash is really going.

Fortunately it is possible to take some control of how your money gets used by making investing decisions based on clear social and environmental policies. This important and growing trend is known as ethical investing or socially responsible investing (SRI) and put simply it means the person who owns the money is able to have a say in what social and environmental effects their money has.

How ethical investing helps the world

Responsible investing specialist Dr Rodger Spiller says that choosing to invest in companies based on their environmental and social performance as well as their financial results can encourage business to have broader views of their role in the world.

For example the ethical investing movement kicked off in a big way in 2003 when a Californian pension scheme that was a big shareholder in GlaxoSmithKline pressured the pharmaceutical giant to reduce the cost of anti-Aids drugs in Africa.

Other large pension funds followed this lead, with the Norwegian government’s pension fund (which held US$325 billion at the time) cutting its investment in Wal-Mart due to concerns about its human resource practices and pulling out of Rio Tinto in response to environmental damage caused by the mining group.

Since then government-controlled funds, such as pension funds, have been instrumental in promoting change because they face more public pressure to encourage ethical corporate behaviour and consider environmental concerns.

Here the New Zealand Superannuation Fund, which invests money on behalf of the Government, integrates responsible investment into all its investment activities by closely aligning to an internationally-accepted benchmark – the United Nations’ Principles for Responsible Investment.

A report by New Zealand’s leading donations organisation, Philanthropy New Zealand, estimated that in June 2010 responsible investment in this country totalled NZ$17.2 billion, of which the NZ Superannuation Fund made up $15.63 billion.

At a smaller scale, New Zealand companies have been able to access ethical funding to help grow green projects such as the Earthsong Eco-Neighbourhood in Waitakere City or the Clean Green Car Company, which used loans from responsible investors to grow its business.

How can I start investing responsibly?

The main ways New Zealanders are able to control how their money is used are by investing directly in companies they believe in, by investing in funds that have declared that they are socially responsible, or by choosing a Kiwisaver scheme that is socially responsible.

The downside of direct investment is that it means doing a lot of personal research and careful thinking about risk. On the positive side, however, direct investment brings a sense of connection with something you might feel strongly about. The list of projects you can fund is extensive and includes companies producing organic food, medical research, designing offshore wind farms, or developing bio fuels.

One local example is The Blueskin Energy Project in Dunedin, part of the Blueskin Resilient Communities Trust, which is raising investment capital to help fund the development of a wind turbine cluster to generate clean and efficient energy for local communities.

An easier approach than choosing individual companies to invest in is asking a financial advisor to find an SRI fund that suits you. There is no one governing body regulating ethical investment, so funds vary in their approach. Generally though they can be divided into active funds that seek out positive projects to invest in, and passive funds that simply avoid contentious areas such as tobacco, arms, and labour exploitation. This approach works well for investing directly in shares as well as pension funds. A good financial advisor will be able to select something to suit you – make sure your adviser is listed in the Financial Service Providers Register (see ‘Want to know more’ below).

It’s also possible to simply switch your accounts to a bank that has clear policies on what it does with your money. Examples include Rabobank, which has policies on not investing in a range of industries such as genetic modification; HSBC which says it won’t use customers’ money for unsustainable felling of rainforests or the use of hazardous pesticides; or Kiwibank which says it prioritises re-investing deposits into New Zealand residential mortgage lending.

Perhaps the easiest approach, though, is to simply switch your Kiwisaver fund to one of the socially responsibly funds (see box). If you are keen to change your scheme then talk to the scheme provider you feel like joining. They will arrange for your savings to be transferred from your old scheme, though you may want to check if there are costs to shifting schemes.

Will being responsible lose you money?

Because SRI funds generally need extra research and monitoring they can have higher fees. However financial writer Mary Holm says “I do believe that people can invest ethically without having to sacrifice returns over the longer term. Returns won’t necessarily be better, but they probably won’t be worse either”.

One issue with responsible Kiwisaver funds, though, is that being small they tend to offer a generalist approach rather than being diversified into either conservative long term growth funds or those with more aggressive approaches to risk.

However some ethical Kiwisaver funds can return impressive results. For instance the OnePath SIL Sustainable Growth Fund has previously returned 12.35 per cent a year, while Fidelity Life’s fund has returned 11.23 per cent in the past, compared with sector returns ranging from 6.09 to 19.6 per cent a year for the same period.

So it would seem that it is possible to get a good return on your investment without betraying your own values – and in some cases contributing positively to the world.

Some Kiwisaver SRI providers

• OnePath SIL Sustainable Growth Fund
• SuperLife Ethica
• Fidelity Life Ethical Kiwi Fund
• Craigs Investment Partners SRI
• Grosvenor Social Responsibility Fund
• Koinonia Funds (membership is restricted to people willing to sign a declaration that they hold Christian beliefs or work for a Christian organisation)

Want to know more?

Check your advisor on the Financial Service Providers Register

The Responsible Investment Association of Australasia offers some excellent advice for New Zealanders

Tools for general investment advice - sorted.org.nz

Tools for general investment advice - fma.govt.nz

Details of Kiwisaver providers and contacts

The book Carbon Neutral 2020 has a useful chapter on responsible investing written by Dr Rodger Spiller. It offers excellent insights into how to be successful at investing responsibly.

The book The Complete Kiwisaver by Mary Holm (updated Sept 2012) includes a discussion on ethical investing.

“How to put your money behind principles” (NZ Herald 2011) is a useful article on responsible investing through Kiwisaver.

Have you started investing ethically?

Share your knowledge by commenting below.