Ethical investing in New Zealand, often referred to as responsible or ESG investing, involves selecting KiwiSaver schemes and managed funds that align with moral values. It focuses on excluding harmful industries like tobacco and weapons while actively allocating capital toward sustainable sectors, such as renewable energy, social housing, and companies with strong governance practices.
What is Ethical Investing in the New Zealand Context?
Ethical investing has transitioned from a niche interest to a fundamental pillar of the New Zealand financial landscape. In Aotearoa, this approach is often deeply intertwined with the concept of Kaitiakitanga—guardianship and protection of the environment. Investors are increasingly demanding that their capital does not contribute to environmental degradation or social exploitation.
At its core, ethical investing is not a binary choice but a spectrum. It ranges from basic negative screening (avoiding the worst offenders) to positive screening (selecting the best performers) and finally to impact investing (targeting specific positive outcomes). For New Zealand investors, this primarily plays out within the KiwiSaver framework, where over $100 billion is invested, much of which is now subject to scrutiny regarding where it is actually placed.
The Rise of ESG in Kiwi Portfolios
ESG stands for Environmental, Social, and Governance. These are the three non-financial factors investors use to measure the sustainability and ethical impact of an investment.
- Environmental: How does the company impact the planet? This includes carbon footprint, waste management, and resource depletion. In NZ, this often focuses on agricultural run-off and clean energy.
- Social: How does the company treat people? This covers labor standards, community engagement, and health and safety.
- Governance: How is the company run? This looks at executive pay, corruption, and board diversity.
The Mechanics of Exclusion: Screening Out Harm
The most common entry point for ethical investing in NZ is “negative screening.” This is the process of excluding specific companies or entire sectors based on moral criteria. While different fund managers have varying thresholds, there is a consensus in the New Zealand market regarding certain “sin stocks.”
Common Exclusions in NZ Funds
Most reputable ethical funds in New Zealand will automatically exclude:
- Controversial Weapons: Cluster munitions, landmines, and nuclear weapons manufacturing. New Zealand legislation actually prohibits investment in cluster munitions, setting a legal baseline.
- Tobacco: Manufacturers of tobacco products are almost universally excluded due to the undeniable health impacts.
- Gambling: Companies deriving significant revenue from casinos or betting operations.
- Adult Entertainment: Producers and distributors of pornography.
- Whaling: Specifically relevant to the Pacific region, companies involved in commercial whaling are strictly screened out.
The Grey Areas: Fossil Fuels and Animal Testing
While the categories above are straightforward, ethical investing gets complex when dealing with fossil fuels and animal welfare. Some funds adopt a “transition” approach, investing in energy companies that are actively moving from oil to renewables, arguing that engagement is better than divestment. Others take a hardline “fossil-free” stance.
Similarly, animal testing is nuanced. Many funds exclude cosmetic animal testing but may invest in pharmaceutical companies that are legally required to test life-saving medicines on animals. Understanding these nuances is critical for investors to ensure their portfolio truly reflects their personal ethics.
Using the Mindful Money Fund Checker
One of the most powerful tools available to New Zealand investors is Mindful Money. This is a charity-led platform that promotes transparency in KiwiSaver and investment funds. It solves the problem of “opaque” portfolios where investors have no idea their money is funding practices they abhor.
How Mindful Money Works
The platform aggregates data on virtually every KiwiSaver fund and investment fund available in New Zealand. It allows users to:
- Check their current fund: By entering their provider and fund name, users can see exactly what percentage of their money is invested in sectors like fossil fuels, weapons, or animal testing.
- Filter by values: Users can select issues that matter to them (e.g., “I want to avoid human rights violations”) and find funds that match those specific criteria.
- Compare fees and returns: Crucially, the tool also displays past performance and fees, ensuring that ethical choices do not come at the expense of financial ruin.
For many Kiwis, the results are shocking. It is common to discover that a “standard” KiwiSaver growth fund holds shares in oil supermajors or weapons manufacturers. Mindful Money empowers the consumer to vote with their wallet.
Impact Investing: Moving Beyond “Do No Harm”
While negative screening avoids the bad, impact investing proactively seeks the good. This strategy targets investments that generate a measurable, beneficial social or environmental impact alongside a financial return.
Examples of NZ Impact Investments
In the New Zealand market, impact investing is growing rapidly. Examples include:
- Green Bonds: Fixed-income instruments specifically earmarked to raise money for climate and environmental projects, such as upgrading the national grid for renewable energy transmission.
- Social Housing: Funds that invest in the development of warm, dry, and affordable housing solutions, partnering with Community Housing Providers (CHPs).
- Clean Technology (CleanTech): Investing in Kiwi startups developing new technologies for carbon capture, sustainable agriculture, or electric mobility.
Performance Analysis: Do Ethical Funds Sacrifice Returns?
The most persistent myth in finance is that ethical investing requires sacrificing returns. Historical data and modern financial theory suggest the opposite is often true. This concept is known as the “ESG Premium.”
Risk Mitigation and Long-Term Value
Companies with strong ESG ratings tend to be more resilient. Why? Because they face fewer risks:
- Regulatory Risk: Companies with high carbon footprints face impending taxes and regulations. Green companies do not.
- Reputational Risk: Companies with poor labor practices face boycotts and strikes. Ethical companies attract better talent and customer loyalty.
- Litigation Risk: Poor governance leads to lawsuits and fines.
According to data from the Responsible Investment Association Australasia (RIAA), responsible investment funds in New Zealand have frequently outperformed their mainstream counterparts over 3, 5, and 10-year horizons. While past performance is not an indicator of future results, the trend suggests that sustainability is a proxy for quality management.
Navigating Greenwashing and FMA Regulations
As demand for ethical investing grows, so does the risk of greenwashing—marketing a fund as “green” or “sustainable” when the underlying assets do not support those claims. A fund might label itself “Sustainable Growth” while still holding significant positions in oil companies, justifying it with vague promises of “engagement.”
The FMA’s Stance
The Financial Markets Authority (FMA) in New Zealand has cracked down on this practice. They have issued guidance stating that funds must substantiate their ethical claims. If a fund claims to be “fossil-free,” it must be truly fossil-free. Investors should look for:
- RIAA Certification: The RIAA certification symbol indicates that a fund has met strict disclosure and verification standards.
- Clear Exclusion Policies: The Product Disclosure Statement (PDS) should explicitly list what is excluded.
- Voting Records: True ethical funds publish how they vote at company AGMs (Annual General Meetings).
How to Switch to an Ethical Fund in NZ
Switching to an ethical fund is one of the most impactful actions a New Zealander can take to reduce their carbon footprint—often more effective than giving up flying or eating meat.
Step-by-Step Guide
- Audit: Use the Mindful Money checker to see what your current KiwiSaver or investment fund supports.
- Define: Decide what matters to you. Are you strictly anti-nuclear? Do you want to support gender diversity?
- Compare: Look for funds that align with your values. Major NZ providers like Pathfinder, Simplicity, and Milford (among others) offer specific ethical or sustainable funds.
- Switch: Changing KiwiSaver providers is incredibly easy. You do not need to contact your old provider; the new provider handles the entire transfer process. It usually takes less than a week.
Frequently Asked Questions
What is the best ethical KiwiSaver fund?
There is no single “best” fund as it depends on your risk profile (Conservative, Balanced, Growth) and your specific values. However, funds certified by the RIAA and highly rated on Mindful Money generally offer the highest standards of ethical screening. Popular ethical providers in NZ include Pathfinder, Simplicity, and specific funds from larger banks.
Does ethical investing cost more in fees?
Not necessarily. While some specialized impact funds have higher management fees due to the intensive research required, many passive ethical funds (which simply track a sustainability index) have very low fees. Always check the fund’s expense ratio before investing.
Can I invest ethically with small amounts of money?
Yes. KiwiSaver is the most accessible way to start, as contributions are made automatically from your salary. Additionally, platforms like Sharesies, Hatch, and InvestNow allow you to buy into ethical Exchange Traded Funds (ETFs) with as little as $5.
What is the difference between ESG and SRI?
SRI (Socially Responsible Investing) typically uses negative screens to exclude “sin” stocks based on moral criteria. ESG (Environmental, Social, and Governance) is a data-driven framework used to assess the risk and sustainability of a company. ESG is often used to manage risk, whereas SRI is used to align with values.
Is nuclear power considered ethical investing?
This is a debated topic. The EU taxonomy recently classified nuclear as a sustainable transition energy. However, in New Zealand, due to our nuclear-free legislation and cultural stance, most ethical funds strictly exclude nuclear power generation and uranium mining.
How do I know if a fund is greenwashing?
Check the fund’s holdings using Mindful Money. Read their Product Disclosure Statement (PDS) to see if their definitions of “sustainable” are vague. Look for the RIAA certification symbol, which requires third-party verification of their claims.
