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By Dr Claire Matthews.
Recent reports have raised questions about the types of investments undertaken by many of our KiwiSaver funds. The assumption appears to be that if the New Zealand Superannuation Fund has blacklisted a particular type of investment, then it is an unsuitable investment for KiwiSaver funds as well. This is a simplistic view and, in my opinion, not an appropriate argument.
The New Zealand Superannuation Fund invests on behalf of all New Zealanders and is therefore mindful of that responsibility when id decides where to invest. As it notes on its website, its governing legislation also requires it “to avoid prejudice to New Zealand’s reputation in the world community”. These factors are reflected in its investment principles, which drive its assessment of investments. The same assessment of an investment is not necessarily appropriate for a KiwiSaver fund investing on behalf of individuals.
The largest proportion of the investments being questioned are in tobacco, representing about two-thirds of the so-called unsuitable investments. Tobacco companies are generally very profitable so investments in those companies are likely to generate good returns for investors, and therefore KiwiSaver members’ retirement nest eggs. Not everyone agrees that tobacco companies are an irresponsible investment, with smokers likely to be among those willing to invest in tobacco companies.
The definition of a socially responsible or irresponsible investment is not the same for everyone. Blanket bans on particular types of investments for all KiwiSaver funds would mean that some New Zealanders would be unable to benefit from the potentially high returns generated by investments that they consider acceptable.
I agree with Prime Minister John Key that it is incumbent on KiwiSaver members to understand where their KiwiSaver funds are invested if socially responsible investing is important to them. If your current KiwiSaver fund invests in companies involved in activities you consider unacceptable, then you should switch to another KiwiSaver fund that better aligns with your personal ethical standards.
This applies to default KiwiSaver funds as much as to other KiwiSaver funds. It is not up to the government to determine what is an acceptable investment for an individual, and potentially deprive them of better returns on their investment. An important point to note is that while the amount invested in these types of investments may appear large in dollar terms, it actually represents a relatively tiny proportion of total KiwiSaver investments at less than 0.5 per cent.
But this discussion is important because it has highlighted two issues. First, there is a need for KiwiSaver members to more easily understand where their funds are invested so that they can determine if there is any conflict with their individual ethical perspective. Second, there may be a need for a broader range of funds, and particularly more options for those who prefer socially responsible investing. According to the Sorted website there are currently only three funds, out of the hundreds available, that identify as ethical.
More KiwiSaver schemes will adopt socially responsible investment practices if KiwiSaver members demand it by voting with their funds. So, if Kiwis really care about where their KiwiSaver funds are invested, they should switch to a fund that meets their ethical requirements.
Dr Claire Matthews is a banking and financial planning expert from Massey University’s Business School. She is also Chair of Co-op Money NZ and a director of NZCU Baywide.
Created: 23/08/2016 | Last updated: 23/08/2016
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