Would you like some palm oil to go with those cluster-bombs?
How about a scrumptious side of pornography to go with your gambling? Then maybe finish it off with a warm glass of fossil fuels accompanied by lashings of alcohol and tobacco….
Seriously though – and this is a very serious conversation – Have you ever stopped to ask yourself:
“What are the assets that sit within my KiwiSaver Scheme or Managed Funds portfolio?” – or – “Is my investment manager selecting the underlying holdings they invest into in a socially responsible way?”
Have you ever considered those kinds of thought-provoking questions?
You might be surprised, or even shocked to know how many KiwiSaver providers or NZ based Fund Managers have assets in their portfolios that you may fundamentally disagree with investing into or support in any way.
When speaking with clients, we do stress that we are not here to force a conscience on them. We are not here to tell them what is right or what is wrong when it comes to what they choose to invest into. In fact, I have met people who said that they’d rather invest into socially ‘irresponsible’ assets – Needless to say, I couldn’t/wouldn’t help them – but importantly, this is their decision! Not mine…
It’s just that most people don’t stop to think about this subject. It probably hasn’t even crossed their mind that they could unwittingly be investing into armaments, fossil fuels, deforestation, etc etc etc….
In fact, if asked, people would most likely believe that supporting positive environmental and governance behaviour is high on their agenda for deciding whether or not to invest… But, again, it’s probably not even being considered.
If this is you – Don’t be too concerned – You are part of a very large proportion of investors who haven’t thought to delve into this topic. Deep breaths…. It’s OK…. It’s never to late to investigate, and if you’re unhappy about your current position, change it. You just need to be informed. I am a huge believer (as is Janet Xuccoa) in clients being educated and knowledgeable about investing. You don’t need to be an expert, you just need to be financially literate or educated (it’s not as difficult as you might think!) – This well-and-truly includes which investments you are invested into. You should not be doing this blindly.
So, what can you do about it then? What do you need to know?
You are going to hear these three letters or this acronym more and more as time goes by: ESG.
What does ESG stand for?
ESG stands for ‘Environmental – Social – Governance’ (as in Corporate Governance, or how companies are managed – In other words the structure of rules, practices, and processes used to direct and manage a company).
The environmental and social aspect of the above is fairly simple to understand. When it comes to the governance side of things though, this may take a little more grey matter. Suffice to say, if you are invested into shares, then those shares are in a publicly traded company, and this company will require management. This management will require governance, and it’s that governance that will determine the direction of the company in terms of how they care for the wider world outside of their back pockets or shareholder demands.
Increasingly investors are demanding who they invest with endeavour to meet strict ESG protocols.
It stands to reason as the world looks on with dismay at Russia invading the Ukraine – As energy prices spiral out of control – As the environment is battered almost to the point of no return – As children murder children in school shootings – As animal after animal become extinct – People are sick to the stomach to think that their hard earned savings could be going anywhere near companies or assets that support these social, environmental, workforce, or community harms.
Read back on that paragraph and ask yourself if you’re comfortable with your investments being anywhere near those things…. I would venture to say you don’t want anything to do with them!
In 2005 the United Nations invited a group of the world’s largest institutional investors to develop the ‘Principles for Responsible Investment’ (PRI). This group, drawn from institutions in 12 countries, were supported by 70 experts from the investment industry and governmental organisations. The Principles were launched in April 2006 at the New York Stock Exchange.
Today, PRI is a United Nations supported international network of investment signatories who collectively oversee more than US$70 trillion in funds. Its goal is to support and ensure six progressive ESG principles are put into practice by those signatories.
Does your KiwiSaver or Managed Funds provider subscribe to this UN ESG protocol?
A number of investment managers in New Zealand have not adopted a widespread socially responsible investing approach. Instead, they have launched a small number of socially responsible investment products. I do not believe a firm should be able to promote themselves as being socially responsible when only a fraction of the funds they are responsible for are managed responsibly.
One way these ‘managers’ can ensure they are operating in an ESG friendly manner is to contract with an independent third-party firm who can independently audit them. An example of a firm like this is ‘ISS’, or ‘Institutional Shareholder Services’. ISS is a globally recognised expert on a wide range of sustainability and responsible investing issues, including climate change, Sustainable Development Goals-linked impact, human rights, labour standards, corruption, controversial weapons, and many more.
If we relate this to KiwiSaver or Managed Funds, everything in the portfolios has been run through a strict ESG selection protocol as to which assets will and will not appear in the funds.
So, what kind of assets would be off-limits?
Tobacco – Alcohol – Gambling – Armaments – Fossil Fuels – Civilian Firearms – Adult Material – Corruption – Human Rights Abuses – Labour Rights Violations – Environmental Destruction – Controversial Weapons
If anything in this article is of concern to you, the simplest step would be to contact your provider and ask them if your fund has a socially responsible or ESG protocol that governs the selection of assets within the portfolios.
Don’t get me wrong, there are multiple things to consider when deciding on which KiwiSaver or Managed Funds provider you should invest with. Having an ESG/socially responsible framework is just one of those things. For you though, it could be a very important part of the ‘things’ you look for in a partnership to grow and protect your wealth.
After all, what are we investing for? Are we doing it to make the world a better place, or…… not…..
There is also an increasing body of evidence that managing money responsibly improves, rather than detracts from, long-term investment returns. So, perhaps your investments will perform better!
So, I would implore you to think on this topic – Ask yourself where you sit with this subject matter. And, if you feel you need to make some changes, full power to you for having the wherewithal to do so!
Chat soon…
Daniel Carney
Financial Adviser
Goodlife Financial Advice