New Zealand’s switch to responsible investment is one of the fastest shifts seen in the world, the Responsible Investment Association Australasia says.
It has released its latest report, which shows that negatively screened funds have grown by 2500 per cent over the past year. There was $42.7 billion invested in them at the end of 2016.
A negatively screened fund is one that does not invest in certain things, such as tobacco or weapons, because of ethical or social considerations.
“This is a staggering increase and is a monumental development for New Zealand’s financial markets,” Simon O’Connor, chief executive of the association, said.
“We have never seen a market switch so rapidly to responsible investment. It’s one of the most significant global changes to happen to the sector in 2016 and highlights that New Zealanders are not prepared to build their retirement savings at any cost”.
He said it was driven by a change in the KiwiSaver market. There was public outcry last year when it was revealed that KiwiSaver funds were invested companies that made cluster bombs and other controversial weapons.
As a result, the major KiwiSaver schemes pledged to drop those investments.
That lifted the proportion of New Zealand’s total professionally managed assets invested responsibly to 61 per cent, from just 2.5 per cent in 2015.
O’Connor said financial markets had become aware that New Zealanders were not prepared to grow their retirement savings in a way that could cause social or environmental harm.
Screens avoiding controversial weapons were the most common, followed by tobacco, gambling, alcohol, fossil fuels, nuclear power and “adult content”.
A small number screened for human rights abuses.
In the past, fund managers had mistakenly believed that because few New Zealanders selected the ethical fund options, that meant they did not care where their money went, he said.
“It’s become increasingly clear in the past year that they do care and when asked, they want to have their retirement savings invested in line with their values.”
But he said it was just a starting point and the next step would be for funds to offer investors the chance to put their money into things that would have a positive social and environmental impact, rather than just avoiding investments with negative impacts.
“We increasingly see investors want to invest in technology, energy systems or medical [developments] that form the backbone of the future economy.”
O’Connor said it was a myth that investing responsibly meant having to forego investment returns.
The association’s data shows that balanced funds invested responsibly have out-performed compared to their benchmark indexes over the past three, five and 10 years. “We see this every year now which is that thing that pleases me most. Thyis is not an anomaly.”
People should not be afraid to contact their KiwiSaver provider or bank and ask about their policies, he said.
“Ask ‘what are you doing to invest in a way that aligns with these issues for me?’ – that could be climate change, tobacco, other issues. You should expect a response.”
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