Passive investment strategies and index funds are having an adverse impact on the environment, animals and human welfare, according to Barry Coates.
Coates is CEO of Mindful Money.
Analysis conducted by Mindful Money reveals that of the $98 billion of KiwiSaver investments, a substantial $8.6 billion (8.9%) is now allocated to unethical stocks.
This figure has increased from 7.2% in 2019, marking a concerning uptick.
Coates pointed out that while the recent surge in fossil fuel prices has prompted significant investments in this sector, passive investment strategies and the greater use of external index funds share the blame.
Many passive funds are channelling money into oil and gas companies that are expanding fossil fuel exploration and production.
Mindful Money has categorised fossil fuel companies into those transitioning to renewables, those expanding their fossil fuel operations and those taking no action. Investments in companies transitioning to renewable energy have remained stagnant as a percentage of KiwiSaver.
“One of the biggest investments in this area is Contact Energy, but for other companies on a renewable pathway, it is not significant.
“Meanwhile, investments in expanding companies like Exxon, Chevron, BP and Shell have more than doubled to reach $3.2 billion over the past eighteen months,” says Coates.
Greater transparency needed
Despite claims that stewardship and shareholder voting can drive positive change, Coates argues that this approach often lacks credibility.
He acknowledges that increasing efforts in screening and engagement may result in higher fees.
The issue, however, isn’t solely about active versus passive management.
Coates emphasises the importance of the type of passive investment, with some index providers offering stronger exclusions.
Beyond fossil fuels, KiwiSaver investments include
- $2 billion in companies that test products on animals for reasons other than human health,
- $1.4 billion in companies breaching human rights, and
- over $1 billion in companies causing social harm such as alcohol, pornography, gambling and tobacco.
It is now eight years since there was a public outcry over the amount of KiwiSaver funds in tobacco.
The latest data shows an annual growth of 50% in investments in tobacco companies such as Philip Morris, British American Tobacco and Imperial Brands, to more than $21 million.
Coates is calling for greater transparency within KiwiSaver schemes.
He is urging providers to disclose the full list of invested companies, especially those that might concern the public.
While other consumer product industries are aware of their customers’ concerns, he says the investment sector appears to be an outlier.
A recent survey found that 74% of New Zealanders expect their money to be managed ethically and responsibly.
“The issue for financial advisers and fund managers is who’s going to listen to the clients?
“There is evidence that clients don’t always raise it proactively in meetings with their advisers but if and when it is raised they have very strong views.
“It’s an age of climate change, and investment has a huge role to play, but somehow advisers and fund managers are carrying on as if there is no link,” Coates suggests.
Sources
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