Doing good with your KiwiSaver
Responsible investing continues to gain considerable attention. Too often do we hear of companies committing severe acts of ethical mismanagement, be it illegal toxic waste dumping, human rights violations or corporate fraud. The consequences often affect more than just their reputation, and financial losses can be detrimental for investors.
Most socially responsible investment (SRI) funds exclude certain industries but exactly what is excluded varies between them.
Some funds who claim to be responsible will for example exclude tobacco and cluster bomb manufacturers, but they may still invest in fossil fuel companies or nuclear power. Those companies with horrendous track records of human rights violations or environmental destruction may also be excluded, however slightly less harmful peers could still make the cut simply because they are not considered to be the “worst of the worst”.
It is relatively straightforward to avoid the “bad” industries. However, positive screening helps you identify the "wolves in sheep’s clothing", those companies that may not look bad but actually have questionable or unethical business practices.
This could include activities such as corruption, environmental destruction or human rights violations. Positive screening helps identify such companies through a framework called ESG analysis, where ESG stands for environmental, social and governance. ESG analysis is very important as it creates a better and fuller understanding of inherent risks a company may possess, which helps lead to more informed decision making.
There is significant evidence that shows that investors don’t need to give up returns in order to invest responsibly.
A number of academic studies undertaken over the past 40 years have examined the relationship between ESG considerations and corporate financial performance. More than 90 per cent of them have found that incorporating ESG factors in the investment process have a positive or neutral impact on financial returns*. An example of this is the MSCI World SRI Index, comprising of companies across the globe with outstanding ESG profiles and avoiding those that have negative social and environmental impacts. Since September 2007, it has outperformed the unconstrained MSCI World Index, by 0.5% on an annualised basis**.
As growth in socially responsible investing continues to accelerate, company boards and decision makers will feel more pressure to consider how their business is operating, what impact it is making and what needs improving. This will promote a more sustainable and a better future not just for investors but also for current and future generations.
So, if you strongly oppose things like smoking, existence of firearms in our society or child slave labour, then you probably would not be comfortable spending your savings knowing some of it was accumulated by financially supporting activities such as harmful addiction, conflict or exploitation.
QuayStreet’s Socially Responsible Investment Fund (within the QuayStreet KiwiSaver Scheme) lets you invest responsibly in companies carefully chosen through a strict screening process including both exclusion of undesirable industries and in-depth ESG analysis (positive screening). This is incorporated within our actively managed investment framework where the Fund invests in a diversified portfolio of assets and securities across international and Australasian markets.
If you have any questions or would like more information, contact the QuayStreet Service Team - 0800 782 900 / [email protected]
*According to a meta-study by Friede & Busch.