A new academic paper has urged the government to set KiwiSaver default funds to ethical investment standards.
In ‘Making responsible investment the new standard in KiwiSaver’, author and University of Auckland philosophy senior lecturer, Matheson Russell, argues the default settings should reflect broad New Zealand preferences for socially-responsible investing (SRI).
The paper says while there is no “reliable data” on New Zealanders attitudes to SRI, a 2013 Australian survey commissioned by the Responsible Investment Association Australasia was a decent proxy.
“In the survey of over 1,000 Australians, 54% said they would prefer to invest in a responsible super fund rather than one which only considers maximizing financial returns,” the paper says. “We need only assume that Kiwi attitudes are broadly comparable to Australian attitudes to infer that a sizable proportion—perhaps even a majority—of New Zealanders would likely prefer to invest in a responsible KiwiSaver fund.”
Russell said from a policy perspective it did not make sense for the government to mandate investment, via KiwiSaver defaults, into schemes exposed to “social or environmentally harmful areas”.
He said the hands-off attitude to KiwiSaver default schemes was at odds with the New Zealand Superannuation Fund (NZSF) charter, which specifically targets SRI considerations.
“There’s a real disjunct between KiwiSaver and the New Zealand Super Fund from a government point of view,” Russell said.
According to Russell, the SRI approach is taking the institutional world “by stealth” as large investors increasingly incorporate SRI (also known as ESG for environment, social and governance) into investment guidelines.
But his study notes only $67 million, or “a mere 0.25% of the total assets under management”, of KiwiSaver money is currently invested in explicitly-labeled SRI products
“By any measure the KiwiSaver market, in contrast to the NZSF, is lagging far behind the pace when it comes to responsible investment… ,” the paper says. “None of the current KiwiSaver providers is a signatory to the [United Nations-supported Principles for Responsible Investment], and only a handful of investment options self-described as ‘ethical’, ‘sustainable’, ‘responsible’, or ‘socially responsible’ are available to KiwiSavers.”
While Russell admits ethical funds have been a hard sell in the retail market generally, he says shift default KiwiSaver would shift SRI from the margins to the mainstream.
“It would get the conversation started,” he said.
However, Russell said given the government completed its review of the default KiwiSaver regime last year, the SRI proposal is unlikely to garner much political support in the short term.