Short answer: responsible or ethical investing means the fund applies rules about what it will and will not hold, commonly excluding things like weapons, tobacco or fossil fuels, or actively favouring companies that meet certain standards.
Key points: there is no single legal definition, so “ethical”, “responsible”, “sustainable” and “SRI” can mean quite different things between providers. Two ethical funds can hold noticeably different portfolios, and exclusions are often partial rather than absolute.
Worth checking: the fund’s own statement of investment policy and objectives (SIPO) rather than the marketing label, so you can see the actual exclusions. Providers are regulated by the FMA, which has published guidance on how sustainability claims must be substantiated.
More and more Kiwis are asking the same question: “Where is my money actually invested?”
It is a fair question. KiwiSaver is the largest pool of investment money most New Zealanders will ever have, and it is invested in real companies doing real things in the world.
The trouble is that “ethical KiwiSaver” has become a marketing term as much as an investment one. This article unpacks what responsible investment actually means in a New Zealand context, what your fund may already exclude without you knowing, and how to check what you own rather than taking the label at face value.
What responsible investment actually means
Responsible investment is an umbrella term. Underneath it sit four fairly different approaches, and knowing which one a fund uses tells you far more than the word on the brochure.
- Negative screening (exclusions). The fund refuses to hold certain industries or companies. This is the most common approach and the easiest to verify, because a provider can publish the list.
- Positive screening (best in class). The fund actively favours companies scoring well on environmental, social and governance measures relative to their peers. Note the words “relative to their peers”: a best-in-class oil company is still an oil company.
- ESG integration. The manager factors ESG risks into ordinary investment analysis, but without a hard rule preventing them from holding anything. This is the loosest form, and a fund can describe itself as “considering ESG” while excluding almost nothing.
- Impact investing. The fund seeks a measurable social or environmental outcome alongside a financial return. This is the strictest and the rarest, and it usually applies to a slice of a portfolio rather than the whole thing.
Most KiwiSaver funds marketed as ethical use a combination of the first two. Very few are pure impact funds. That is not a criticism, it is just worth knowing before you assume a label means more than it does.
Your KiwiSaver may already exclude more than you think
Here is something most people are never told: if you are in a default KiwiSaver fund, some exclusions already apply to you, whether or not you ever went looking for an ethical option.
When the Government reset the default provider arrangements, taking effect from 1 December 2021, it changed two things at once. Default funds moved from conservative to balanced, and they were required to exclude investments in fossil fuel production and illegal weapons such as cluster munitions and anti-personnel mines.
Two important limits on that:
- It applies to default funds only. If you or a previous employer ever actively chose a fund, or you were moved into a non-default option, these rules do not automatically apply to you. Many people assume they are in a default fund when they are not.
- Production is not the same as use. The exclusion targets companies producing fossil fuels. A company that sells or consumes them can still be held.
So a default fund is not an ethical fund. But it is also not the blank slate people imagine. Knowing which of the two you are in is the honest starting point, and it is the first thing I check when someone raises this with me.
The label is not a legal standard
There is no legal definition of an “ethical” fund in New Zealand. No regulator certifies the word. Two funds using identical language on their homepages can hold materially different companies.
What the FMA does regulate is whether a claim stacks up. Its sustainability-related disclosure guidance sets out that a claim should be clear, capable of being substantiated, consistent across the fund’s documents, and supported by proper oversight where the manager relies on third-party ESG data or an underlying fund manager.
That last point matters more than it sounds. A New Zealand KiwiSaver fund often invests through underlying international funds. If the local manager applies an exclusion but the underlying fund does not, the exclusion can be thinner in practice than it reads on the page.
Greenwashing is the term for claims that make a product look greener or more responsible than it is. It is rarely an outright lie. Far more often it is a true statement doing more work than it should, such as an exclusion that applies to 5% of the portfolio being described in language that implies it applies to all of it.
Does ethical investing mean lower returns?
This is the question I get most, and it deserves a straighter answer than it usually gets.
Honestly: it depends, and anyone who tells you flatly “no” is overselling.
Screening out part of the market changes what you own, and changing what you own changes your returns, in both directions. Over any given period an ethical fund may beat a comparable conventional fund or trail it, and the reasons are usually structural rather than moral:
- Sector exposure. A fund that excludes energy and mining will lag when those sectors run hot and lead when they do not. That is not the screen failing, it is the screen working.
- Concentration. A smaller eligible universe means fewer holdings, which can mean a bumpier ride.
- Fees. Active screening costs something to run. Sometimes that shows up in a higher management fee, and fees compound against you just as returns compound for you.
What I would say with confidence is that choosing an ethical fund does not condemn you to poor returns, and the difference between two well-run funds in the same risk category is usually far smaller than the difference between being in the wrong risk category altogether. Someone in a conservative fund with thirty years to run is giving up far more than someone who screened out tobacco.
If you want to look at the evidence yourself rather than take anyone’s word for it, the Responsible Investment Association Australasia publishes an annual benchmark report covering the New Zealand market. It is the closest thing we have to a neutral scorekeeper.
How to check what your fund actually holds
You can do most of this yourself in an evening. In order of how much it tells you per minute spent:
- Run your fund through Mindful Money’s free Fund Checker. Mindful Money is an independent New Zealand charity, not a fund manager, and its checker shows you the companies your fund holds sorted by the issues people most often want to avoid, including weapons, fossil fuels, animal cruelty and social harm. It is the fastest way to turn a marketing label into a list of actual companies.
- Read the SIPO, not the homepage. Every scheme must publish a statement of investment policy and objectives. It is where the real exclusions live, in plain language, with the thresholds attached. If the SIPO is vague, that is your answer.
- Look for the threshold, not the word. “We exclude tobacco” can mean no tobacco at all, or no company earning more than 10% of its revenue from tobacco. Those are very different funds. The number is the policy.
- Check whether the provider is a UN PRI signatory. The Principles for Responsible Investment is a commitment to a process, not a guarantee about holdings, so treat it as a signal of intent rather than proof. Its absence is more informative than its presence.
- Compare the fee against a conventional fund in the same risk category. If you are paying materially more, you are entitled to see what the extra buys.
The trade-offs worth knowing about
Any adviser who presents ethical investing as cost-free is not being straight with you. The trade-offs are manageable, but they are real.
- Your definition may not be theirs. A fund screening for climate may happily hold a company with a poor labour record, and vice versa. Very few funds screen for everything, and the ones that come closest tend to be the most concentrated.
- Exclusions are usually partial. Revenue thresholds mean a small amount of exposure often survives the screen.
- Policies change. A fund that met your standard three years ago may have shifted its mandate since. This is worth a look at review time.
- Values can cost you if they push you into the wrong risk category. If the only fund matching your ethics is conservative and you are thirty years from retirement, the ethical win may be smaller than the retirement cost. That is a conversation worth having before you switch, not after.
You deserve a fund that matches your values
It is your money. You should feel good about where it goes and confident that it is still doing its job, which is to be there when you need it for your first home or your retirement.
Whether you care most about climate, human rights, animal welfare, or simply not funding an industry you disagree with, the goal is the same: a fund where the values and the numbers stack up. Those two things are not in opposition nearly as often as people assume, but they do have to be checked rather than hoped for.
Where I fit in
I review and compare KiwiSaver providers and funds across the wider New Zealand market. That comparison is not limited to the schemes I hold an adviser agreement with, and a genuine outcome of a review is often that you are already in the right place and should stay put.
Where a change does make sense, I implement it through my selected implementation panel of ten KiwiSaver schemes: Generate, Milford, Pathfinder, Fisher Funds, Booster, Kernel Wealth, Kōura Wealth, QuayStreet, SBS Wealth and Smart KiwiSaver. That panel includes providers with an explicit responsible investment mandate, Pathfinder being the best known of them in this space.
Sessions are free and there is no obligation to act on anything I suggest. How I am remunerated depends on the provider, and the full provider-by-provider detail is set out in my disclosure statement.
Take the next step
Two ways to start, depending on how much time you have:
Run the free KiwiSaver Health Check to see how your current fund stacks up in a few minutes.
Book a free 30-minute session and we will look at what your fund actually holds, together, and whether it matches both your values and your timeframe.
Simple Steps. Solid Results.
Sources and further reading
Primary New Zealand sources for the points above. Rules change, so check the current position before acting:
- Financial Markets Authority - the regulator overseeing how funds describe themselves.
- FMA sustainability-related disclosure guidance - the current guidance on how sustainability and ethical claims must be substantiated. It replaced the 2020 disclosure framework for integrated financial products.
- FMA - KiwiSaver default funds - what the default settings are, including the fossil fuel and illegal weapons exclusions.
- Mindful Money - independent New Zealand charity whose free Fund Checker shows the companies your fund holds, by issue.
- Responsible Investment Association Australasia - publishes an annual benchmark report on the New Zealand market.
- UN Principles for Responsible Investment - check whether a provider is a signatory.
- Sorted KiwiSaver fund finder - compare funds, including responsible investment options.
- Inland Revenue - making changes to my KiwiSaver - how to move if you want a different fund.
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