By Sam Stubbs. This article was originally written & published in The Post.


Ethical investing has become a mainstream claim of many KiwiSaver and Fund Managers. But ‘ethical’ is as subjective a term as ‘friendly’ or ‘good’. It all depends very much on the people involved, their actions, and how they are judged for their actions and beliefs. And that’s very human, and complex. There is a reason Ethics is taught in University, and why many of the finest minds ever have mulled on what was ‘right’ and ‘wrong’.

And the Financial Markets Authority are taking a close look at the claims of fund managers into investing ethically, lest they actually be green washing. For centuries snake oil has been sold, and some ‘ethical’ fund managers might end up in that camp.  

To be fair, it’s tough when you have to invest invest money ethically. For example, it’s easy to say ‘Because of their invasion of Gaza, we won’t invest in any company investing in Israel’. That sounds fine as stated, and I am part of a company that has divested various investments in Israel over time for just that reason.

But scratch below the surface, and it gets very complicated, very quickly. For example, would you sell shares you owned in a pharmaceutical company that sold life saving drugs to Israeli hospitals? Or to their army? And would you boycott the plastics company whose products are in Israeli weapons systems, if they were also in children’s ear grommets, or heart valves?

And does selling something mean you are ‘investing’ in the country? This is important, because all of the major technology companies will have products they have willingly - and sometimes unknowingly - sold to Israel companies. For example, should you sell all your shares in Microsoft because the accounting department of the Israeli health system uses Excel? If Government officials use Zoom for meetings, does that mean investing in that company should be avoided?

There is an argument for not trying to invest ethically at all. For example, fossil fuel companies have high profits at times, and could make KiwiSavers richer. So, if you believe that making more money is the sole purpose of investing money, then your ethics - and investing in fossil fuel companies - will be perfectly aligned.

It gets even more complicated, because ethics is also about what you do, as much as what you don’t do. In investing, this is critically important, because the easier path to calling yourself an ethical investor is by not investing in industries that others call harmful. And websites like Mindful Money outline - in some detail - where they think KiwiSaver managers are crossing their line of what right and wrong is.

But to my mind, ethical investing - just like ethical living - is a combination of what you do and what you don’t do.  

In this regard, KiwiSaver managers have a long way to go. Pro-active investment by KiwiSaver managers in areas like Community Housing have been very slow to materialise, because they have been hard to implement. But this is getting easier. And, to my mind, for their combined almost $1 billion in fees, KiwiSaver managers should be trying harder to make money and do good, by investing in things like startups and infrastructure.

And, with their almost $1 billion in fees, shouldn’t KiwiSaver managers be acting more ethically themselves by giving more to charity? Mindful Money estimated total charitable giving by all KiwiSaver managers at around $10 million in the year to March 2025. That’s only around one percent of their revenues. Enough said. 

To me, unethical investments are like pornography. It’s hard to describe sometime, but you know it when you see it. And I sometimes wonder whether fund managers are claiming all due credit for their ethical investments, but are also behaving unethically in focussing on maximising their fees, minimising their charitable contributions and taking the easy paths in investing.

One thing seems to be clear - ethical investing, as it is commonly understood, does not come at a cost to the investor. Meta studies by MSCI, Harvard and the Harvard Business School show that long term returns from ‘ethical’ investing are roughly similar to ‘un-ethical’ investing. It used to be that ethical investments clearly outperformed, but the recent outperformance of fossil fuel companies - we can blame the Trump administration for that - has levelled the playing field. 

To my mind, this cannot last. Long term, fossil fuels feel very like a sunset industry, with investing in them akin to taking a big bet on buggy whips and horse drawn carriages in the 1900’s. Too much money is being spent on alternative energy and electric cars to believe investing in polluting fuels is a good long term investment.

So does ethical investment still make sense? It does. But that doesn’t mean we shouldn’t be putting the claims made, and the actions of, ‘ethical’ investors under the spotlight.  If they want the benefits of virtue signalling, their actions have to match their words. 

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