[GRTV] It's time to rethink responsible investing

Exclusion lists a ‘blunt instrument’ for fund managers, says Koura Wealth’s Rupert Carlyon. 

If asked, most investors will tell you they’re fans of ethical companies.

In fact, 73% of the 1099 New Zealanders taking part in an online survey earlier this year told Mindful Money that they wanted their funds invested responsibly and ethically. If they discovered their fund had investments that did not align with their values, 53% said they would consider switching KiwiSaver funds.

Given these numbers, claims around ethical and socially responsible investments have become a major marketing tool. Fund managers tout their exclusion lists of “untouchables” investments as part of their pitch for new business. ESG (environment, social and governance) investing is booming.

But what does all this mean? Have fund managers and investors thought through the implications and possible consequences of their decisions? And what about ‘greenwashing’ – the making of misleading claims about the ethical standards applied to investments which is said to be widespread?

Carlyon, believes exclusion lists are a blunt instrument.

When it comes to ethical investment and exclusions, he acknowledges Koura aligns with the NZ Super Fund, ACC and global investment giant BlackRock. But a more nuanced discussion is needed around the basis for investment decisions and their unintended consequences, he says.

Take, for example, Germany’s decision to shut most of its nuclear power plants. What that means, Carlyon says, is an inevitable over-reliance on Russian gas and coal. “I think we’d all agree that nuclear energy has to be cleaner.”

Or the irony of fund managers excluding investments in weapons companies at the same time as most of the western world is arming Ukraine.

Carlyon says managers probably fall into the trap of acceding too easily to consumer demands when most consumers haven’t thought through the downstream consequences of these decisions.

“It’s now time for managers to be brave and say, ‘hold on, let’s make sure we understand the implications of what [these decisions mean’.” There is not enough engagement with investors who’re asked very simple questions and asked to tick boxes.

Carlyon says that along with consumer demand, two other factors need to be considered before developing an exclusion list: data from Responsible Investment Association Australia and the type of products available on the market.