It's time the Financial Markets Authority does its duty to protect Kiwisaver investors
Opinion: The Financial Markets Authority’s inability to describe ethical standards for KiwiSaver funds should be a major concern to all New Zealanders who care for their own safety and the safety of our country. Currently the large majority of KiwiSaver Funds that claim to be ethical have invested in banks that supplied $3.8 trillion into the fossil fuels industry between 2016 and 2020.
The authority says it cannot stop these funds misleading potential investors because it cannot define what is ethical. This is frightening in a world where the UN Secretary-General has warned that because of greenhouse gas emissions the world is on a fast track to disaster.
There are a number of terms for ethical investing – socially responsible investing, environmentally responsible investing, responsible investing, ESG investing (Environmental, Social and Governance), sustainable investing – but there is widespread confusion about them. According to the Reporting Exchange, there were more than 1,700 ESG-related guidelines worldwide in 2019.
The Securities and Exchange Commission has recently acted against misleading ESG claims. It has penalised BNY Mellon Investment Adviser, Inc. for misstatements and omissions about ESG considerations.
The Financial Markets Authority Act states that financial products and services require ‘fair trading’ and include prohibiting misleading or deceptive conduct. But when it comes to ethical investing, the authority claims that values are subjective and constantly changing and hence it cannot define what an ethical investment is.
Yet New Zealanders are currently appalled by the atrocities in Ukraine where murder, rape, torture and other war crimes are being committed. The authority is unable to state that these are wrong, or whether human rights abuses, bribery and corruption are unethical or not.
It is unable to condemn slavery or animal abuse, the poisoning of rivers, waterways and seas, pollution of the air, and degradation of the environment generally.
Yet in an unpublished survey we conducted last year, 20 of the funds had invested in at least one of the 60 banks (directly or indirectly) that invested a total of $3.8 trillion into fossil fuels from 2016–2020.
The authority’s claim that values are subjective and constantly changing confuses values with preferences. Society’s choice of values is not based on personal choices that change like a whim of fashion.
Ethical principles and rules are based on setting standards for behaviour to ensure the safety of citizens, and have often been established over a lengthy period of time. Care for the environment is a long-standing principle with indigenous peoples. Any consultation with Māori would have informed the authority of the Māorii values of mana oritetanga (equality, fairness) and kaitiakitanga (guardianship, stewardship, care) to describe the ethical relationships between each other and the Earth.
Human rights are not something that change like the colour of one’s socks. New Zealand strongly supported the establishment of the Universal Declaration of Human Rights and set up the Human Rights Commission.
In New Zealand the moral domain includes many aspects of human-animal and human-environment relationships. For example there is a Wildlife Act regulating the behaviour towards animals, birds, and aquatic life. On the Department of Conservation website is a list of the international and multinational conventions and agreements that New Zealand has signed up to, and these are part of our moral domain.
A case study of the Simplicity Fund that assessed the validity of Simplicity’s claims to be an ethical fund describes more fully the dimensions of our responsibilities to each other and to the non-human world.
Our values will, I hope, continue to evolve. These principles form the basis of codes of conduct that apply to specific sector behaviour (eg Forest Stewardship Council certification and animal welfare codes).
Change usually happens after rigorous and lengthy public debate. When a society has these under review, it does not mean that the authority cannot act on well-established values and codes. The evolution is usually based on an extension of existing norms (eg women's rights, animal rights, extending responsibilities towards our environment) rather than a rewrite of the whole set.
An investment fund’s statements about its values in their codes of conduct, statement of values or principles or equivalent should be explicit enough to enable a potential investor to be fully informed about how well the fund will cover this moral domain to care for people and the planet. Investments that fail to meet these standards should be excluded or engaged by the fund to persuade a change in their behaviour. Full and transparent reporting should be made.
Wise Response – a broad coalition of scientists, engineers, lawyers, artists, and sportspeople urging New Zealand to face up to questions about our future wellbeing – has made complaints to the Financial Markets Authority.
One example is AMP Wealth Management New Zealand which through its Balanced fund No 2 invested in 20 of the top 60 biggest banks to have financed fossil fuels in the five years since the Paris Agreement. Of concern are the broken promises of Deutsche Bank, JP Morgan and Standard Chartered with their loan of US$1 billion to Adani coal miner for its Australian coal mine. These banks are invested in by AMP Wealth Management NZ.
Another example is Generate, which relies on an ESG framework that is vague in its ethical values and relies on overseas funds for its application. Through these funds, it invests in pulp and paper company APP, which has been boycotted by most major brands because it is connected to 30 years of deforestation, forest and peat fires, and the destruction of wildlife habitat in the 2 million hectares of land under its control in Indonesia.
The authority has done nothing about these complaints. It is time it started to meet its obligations.
