Ethical Kiwisaver Funds - The Definitive Guide to Investing for the Future

Our guide explains what an ethical KiwiSaver fund is, the pros and cons, how to choose a suitably ethical fund, the most ethical KiwiSaver funds and frequently asked questions.

Updated 27 October 2021

Climate change and social responsibility considerations increasingly drive consumer decisions, including where your KiwiSaver money is invested (as outlined in this Stuff.co.nz article) and how it benefits the planet and society. Ethical investing via KiwiSaver has allowed more New Zealanders to put their money where they believe it will have the most impact.

Our guide is designed to help anyone interested in using their KiwiSaver to invest in companies that positively impact the world. We cover:

MoneyHub Founder Christopher Walsh shares his views on ethical KiwiSaver funds:

Ethical KiwiSaver funds are new in the market and still largely misunderstood. There is confusion around whether an "ethical" fund has better returns or worse returns than traditional KiwiSaver growth funds. This is important - most New Zealanders don't want to invest in weapons, but they also are generally uneasy about forgoing sizeable investment returns from "excluded" companies that perform well. Ethical KiwiSaver funds are not designed to deliver below-average returns.

Having explored ethical investing in other guides (see our ESG funds and ethical investing comparisons), I am confident that ethical investing can beat market returns, as reported recently by Morningstar. It's early days in New Zealand, but so far the 3-year and 1-year returns we've seen from ethical funds have been strong.

If you're thinking about switching to an ethical KiwiSaver fund, two schemes particular stand out - Pathfinder and Booster. However, MAS, SuperLife and Simplicity are all popular examples of schmes that have innovated and launched ethically-focused funds that prioritise sustainable outcomes for both investors and the planet.

Christopher Walsh
MoneyHub Founder

What is an Ethical KiwiSaver Fund?

KiwiSaver is arguably the best investment scheme in New Zealand. Its long-term focus aims to reward New Zealanders who commit to sacrificing a small portion of their salary today to build up a retirement nest egg. Each KiwiSaver fund invests in at least a dozen companies that have the potential to increase in value. However, there are 100+ KiwiSaver funds to choose from, making it challenging to short-list ethical options.

If you choose a KiwiSaver fund branded "ethical", your money should be invested according to your values. An ethical fund will consider environmental, social, governance (ESG) and ethical issues related to individual companies. This means an ethical KiwiSaver fund will buy shares in companies wanting to 'do the right thing', protecting the planet and people at the same time as securing sustainable business operations.

Some ethical KiwiSaver funds won't invest in companies that 'do bad' - e.g. companies that test their products on animals, sell fossil fuels or profit from gambling. The good news is that well regarded research shows you can invest ethically and generate good returns, and this is what many KiwiSaver funds are focused on doing.

Is my KiwiSaver already ethical?

It may be, but there are no guarantees, and there is no one definition of an ethical KiwiSaver. To help you decide, we list our list of considerations to make below.

Switching your KiwiSaver to an ethical fund: If you are concerned that your KiwiSaver fund is not as ethical as you would like it to be, switching to a new provider takes a couple of minutes.

Ethical KiwiSaver - Pros and Cons

There are some good reasons to ensure that your KiwiSaver is ethical. However, there are also some cautionary points, as we outline below:

Pros:

Resilience: Many ethically-focused companies have chosen long-term, value-growing goals as their priority. This means they don't focus on short-term profits and quick wins and build strong foundations as a result. As such, ethical funds don't tend to focus on oil, aviation, and retail industries, all of which have suffered since COVID-19. Instead, they focus on companies specialising in technology, clean energy and solving the world's problems.
Global impact: Your KiwiSaver contributions reward companies that care about people and the planet. The more people who invest ethically, the more potential investment there is for ethically-focused companies. This means incentives are created for companies to focus on the environmental and social impacts of their business practices. While a 3% contribution on an $60,000 salary may not be significant to change the world, the more people ethically invest, the greater the global pressure.
Protecting the future as the world evolves: It's generally accepted that the earth has a climate crisis. Governments are expected to change laws around pollution. An ethically focused company should not be affected by such changes and can potentially thrive in uncertain times. As KiwiSaver is a long-term investment, ethical investing can lower the risk that the companies your fund invests in are adversely affected by law and climate changes.

Cons:

"Greenwashing": As there's no regulation around what is "ethical", one "ethical" fund may not be as "ethical" as another. In a nutshell, there is no standard meaning every day New Zealanders need to research and verify that they're happy with how the fund invests. However, a range of resources exist, including each ethical fund's website, investment policy, and tools like Mindful Money which help determine how ethical a fund is.
Lack of diversification: Ethical investing excludes certain industries when standard funds offer diversification. This can be problematic if your fund invests narrowly and is caught out by unfavourable market conditions.
Fees: The costs of extensively analysing companies' ethical nature can be expensive given the specialist workforce involved. This then adds to the total costs of running the fund, which is passed on to investors by way of higher fees.
Funds that fail to make a difference: Some ethical funds just invest in tech companies that "don't do bad things". We think they need to try harder and look at investments with solid ESG scores rather than pick safe bets if they're marketing themselves as ethical players.

Know this: You can find out precisely what each fund invests in using Sorted's Smart Investor tool. Our video outlines the easy steps you need to follow.

How to Choose an Ethical KiwiSaver Fund that Meets Your Needs

Ethical KiwiSaver funds are increasing in popularity. However, deciding to invest in ethical funds adds some extra considerations you may not have when picking more conventional funds, which we outline below to help you make the right decision.

1. Costs vs Returns

Actively managed ethical KiwiSaver schemes, such as MAS, Booster and Pathfinder, manage their funds to try and beat the returns of a sharemarket or benchmark. If a fund underperforms, the returns after deducting the costs from running the fund (i.e. the management fees) may be lower than an ethical index fund (for example, those operated by SuperLife or Simplicity).
When you're choosing an ethical fund, fees are one consideration, alongside past returns. High fees do not correlate to high returns (and vice versa) as outlined in our active vs passive investing guide.

2. Timeframe

Whatever KiwiSaver fund you shortlist, ethical funds usually have one thing in common - they focus on growth and are, therefore, long-term investments.
Cash or Conservative ethical KiwiSaver funds are rare, hence the focus on growth funds. Ethical investing involves conscious investing decisions; the most significant impact happens when the fund manager buys shares in ethical companies with a long-term focus.

3. Is the ethical KiwiSaver fund 'exclusion-based' or 'impact-based?'

There is a big difference between a KiwiSaver fund that excludes undesirable companies (operating casinos, manufacturing weapons, extracting fossil fuels etc.) and investments that protect the planet.
KiwiSaver doesn't offer ethical sector funds, i.e. water funds, carbon-neutral funds or solar energy funds. This is because the risk to investors would be too high given there's no diversification.
However, many KiwiSaver schemes invest with an ethical purpose rather than merely following an exclusionary process, making the investment decisions more meaningful.
Our summary below of the most popular ethical KiwiSaver funds explains in detail the impact-based and exclusion-based funds.

4. Evaluate your existing ethical investments before joining or switching into an ethical KiwiSaver fund

There is a risk that you become overexposed to ethical investments.
Before investing, take a look at your current portfolio of funds and shares and make sure you're not concentrated in one area.
Suppose you have money in an ethical NZX50 index and want to switch to an ethical KiwiSaver tracking the NZX50. In that case, you may need to diversify to reduce the risk of being over-exposed to the New Zealand sharemarket.
Don't rush to join a KiwiSaver fund without carefully considering how well you're diversified.
Know this: Pathfinder funds are an example of ethical funds you can invest in outside of KiwiSaver, either directly through their website or using Sharesies.

5. Ask about an investing impact report

It's all very well to invest in an ethical KiwiSaver fund but it's hard to see if your money makes any difference without knowing the impact.
An impact report should cover the carbon emissions, the gender mix on the board of directors, charitable donations etc. A recent example is the Pathfinder Sustainability Report 2021.
It may be problematic to aggregate for a fund with dozens of investments, but such documentation is the best way to understand the impact.

The Most Ethical KiwiSaver Funds

Important - Our research methodology:

We have relied on data from Morningstar to shortlist five ethical and balanced and growth-focused funds you may want to consider. Please note, we have used one-year returns as many ethical KiwiSaver funds are less than three years old due to the emergence of ethical funds in recent years. This list is not an endorsement of these funds. Returns are shown as After Fees/Before Tax.
We appreciate that one-year returns are not generally sufficient to make an informed decision about whether or not a fund is a credible investment. Therefore, we will use three-year returns when these become available. As with any investment, ethical or not, past returns are not a reflection of future results.

With the above methodology in mind, we present ethical funds which stand out in a crowded market:

1. Pathfinder KiwiSaver Growth Fund

Management Fee: 1.29% p.a.
1 Year Return as of 30 September 2021: 22.82%
Fund overview: The Pathfinder KiwiSaver Growth Fund has a higher exposure to growth assets and a lower exposure to income assets.
Investments: Companies the fund invest in include Microsoft, Telstra, Spark and Oceania Healthcare.
Our view: We see Pathfinder's Growth fund as, arguably, the most ethical KiwiSaver growth fund. Pathfinder's dedication to detail has seen it awarded for ethical investing by investment specialists. It also doesn't invest by "excluding" but actively looks for ethically-minded companies making a difference. Pathfinder's investment policies include:

To avoid animal testing and factory farming
To not invest in an NZX company without at least one female board member
Have no tolerance for companies with exploitative behaviour in supply chains
To invest in no companies involved in the exploration, extraction and distribution of fossil fuels
To invest in no companies that mine or use thermal coal (this includes utilities that generate 5% or more electricity from this source)
Avoid companies with revenue (at a 5% threshold) from adult entertainment, alcohol, or gambling

More details: Pathfinder KiwiSaver Review
Website: Pathfinder KiwiSaver Growth Fund

2. Booster SRI High Growth Fund

Management Fee: 1.32% p.a.
1 Year Return as of 30 September 2021: 18.02%
Fund overview: The Socially Responsible Investment High Growth Fund invests predominantly in growth assets (with little or no income assets).
Investments: Companies the fund invests into include Microsoft, Fisher & Paykel Healthcare, Vanguard (international property fund) and Auckland International Airport.
Our view: Booster's High Growth SRI fund is New Zealand's longest-running ethical fund, with an unrivalled 10+ years of performance data (with a 10 year return of 11.34 p.a. to 30 September 2020). Booster is clear in its approach and avoids any company generating significant revenue (i.e. above 5%) in activities such as fossil fuels, nuclear power production and 10+ other areas as outlined here. Booster also looks for positive companies, as outlined in their explainer video.
More details: Booster Ethical Investing Funds
Website: Booster

3. MAS Aggressive Growth Fund

Management Fee: 1.15% p.a.
1 Year Return as of 30 September 2021: 19.61%
Fund overview: MAS's Aggressive Growth fund is, as the name suggests, its most growth-orientated KiwiSaver option with 90% of investments in growth shares and 10% in fixed interest.
Investments: Companies the fund invests into include Microsoft, Infratil, Fisher & Paykel Healthcare, Meridian Energy and Mainfreight, among others.
Our view: MAS has a comprehensive responsible investing policy that applies to all of its KiwiSaver funds. Its three-step approach includes limiting investor exposure to fossil fuels, weapons and tobacco industries, assessing a company's environmental, social and governance (ESG) practices before an investment is made, and participating in shareholder voting. All of MAS' KiwiSaver funds are certified by the Responsible Investment Association Australasia (RIAA), which assures investors that their money is directed to companies acting in the best interests of society and the planet.
More details: MAS KiwiSaver Review
Website: MAS KiwiSaver

4. Simplicity Growth Fund

Management Fee: 0.31% p.a.
1 Year Return as of 30 September 2021: 16.01%
Fund overview: Simplicity's growth fund is similar to many other index-based growth funds offered by the banks and specialist fund managers and invests in leading growth companies, all while charging low fees.
Investments: Companies the fund invests into include Vanguard Ethically Conscious funds, Ryman Healthcare, Meridian Energy and Fisher & Paykel Healthcare.
Our view: We see the Simplicity Growth fund as a low-fee growth fund with an assertive ethical investing policy. Specifically, Simplicity excludes any company involved in fossil fuels, alcohol, tobacco, gambling and casinos, civilian firearms, adult entertainment, military weapons and nuclear weapons. It's important to note that portfolio investments include companies that have activities that may involve activities like animal testing and GMOs, as outlined in the Mindful Money analysis. However, such activities are not the focus of such companies.
More details: Simplicity KiwiSaver review
Website: Simplicity

5. SuperLife Ethica (Balanced) Fund

Management Fee: 0.60% p.a.
1 Year Return as of 30 September 2021: 15.82%
Fund overview: SuperLife's Ethica fund invests in fixed-interest (around 40%) and growth shares (60%) with an ethical focus. It excludes companies that have an overall negative impact on social and community outcomes, or would be illegal in New Zealand, or are inconsistent with UN policies or are involved in activities that result in long-term, detrimental change to the environment.
Investments: The Ethica fund invests heavily in the Dimensional Global Sustainability Trust Fund, a much larger fund managed internationally. Companies included in the recent portfolio include Apple, Microsoft, Facebook, Alphabet, Amazon.com, UnitedHealth Group, JPMorgan Chase & Co, Johnson & Johnson, Home Depot and Visa.
Our view: We see the Ethica fund as a low-fee balanced fund that invests like any index tracker would, with a specific exclusion for big oil and other planet-destroying activities. SuperLife doesn't have ethical analysts, nor does it specialise in ethical investing, but Ethica is a fund that arguably gives low-level ethical investing opportunities. It's important to note that portfolio investments include companies involved in animal testing, alcohol and environmental harm. However, such activities are not the focus of such companies.
More details: SuperLife review
Website: SuperLife Ethica Fund

Frequently Asked Questions

Ethical KiwiSaver funds continue to evolve. We have anticipated common queries below:

What is the best ethical KiwiSaver fund?

There is no "best" fund - our guide is published to explain the options. What fund is right for you will ultimately be the best choice.

Do ethical KiwiSaver funds performs better than ordinary KiwiSaver funds?

There is no evidence that ethical funds underperform or overperform. Ethical funds are relatively new to KiwiSaver, and KiwiSaver has only been operating since 2007. We expect by 2023, we'll be able to see some 3-year fund vs fund comparisons.

Is my KiwiSaver fund ethical?

Two schemes in New Zealand currently claim to be entirely "ethical" – Pathfinder (all funds) and Booster (SRI funds). However, there are many other "ethical" or "sustainable" options, including MAS, Simplicity, SuperLife, Mercer and more. To find out how ethical your current fund is, we suggest using the Mindful Money tool and entering in the fund's name. Our video outlines how the tool works and what you can learn from it.

Where can I go for more information?

We suggest consulting Mindful Money, the only ethical KiwiSaver screening tool in New Zealand. Our guides to Ethical Investing and Favourite ESG F unds have further details to help you make an informed choice.

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