Pathfinder executives say KiwiSaver managers must do more to prove their ethical investment policies and products are making the difference they say they are.
In what is understood to be a first for KiwiSaver management firms, Pathfinder KiwiSaver has released a detailed Sustainability Report that shows investors how and why it makes sure its investments hit ESG (Environmental, Social and Governance) targets and is encouraging other managers to step up disclosure around how they invest ethically or responsibly.
"Promises of no fossil fuels, renewable energy investment and emission reductions need to be matched with easy-to-understand reporting," says Pathfinder chief executive John Berry.
“KiwiSaver managers disclose financial returns from their investments. Now KiwiSaver managers, especially those claiming ethical or responsible credentials, need to also disclose non-financial metrics.”
Berry says good ethics are critical to financial success and investors and investment companies all have a role to play to "…help fund the lasting transformation to a more ethical world".
"At Pathfinder we are on a mission to raise awareness that the impact of how we invest our dollar is as impactful as how we spend our dollar or spend our time."
He says the report details how Pathfinder decides what it means by ethical investment and how it applies this framework to its investment decisions.
It also shows Pathfinder's voting and engagement activities as a shareholder and the results of its social enterprise model where it provides long-term and passive income for 18 Kiwi charities.
Pathfinder’s chief investment officer Paul Brownsey says investors have a right to know what the carbon footprint of a KiwiSaver investment is along with the extent of its renewable energy exposure and the company's voting record.
"It’s not enough to say you’re avoiding investment in tobacco, gambling, weapons and other harmful activities. The bigger question is, after avoiding the negative, where do you invest to generate positive benefits?”
He says the impact of Covid-19 on sharemarkets has been extraordinary and has hurt families and economies around the world.
"Our strong ethical policy has been tested but has ultimately proved very resilient.
"It is also an effective risk management tool. Measuring the way a company behaves, and how clearly it thinks about Environmental, Social and Governance issues is another dimension of risk management – some of these risks are not captured by traditional accounting metrics."
The report also covers Pathfinder's concerns regarding climate change and how it plans to improve its work in that sector.
"Climate change is a clear danger to the future of society, and companies that invest in long term projects dependent upon fossil fuel are not thinking clearly about risk.
"Other industries we avoid include airlines, cruise ships, gambling, etcetera – all sectors that suffered tremendously as the world went through lockdowns."
• 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
Brownsey says four of Pathfinder's funds are carbon negative and this year will be extending this to more of its funds.
"We are investing more in systems to measure more company risks around the environmental, social and governance behaviour of the companies we invest in…it is blindingly obvious that companies that manage these risks are likely to be better-managed companies with better than average prospects."
"We encourage you to consider the kind of world you want, because collectively as investors, we can have incredible influence," says Berry.
"Over time we want to go deeper with measuring and reporting what we do and the difference we make through investing and engaging."
Key statistics from Pathfinder’s Sustainability Report:
Its KiwiSaver portfolio has 65% less carbon emitted than a key global equity market index.
Pathfinder’s KiwiSaver has 3.7 times the exposure to renewable energy and 13 times the exposure to electric vehicles compared to the key global equity market index.
In the year to 31 March 2021 Pathfinder KiwiSaver voted as a shareholder nearly 5,000 times, and of these 282 votes were against the recommendations of management of the company invested in.
It has no fossil fuel exposure and its KiwiSaver is invested in only two of the top 20 banks that lend to fossil fuel companies and is committed to divesting these during the current financial year.
Pathfinder tracks the number of companies it invests in that have emissions reductions targets.