Smooth The Road: Plan & Invest. Edition Three, September 2023.
Socially Responsible Investing (SRI) is the focus of this month's newsletter.
We'll be addressing what it is, why it may be of interest to you, key considerations for SRI funds, and how you can invest in SRI funds - even through your KiwiSaver.
So, what is SRI?
SRI funds come in multiple forms - there's no clear set of guidelines as to what constitutes a "Socially Responsible" investment, however, there are typically two main approaches:
The first and more common approach is using a 'negative screen', in which fund managers choose to cut out specific companies from their portfolio's should they be deemed 'bad'. This will often include specific industries such as military weaponry, fossil fuels, and adult entertainment.
The alternative approach is that of a 'positive screen', where fund managers will choose to only invest in companies which they deem 'good'. This could be based on whether companies support fair-trade agreements, focus on environmentally sustainable practices, or do volunteer work in the community, to give a few examples.
In practice, often a mixture of the two approaches will be applied – both getting rid of the ‘bad’ companies and giving additional weighting to the ‘good’ companies.
Whilst all forms of Socially Responsible Investments will have a degree of subjectivity to them, they'll ultimately be geared towards making the world a better place.
Why do clients use SRI?
SRI funds provide an ideal opportunity for mutual benefit - the ability to grow your personal wealth through investments whilst also benefiting wider communities by placing greater emphasis and value on the greater good.
By extension, this is also an opportunity to align your investments with your personal values and principles - if you don't like the idea of investing in nuclear warheads, GMO's, alcohol, or tobacco, you can choose not to.
Historically SRI funds have been somewhat dismissed due to their expected lower returns; this is no longer the case.
With additional resources going towards SRI funds in recent times, there are now numerous great SRI options for individuals that don’t require a clear compromise on expected return.
This means that you as an investor can make a positive difference towards key current issues such as climate change, global violence, and equality, without forgoing the success of your plan or goals.
If you’re interested in SRI funds, there are a few things that you should consider prior:
Does the fund align with your personal values and principles?
Does the fund still have a respectable investment strategy?
Will you still be able to achieve your plan and/or goals with an SRI fund?
How do you get involved in socially responsible investing?
Given how important socially responsible investing has become in New Zealand, there are now more ways than ever for consumers to invest their money in socially responsible funds.
Many of our KiwiSaver clients have now chosen to move their money into schemes which have a particular SRI focus, and most providers now have that option available to different extents.
Another way our clients can invest with a socially responsible mandate is through managed funds. There is a wide range of these around the marketplace also, with the benefit of the money not being locked in like KiwiSaver, which allows them to invest for goals other than a first home withdrawal or retirement.
Are you a socially responsible investor?
This newsletter aims to help New Zealanders on the path to financial freedom with tips and tricks from the professional financial planning process. Stay tuned for more handy insights and knowledge.
If you're ready to take the next step and want to look at how working with a financial adviser for your planning and investment needs may benefit you, please reach out for an initial no-obligation chat - I would love to hear from you.