Kernel Wealth plants seeds for the future with new ESG funds

Kernel Wealth has been waiting for the right time to pick some quality funds to start filling its ESG basket and has now delivered them to market.

Wednesday, October 13th 2021, 4:04PM

by Matthew Martin

The company has launched three new funds that give clients exposure to domestic and international markets with an Environmental, Social and Governance (ESG) overlay, including the NZ50 ESG Tilted Fund, which tracks the first New Zealand ESG index developed by S&P Dow Jones Indices.

Kernel chief executive Dean Anderson says demand for sustainable investment options has seen the company expand adding 12 employees in the past year, including a senior relationship manager to support wholesale investors and financial advisers.

Kernel's funds under management have also doubled every four months in the past year and they have increased their range of funds from six to 11 funds.

Anderson says the company has been waiting patiently for the ESG investment market to mature, especially in New Zealand where 18 months ago it was not an option due to the lack of ESG data coverage available.

But, following strong adviser and wholesale demand, Kernel’s new sustainable funds - NZ 50 ESG Tilted, Global Green Property and Global Green Energy - have been offered to the market.

The fees for each fund are .25%, .39% and .55% respectively - the company does not charge membership fees for those funds.

“However, we are only just seeing ESG shift into the mainstream advice space in New Zealand," he says and "...we didn't have ESG at launch because there were none up to our standards".

He also wanted to put together funds that went beyond "vanilla exclusions" like weapons, tobacco and fossil fuels.

"The NZ ESG index fund offers more than simple exclusions - it up and down-weights companies based on non-financial metrics including governance practices, sustainability scores, disclosure, fossil fuel exposure and workplace diversity."

He says the number of adviser groups wanting to offer ESG strategies is on the rise but a lack of product knowledge and understanding of the differences between sustainable and ESG investing has meant advisers often aren’t asking the right questions of their clients.

"Holding back wholesale and adviser ESG growth is product education and the shift to sustainable strategies will persist, as social and climatic issues continue to rise.

“Investment in listed ESG funds have grown 10-fold since 2018, becoming one of the fastest-growing categories."

He says this demand provides an opportunity for investment advisers, particularly now that they can couple sustainable options with the benefits of low-cost index investing.

“The three new products are tax-efficient, low cost and diversified.

"Not only does this support optimised investment returns for customers, but it also makes ESG investing accessible.”

He says three forces pushed Kernel toward introducing ESG funds;

1. Having the data to accurately measure and monitor companies in terms of their ESG effects.
2. Customer and adviser demand and awareness of ESG principles.
3. Regulatory change, such as electric vehicle subsidies and restrictions on investments into oil and gas.

“Investors are increasingly shifting their money into sustainable and ESG funds,” he says.

"We know the customer demand is there, we see it, and we are supporting adviser groups to engage with clients on this topic.”

He says investment decisions should also be based on sound data and "...not down to an emotive decision by one of our team".

And the company is wary of labels that could give a false impression to their clients.

"We just don't go out and pay for a badge for something, we want to act ethically, for us as an index manager it's all about transparency.

"Not being labelled sustainable or ethical does not mean a company is not sustainable or ethical, but as corporate citizens, we are a living wage employer and we offset our carbon use."

Tags: Dean Anderson ESG index funds Kernel responsible investing