Financial advisers face greater expectations around ethical investing

Public expectations that financial advisers should know about ethical investment and incorporate client values into their advice are on the rise.

Friday, May 26th 2023, 8:30AM

by Andrea Malcolm

The fifth annual Responsible Investment Association of Australasia (RIAA) and Money Money consumer survey on ethical investing has found more than half (56%) of New Zealanders think financial advisers should know about ethical/responsible investing options, just behind the proportion (59%) who expect advisers to prioritise maximum returns.

Overall, Kiwis wanting their money invested ethically increased by only one per cent (from 73 to 74%) in the last 12 months. Nevertheless, despite 2022’s market volatility and ongoing economic challenges, three quarters of Kiwis are still on board with ensuring their money is invested according to their values.

However the report says there are still relatively few New Zealand financial advisers with expertise in ethical and responsible investment to service the demand. The RIAA website shows nine individual RIAA-certified financial advisers and 14 who are members but not certified. There are three fully certified financial advisory firms in New Zealand - Moneyworks, Evergreen and Ethical Investing NZ.

Ongoing interest from investors signals that other financial advisers should consider deepening their understanding of ethical and responsible issues and investment options to meet the needs of their clients, says RIAA New Zealand executive manager Dean Hegarty.

He says customers expect financial advisers to be knowledgeable about responsible investment options, independently certified products and to ask clients about their values.

Respondents say they don’t have the time to look at and compare options for themselves (46%, up 3%). The survey found this is particularly the case for women, Millennials and Gen X, those with Sixth form certificate or a university degree and those with a low level of investments.

This barrier at least partly reflects a lack of consistent and comparable metrics for investors to enable comparison. Mindful Money and RIAA provide analyses about the ethical/responsible credentials of funds, they aren’t a substitute for mandatory reporting, as is currently provided for a wide range of financial metrics, the report says.

A closely related and common barrier is a lack of objective information (44%, up 1%). As consumers are increasingly concerned about greenwashing (around half of respondents), they are looking for information that is independent, clear, trustworthy and comparable.

The survey also shows consumers don’t believe there is a trade-off between ethical investing and earning good returns with 45% expecting ethical and responsible investments to perform better in the long term (up by 5% from 2022) and 45% seeing the relationship as neutral.

The report maintains this is consistent with a large and growing evidence base, including for Australian and New Zealand investment funds, using comparative returns between ethical/responsible funds and traditional funds.

Impact rising

Mindful Money CEO Barry Coates says the main change from last year is the rise in New Zealanders wanting impact investing from their KiwiSaver or investment funds, a reflection of the growth of impact investing internationally.

The proportion of respondents who would be prepared to invest in a KiwiSaver or investment fund that invests only in companies creating positive benefits for society and the environment rose from 69% to 80%. Those with a degree and those with KiwiSaver balances below $50,000 are more likely to want to invest in positive impact funds but there are still few dedicated positive impact funds available to retail investors.

Investors are interested in positive impacts, not only in dedicated funds, but more generally in mainstream investment. Two thirds (66%) of respondents say that it is important that their KiwiSaver or investment fund delivers positive impacts in the world and informs investors. This is 4% higher than last year’s survey and particularly important for Millennials, women and those with a diploma or university degree.

More New Zealanders understand that investment has real world impacts, including on issues such as climate change, and are interested in funds that can demonstrate this.

The proportion who would be prepared to invest in a fund dedicated to investing in companies creating a positive impact has risen significantly over the past year to 80% (up by 11% from 2022).

Hegarty says New Zealand fund managers are rapidly improving their engagement practices and increasing allocations to positive impact within their mainstream funds. “These findings demonstrate how important it will be for them to clearly articulate this work to customers, because the category of investing for positive impact is set for rapid growth.”

However around half of the population is worried about greenwashing, the survey found.

Hegarty says with around half the population worried about greenwashing, fund managers need to provide evidence to back up any claims they make, including communicating the ways that they are engaging with companies to improve their performance on a range of social and environmental issues.

A growing number of consumers are looking to independent certification as a key part of that evidence with 59% who would be more willing to invest ethically and responsibly if financial products were certified or labelled by an independent third party.
This year data was collected through an online survey of more than 1,000 people, with 20% being Generation Z.

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