ESG KiwiSaver outperforms non-ESG on some profiles over five years

More than one million KiwiSaver members (39%) are invested in environmental, social, governance (ESG) funds, says a new report.

Wednesday, September 4th 2024, 5:04AM 4 Comments

by Andrea Malcolm

The second quarter KiwiSaver Value for Money report by financial advisers National Capital analysed 110 KiwiSaver funds (around 95% of the total value of KiwiSaver).

Just under half (51) were classified as ESG funds with a projected total value at retirement of around $244 billion.

Financial Markets Authority (FMA) disclosures showed that ESG outperformed non-ESG funds for aggressive and moderate risk profiles in the past five years to March.

The report scores KiwiSaver funds out of 10 on performance after fees, value for fees, fund management capability, provider stability, portfolio composition and processes, and ethical investing.

A benchmark was set with funds scoring in the top 50% categorised as ESG and those below are non-ESG funds. Fernandez says the report disregarded ESG labelling by the providers themselves.

National Capital director and co-founder Clive Fernandes says the results reaffirmed research National Capital has done in the past that on performance, ESG beat non-ESG in certain categories.

“There are two schools of thought. One is that you have to sacrifice performance for ethical investing and that doesn’t seem to be true. But we don’t have conclusive evidence because for growth and balance it was the other way around.”

What the result means for National Capital is that if performance is a client’s top consideration, it doesn’t rule out ESG funds.

Top returning ESG funds

The Booster KiwiSaver Socially Responsible High Growth fund was the top performer among ESG funds with a 5-year return of 9.99%. Growth was Simplicity with 7.82%, Balanced was Superlife Ethical with 6.26%, Moderate was BNZ Moderate with 3.73% and Conservative was Fisher Funds Two Cash Enhanced with 2.98%.

“We want the client to make the final decision because ESG is a very complex topic and it depends very much on their personal preferences. Once we know what they want we can run some numbers and find funds that suit,” says Fernandez.

Scores for being ethical

The report uses the terms ethical and ESG interchangeably. To calculate ethical scores out of 10, National Capital analysed data from the Morningstar Sustainability Report, on the individual holdings in each fund, and used My Fiduciary for ESG policies such as exclusion, stewardship and impact investing.

Amongst the funds, 27% were rated A for ethical scoring, 15% were B-rated, 26% were rated C and 32% were rated D.

Pathfinder Growth and ASB Positive Impact overtook Booster for the high scores for Growth and Balance. MAS Conservative Fund scored the highest for in the Conservative category.

Overall, fund managers improved their ethical investment practices, with an average score of 6.67/10 compared to 6.11/10 for the first quarter of this year, the report says. A score of 6.67 indicates having ‘some exclusions’, so overall managers seem to be paying attention to ethical investing, the report says.

Tags: ESG

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Comments from our readers

On 5 September 2024 at 9:45 am Pragmatic said:

It’s interesting that Booster appeared to rank 3rd in this survey for the high scores for Growth and Balance (behind Pathfinder Growth and ASB Positive Impact) at a time where the FMA alleges that BIML breached its duties and obligations as the manager of their Schemes when investing. Clearly the 75 allegations by the regulator are not part of the ESG considerations.

On 5 September 2024 at 7:42 pm John Milner said:

Oops, that’s a great point Pragmatic. What’s the big deal about 75 allegations by the regulator and court action anyway lol. I’m finding the material coming from the originator hard to take serious.

On 6 September 2024 at 12:36 pm Ontheotherhand said:

I seem to recall an FMA talk where they said they would test the law to see where the lines were. While we wait for the courts 200,000 Booster clients are held hostage.

On 6 September 2024 at 3:06 pm Pragmatic said:

You raise an interesting point @Ontheotherhand - whereby other regulators would impose an 'enforceable undertaking' on the manager to preserve client's interests until the matter has been satisfactorily resolved.

I'm also concerned at the plethora of various industry accolades and awards, whereby the consumer is potentially misled into believing (and potentially acting upon) either a small industry sample that is portrayed to represent 'all that is available' or is the consumer is simply the victim of bad research.

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