Daniel Compton

Before we get started, I want to be clear. I don’t support tobacco, cluster bomb manufacturers, nuclear weapons manufacturers, and the other socially harmful businesses mentioned in the recent brouhaha about Kiwisaver investments into the aforementioned companies. However, I think the reporting that NZ Herald did on this was misleading, in search of a good story at the expense of accuracy.

To recap: the Herald has recently been reporting on Kiwisaver, the NZ government retirement savings scheme (like an IRA). Their big headline was that $150mm has been invested by the major Kiwisaver providers into companies that produce cluster bombs, landmines, and other socially harmful products, and that they may be breaking a law banning investments into cluster bomb manufacturers. When you look into the details, their bold claims don’t look so strong.

Here are a few points that should have been included in the reporting:

• The biggest problem is that the Herald doesn’t distinguish between active management (where fund managers or algorithms chose particular businesses to invest in), and passive management that tracks an index (say agriculture, energy, or the USA stock market). If some of these funds were directly invested in these companies, and banks really were breaking the law, that would be a real story. It’s not clear to me from the reporting whether there was any direct investment into the companies, or investment into clusterbomb index funds, or whether the funds were invested in broad indexes. You can make an argument for both being bad, but active investment in these companies is very different from passively investing in an index fund of the total stock market. The Herald implies that these companies deliberately or knowingly invested in the companies, but I couldn’t see this from the data they provided.
• The total amount invested in Kiwisaver is $32.5 billion, and the amount invested in socially harmful businesses is $150 million. This works out to around 0.46% of the total funds invested. This is not nothing, but it is a tiny fraction of the total assets invested.
• Kiwisaver funds that aren’t investing in these companies are likely doing so through active management of stocks. In general, this will result in higher fees, and depending on who you ask, lower performance (especially once fees are taken into account).
• The charts that NZ Herald produced all give absolute numbers for how much is invested in socially harmful companies, without giving the percentage invested. Westpac, ANZ, and ASB all feature high on the list of investing into these harmful companies, but there is no context given for what percentage of the investments each have made. Westpac has 0.76% in socially harmful businesses. ANZ has 1.27%, and ASB has 0.13% ¹. Without more details on total amount invested in stocks (active and passive) by each fund, it’s hard to tell where and why the differences here come from.
• The amount invested in the socially harmful parts of Northrop Grumman² and General Dynamics ³ are very small, compared to their overall businesses.

Data journalism can be used to illuminate complex topics and explain them for a wide audience. It seems in this reporting that the story came first, and the numbers were presented in a misleading way to back it up. There is a nuanced discussion that could have been had about the ethics of index funds, and socially responsible investing, but that wasn’t what we got here.

N.B.: I may have read the article wrong, and all of the figures provided were active investments (it’s not clear at all to me which is being included). If that’s the case my conclusion would be quite different.

Update: More discussion index/active investments may be coming later this week.