How can you be 100% sure that your money is not invested in companies that don’t align with your values or interests?
The one sure-fire way to check that the fund you have your retirement or other savings in is fully aligned with the specific issues that you deem important (not just what the fund’s investment manager says is ethical), is to take a good look under the hood at the companies they’re invested in. The jargon used in the investment industry for the list of companies a fund invests in is its ‘portfolio holdings’.
While a good look under the hood is possible in some instances, it’s not as much of a guaranteed right as you would think. The rules around disclosures vary across Australia and New Zealand, and for different investment types.
Why is it important to look at portfolio holdings?
It is critical that consumers can access good quality, reliable and comparable information on the approaches investment managers are taking to consider sustainability and ethical issues. Having access to a fund’s holdings is one part of this, and it’s an important way to detect greenwashing.
For example, if you’re looking to invest in a fund that’s labelled as a ‘clean energy fund’ you would expect that as you’re looking through the long list of companies in the fund, you would see renewable energy companies. You would also expect not to see any big polluters. Keep in mind though that there are different approaches to managing issues such as fossil fuels in investment portfolios, and the most impactful way may not always be to divest. Read more about these different approaches here.
Another example is a fund labelled ‘ethical shares fund’, that has some holdings in a medium scale local wine producer. You may have the belief that alcohol is not an ethical product to invest in because of its adverse effects on the health of the population, or for religious reasons, while the fund manager has deemed it ethical because of its sustainable agricultural practices and employment of disadvantaged youth in a regional area. For this reason, taking a look at the full list of companies in the fund is necessary to check the ethics of the investment manager match your own.
Pleasingly, consumers are switched on to the importance of having this information publicly available. Research conducted in 2020 by the Responsible Investment Association Australasia (RIAA) found that 85% of Australians expect their bank and 86% expect their super fund to disclose which companies their money is invested in.
RIAA’s Certification and Ratings Manager Cassandra Williams says transparency from funds is absolutely essential. “Transparency and the ability to look through to the underlying companies of a fund is a cornerstone of accountability. Information related to product holdings helps investors make better informed investment decisions.”
What are funds required to disclose?
Australia lags behind most other countries in terms of what funds are legally required to disclose. A recent Morningstar report assigned a ‘Bottom’ grade to Australia when it comes to disclosure rules, noting that it remains the only market without regulated portfolios holdings disclosure.
The Australian Government’s ‘Stronger Super’ laws were meant to begin in 2016, mandating that super funds list their investment holdings on their websites. These laws have been repeatedly delayed, and were recently delayed again, until 31 December 2021.
In New Zealand transparency is much stronger, with managed funds and KiwiSaver funds being required to disclose their full holdings on a semi-annual basis.
Where can you find a fund’s portfolio holdings?
All products listed on Responsible Returns have been certified by the Responsible Investment Association Australasia as being quality, true to label responsible investment products which meet the Australian and NZ Standard for responsible investing.
A requirement of the Responsible Investment Certification Program is that funds disclose their full portfolio holdings on Responsible Returns, and many choose to also publish this on their product website. You can click through to the full holdings of any fund on Responsible Returns by navigating to the bottom of its product profile page and clicking the ‘Product holdings’ button.
For funds not certified by RIAA, check whether the fund voluntarily discloses their holdings by looking at the fund website or Product Disclosure Statement. For those that don’t, an important action you can take is to ask them for this information, and let them know you believe transparency is important. At the end of the day there will always be alternatives providers that do value transparency.
For New Zealand funds, Sorted’s Smart Investor is a great search and compare tool covering New Zealand-regulated investment offers, and full holdings of KiwiSaver and other managed funds can be found on this site.