FMA Review of Ethical Investing Highlights Need for Improvement

The Financial Markets Authority (FMA) is urging fund managers to improve disclosures relating to ethical investing after a recent review found that, despite growing demand, New Zealand investors struggle to select managed funds based on ethical and socially responsible credentials.

Based on the review, New Zealand investors will be keen to monitor fund managers’ responses to the FMA’s recommendations. The FMA recommends that fund managers should consider the following:

• Consolidating disclosures relating to ethical investment practices into an easy-to-read format that investors can easily understand

• Clearly explaining the criteria used to exclude investing in certain companies or sectors

• Providing better information to investors about risk and return trade-offs, and the benefits of the fund. One suggested example is to avoid using vague terms such as ‘the fund’s returns will be financial and a reduced climate impact’

• Ensuring the non-financial outcomes are meaningful, and clearly state the consequences of failing to achieve them, and

• Ensuring investors better understand the purpose and value of organisations providing assurance, measurement standards or endorsement, such as the Responsible Investment Association of Australasia.

The FMA’s review highlights the need for fund managers to provide a greater level of detail and clarity in disclosures to support their ethical investing claims. If you would like to read the review in full, please click here.

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