Local investors wanting ethical investment are being misled by fund managers who have increased their stakes in companies involved in undesirable businesses.
A study of 800 funds, about half of them KiwiSaver, by responsible investment group Mindful Money said about $11 billion was invested in business involved in activities such as fossil fuels, animal testing, alcohol production and questionable human rights practices.
The group's founder and chief executive Barry Coates said the trend was completely at odds with overwhelming demand for ethical investing, and called into question broad industry claims of embracing the trend.
"The latest trends in New Zealand investment are worrying. Instead of moving towards net zero by reducing the fossil fuel companies in their portfolios, fund managers have doubled down and invested far more.
"Instead of making empty promises about being ethical and responsible, fund managers need to walk the talk and back up their rhetoric with the reality of their portfolio holdings."
Last month the Financial Markets Authority warned that it would be cracking down on so-called greenwashing, the blurring of lines, and lack of evidence to back claims of ethical investing.
Up, not down
The Mindful Money survey showed there had been a 64 percent increase in the amount invested in fossil fuel companies, which partly reflected the sharp rise in global fuel prices, a double-digit increase in funds in companies which use animals for testing, and a 25 percent rise in the amount invested in alcohol producers.
Coates said it was possible that KiwiSaver and other NZ investment funds might not be fully aware of the moves because they contracted the management of the funds to overseas third party managers or were invested in passive funds that automatically tracked various indices.
He stopped short of accusing the industry of deliberately lying to consumers.
"This does look like it's misleading information. Many of the funds say they engage with the companies to improve their performance but we see very few details of that happening."
Coates said they would not name the companies involved, but would ask them for more information and explanations.
He said investors changing providers might send a message to unethical investment funds, but in the end it would need official regulation and enforcement from the likes of the FMA to bring about change.
"KiwiSaver providers should have an obligation to tell the public about what they are doing with regard to reducing their harmful impacts on the climate, the environment and society, as well as their investments in positive benefits.
"Reporting should be consistent and comparable, using clear standards, as there are for reporting on financial issues like fees, returns and benchmarks."