Key Takeaways

• The Financial Markets Authority (FMA) has published new information on funds with ethical claims, looking at their disclosure and sector exclusion policies.
• The review found some unclear or inconsistent ethical claims but no deliberate misuse of ethical labelling.
• FMA will update their guidance on ethical investing and is seeking feedback from the industry.

FMA – Te Mana Tātai Hokohoko – has released new information from their review of funds that claim to be ethical.

This is based on a review of disclosure documents, advertising, sustainability reports, and whether fund investments align with their stated exclusion policies.

This follows the FMA’s 2022 review of how managed investment scheme (MIS) managers applied the disclosure framework for integrated financial products published in 2020. Under the Financial Markets Conduct Act 2013, ethical investment claims must comply with fair dealing provisions.

FMA did not find any instances where issuers were deliberately misleading about their ethical investment strategies. However, they did find some confusing and inconsistent disclosures that may have made it hard for investors to understand the product or verify the ethical claims. FMA provided feedback to the 10 reviewed MIS managers, highlighting areas for improvement and good practices for other issuers.

FMA Executive Director of Response and Enforcement, Louise Unger, said: “FMA research has shown that investors don’t always investigate the underlying details of funds, and understandably place a lot of trust in issuers to deliver the advertised benefits of ethical investment products. It is therefore important for the FMA to maintain oversight of ethical investing disclosure, and this is now part of our business as usual supervision approach.”

FMA will update their 2020 guidance on ethical investing. This will be a long-term project to gather feedback from the industry before drafting any new guidance.

Issuers should provide clear and honest disclosure when incorporating values-based or ethical considerations into their products. This means all material information is disclosed and no misleading claims. Investors should be able to rely on the claims and make informed decisions.

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Source: FMA