InvestNow CEO and founder Anthony Edmonds has taken umbrage with Mindful Money for repeatedly increasing its inhouse rating on exposure to ‘sin stocks’ for InvestNow’s Foundation Series Balanced and Growth Funds.

Last year Mindful Money upgraded the ‘issues of concern’ rating on companies in the Foundation series portfolio, three times; from 8% to 14% and 19%, respectively.

Edmonds says because the Foundation funds are designed to offer investors low-cost, tax-effective exposure to a broad range of global share and fixed income markets, it’s no surprise that some of the holdings trigger some ESG alarms but questions the changing criteria and asks where it will all end.

Mindful Money founder Barry Coates acknowledges the increases and says following global trends, Mindful Money widened its fossil fuels criteria from fossil fuel producers to include energy generators for their intense use of fossil fuels.

Coates says the criteria are updated every six months in March and September when fund managers report their holdings to the government’s Disclose Register. He says fund managers are widely consulted each time and sent a draft analysis of updates.

“When fossil fuels widened we had one or two fund managers who said this is quite a big increase but most accepted that this reflected people’s concern about climate change and we live in a world where burning of fossil fuels by electricity utilities is one of the major causes of climate change.”

Coates says Mindful Money has also been working on, and will be updating information on the website to include information on which energy companies have plans underway to transition away from fossil fuel use. “We are quite keen to differentiate between the fossil fuel companies that are increasing their production versus those that are transitioning towards net zero on a pathway that’s consistent with keeping global temperature under 1.5 degrees.”

In response to rhetorical questions raised by Edmonds about how wide the definitions might go, for example will they eventually include the likes of Air New Zealand and Mainfreight for being heavy users of fossil fuels, Coates says the answer is no.

Mindful Money’s issues of concern methodology is primarily based on annual consumer research conducted with the Responsible Investment Association of Australasia (RIAA) which has annually tracked consumer investment preferences since 2018. Other issues of concern research draws on proprietary and public research. The full methodology is outlined on its website.

Edmonds questions Mindful Money’s “purist” exclusionary approach, echoing a wider public ESG debate that it is better and more pragmatic for investors to continue investing in such companies as long as they are moving to transition away from non-ESG practices and outcomes. Ideally this would be driven by active ownership through investor voting rights and fund manager engagement with company boards and executives.

But Coates says Mindful Money’s aim is to provide transparency about holdings rather than advocate for exclusion.

“If investors trust their fund managers to engage with the companies they’re investing in they should stay with the fund. We’ve taken the issues that NZers say they're concerned about and said let’s look at the investments in those areas.

“We do a lot of education on the way investors can take action and have a number of seminars on engagement. We’re not arguing with that, it’s a valid strategy for fund managers to use.”

The argument highlights a widely acknowledged lack of globally recognised definitions for the ESG label and associated terms such as ethical, sustainable, socially responsible, impact and in this case issues of concern. Added to that is the currently disparate ways in which companies and fund managers measure and collect ESG data.

As well as its in-house Foundation Series, InvestNow offers many ESG-style funds including Pathfinder, Mint and Harbour.

Good Returns has yet to reach Edmonds for further comment.