Investing with purpose featured in Informed Investor Magazine

This article originally featured in Informed Investor Magazine in December 2025, and was written by Barry Coates.

We are living through a period of the largest transfer of wealth between generations the world has seen. While many individuals and families struggle to save enough for their retirement, the wealthier members of our society collectively have massive assets to pass on to their children and other beneficiaries. What elderly New Zealanders do with the wealth they pass on, and importantly, what the younger generation do with the wealth they receive, is important for the financial system, the economy, the environment and our society.

Passing it on

The growing pool of designated retirement financial assets in New Zealand has been driven by the growth of KiwiSaver. It has reached $130 billion and is already a major factor in the investment system. This capital can and should play a major role in the infrastructure and growth of the economy. Projections are for KiwiSaver to grow to approximately $200 billion by 2030.

Similar dynamics are happening in other countries, such as in Australia, where superannuation funds are a far larger pool of capital and larger in proportion to the rest of the economy. Australian superannuation assets reached $4.3 trillion as of June 2025, representing one of the world's largest pension systems.

But these funds in the financial system are only a small proportion of the total assets - most is in the form of property, household items and businesses. As the large baby boomer generation ages, this wealth is changing hands. We are seeing the largest inter-generational transfer of wealth in history from the baby boomer generation to Gen Z and Millennials. BERL (Business and Economic Research Limited) estimates that those born before 1966 currently hold 60 percent of New Zealand's $2.29 trillion in total individual net wealth.

JB Were’s Bequest Report 2025 estimates $1.11 trillion will be transferred from those aged over 55 in the next 20 years, with annual inheritances projected to reach approximately $27 billion in 2024 and grow to $1.6 trillion in cumulative transfers by 2050.

The changing demographics of ethical investment

What happens to this capital will depend to a large degree on the preferences of younger generations. Their approach to wealth and investment is different to the preferences of their parents – it is more likely to have a far stronger ethical foundation.

The next generation of New Zealanders have grown up with a far greater appreciation of the importance of the environment and sustainability. They have also been receptive to the growing evidence that shows ethical investing is smart investing. They have seen examples of companies that have lost their social licence to operate through pollution and harmful practices, and examples of companies that have been rewarded for high standards of sustainability.

Their views have been supported by evidence from thousands of studies that compare the returns from ethical and conventional investment, concluding that ethical investing performs at least as well over the long term, with lower risks and returns skewing on the high side. It is not surprising that most of the leading active investors, and a growing number of passive providers, use tools, such as Environmental Social and Governance (ESG) analysis to reduce investment risk. Ethical investment has grown rapidly and become mainstream.

Changes to investment flows

The combination of inter-generational shifts in capital and the continued deepening of ethical investment will substantially reshape capital flows and their real world impacts. Younger people do not invest in the ways their parents did. They care about different things, and they want their money to enable different outcomes. This will result in significant changes to the investment sector and the economy.

This is partly driven by changes in the ways that younger people see money. Some of these are revealed in annual surveys of the New Zealand public that have been undertaken over the past six years by Mindful Money and the Responsible Investment Association of Australasia.

As a headline statistic, the latest annual survey in 2025 reveals that younger New Zealanders have far higher expectations that their funds will be managed ethically (81% for Gen Z vs 70% for Baby Boomers). They are more likely to have chosen their KiwiSaver on the basis of sustainability or alignment with their values and consider the ethical investments are likely to perform better in the long term.

Younger New Zealanders are also more willing to switch to another fund if the investments do not align with their values (68% Gen Z vs 57% Baby Boomers). The preference for ethical investment is also heavily skewed towards women (81% vs men 67%).

Issues that younger Kiwis care about

The types of issues that Kiwis care about are changing over time. A decade ago, the key unethical issues were more likely to be harmful products and services – tobacco, gambling, alcohol, pornography and weapons. Typically, these have been relatively easy for the investment providers to define and track. Progress has been slow but Mindful Money analysis shows there has been a steady decline in investment in these unethical products and services.

However, the increasingly important issues for the public are more likely to be human rights violations (including child labour, trafficking of women, targeting of civilians in conflict and repression of rights), environmental damage, animal cruelty and climate change. These issues are complex, harder to define and more difficult for investment providers to identify and track. As a result, fewer fund managers in New Zealand avoid these issues in their portfolio or track progress in reducing harm in the investee companies, even though they are the issues of highest concern, especially to younger people.

One particular issue that younger people find more concerning than their parents is climate change. A far larger proportion than their parents want to avoid investing in fossil fuels. They realise that their investment decisions affect climate change and expect their funds to take action to reduce climate emissions and invest in climate solutions.

The importance of investing for purpose

One of the major differences between generations is that a higher proportion of younger Kiwis think their investments should make a positive difference in the world. They expect their investment managers to report on the real world impacts of their investments.

They are more likely to invest in funds that have a positive social and/or environmental impact, even if it has a lower return than comparable funds. They have particular interest in investments in social housing, sustainable transport, education and training, societal inclusion and Māori-led development for the benefit of iwi and hapu.

And, by a large margin, they are motivated to save or invest more if they know their investments make a positive difference in the world (79% for Gen Z vs 58% for the average population).

Implications for the investment sector

Younger Kiwis want to know what companies they are invested in and are increasingly accessing that information - website traffic for Mindful Money’s free portfolio transparency tool is skewed towards younger users. They are more likely to access information from family and friends, and seek automated ‘robo-advice’, but are as open to seeking financial advice as the average population.

The increased demand for ethical investing is already being reflected in investment claims, but practices vary widely. Younger consumers are highly attuned to greenwashing practices and it is important that claims of being ethical or responsible are authentic, and reflected in investment portfolios. There are strong growth prospects for fund managers that are attuned to the needs of younger Kiwis, including their ethical preferences.

There are also exciting opportunities for wealth managers, financial advisers, philanthropy advisers and others. Those who come into legacies (sometimes unexpected and substantial) will often need support from advisers on how to invest the funds and incorporate them into life plans including the potential for earlier retirement. This will need to encompass solutions for investment, including providing ethical options and how to plan the use of funds. Good advisers will work with philanthropy consultants to support clients to direct donations in ways to achieve high impact for causes they care about.

There are strong indications that the market for ethical investing will continue to grow. The survey shows that 38% of Gen Z intend to choose a more ethical fund in the next year and a further 27% within the next five years. Even though there is typically a gap between surveyed intention and observed behaviour, this is a strong indication of future growth in ethical investing.

Wider issues

There are also public policy challenges associated with inter-generational transfers of wealth. In New Zealand, gift duties were applied from 1885 to 2011. The abolition of gift duties, along with other tax changes, have contributed to the subsequent widening disparities of wealth and income in New Zealand. Research by Treasury shows that children of rich parents are more likely to become rich when they grow up, and children of poor parents are more likely to become poor when they grow up.

The transfer of wealth in our society is crucially important for individuals and for society. The decisions made in investing this inter-generational capital have the potential to transfer capital away from businesses that cause harm to people and our planet and increase the pressure on them to raise standards. They also have the potential to contribute towards a low emissions, a more equitable society and more sustainable future.