Pathfinder Ethical Funds: Are they Ethical? Lessons to be Learned by Dr Robert Howell

Dr Howell has reviewed the New Zealand funds manager Pathfinder. The full article is reproduced below and available as a PDF here.


Please note this article has an addendum, reproduced below:

Addendum 14 August

Since the publication of this article, it has been drawn to my attention that Pathfinder’s Trans tasman fund has a large holding in NATIONAL AUSTRALIA BANK LTD and this bank has fossil fuel investments.  In checking this information I visited the website of Market Forces.  They stated

On 5 November 2015, NAB promised to support the Paris Agreement, most recently stating the bank “will seek to manage our portfolio to align with the Paris Agreement goal….striving for 1.5 degrees Celsius above pre-industrial levels”.To meet the climate goals of the Paris Agreement, there is “no room for expansion of the gas industry” according to an August 2020 letter from 25 leading Australian scientists.(1)

Yet since 1 January 2016, NAB has loaned more than $1 billion to projects that expand the scale of the polluting gas industry. These projects will enable the release of over 2.2 billion tonnes of CO2, equivalent to more than four times Australia’s total greenhouse gas emissions for the year to September 2020. (

Also on the Market Forces was the following about Macquarie Bank (

Macquaire has loaned $5026M to fossil fuels globally since 2016. Macquarie (via Macquarie Investment Management and other subsidiaries) also holds more than $2.5 billion of shares in numerous coal, oil and gas companies, including Peabody Energy Corp, BP, Chevron and Shell (shareholdings current as of latest filing date reported by financial data provider Refinitiv Eikon in June 2020).


Pathfinder Ethical Funds: Are they Ethical? Lessons to be Learned

Dr Robert Howell

1: Introduction

Pathfinder is a fund manager based in New Zealand, promoting investment in high integrity, actively managed, carbon light funds. It is predominantly owned by New Zealand-based shareholders (including senior management) and is part of the global wealth management company, Alvarium.  This is a London based wealth manager with operations in the UK, Europe, USA, South East Asia including Australia [1]

Pathfinder claims to be an ethical fund.  Is it?  

For a Fund to be ethical [2] it should be investing in companies that are dealing with the substantial threats to the Earth’s systems and life forms identified by the world’s leading scientists [3], and using validated ethical principles for assessing human-human behaviour.  It can exclude those companies that do not meet these standards, or engage with them and report on that engagement. 


2: How to Evaluate Investment

There are four questions that should be followed in evaluating a fund. 

First, in choosing criteria it is preferable to use a set of values that are comprehensive (they include both human-human and human-Earth responsibilities) and are often described as core concepts.  A core concept is a higher order term from which other obligations and responsibilities can be developed.  The Earth Charter uses the concepts of respect, ecological integrity, care, equity, justice [4].  New Zealand’s Climate Change Commission uses the He Ara Waiora framework which included the concept of manaakitanga – having a deep ethic of care towards people and the whenua (land) [5].  Other concepts include fairness, harm, rights, obligations, duty, integrity.  Ideally a small number of concepts should be chosen and priorities determined to minimise conflict and overlap between them.

Second, what are the types of investments the fund will not invest in (negative screens). This step can also include deciding the types of funds the fund wish to invest in (positive screens). This matter is tactical and there can be extensive or minimal exclusions.  There is no one right approach. It is tactical because there are times when one wants to invest in a company to engage with it to change its behaviour.  Example: the Denmark-based company Ørsted, has transformed from a fossil-fuel based energy company to a global green energy company in the past decade [6].  Divesting when it was still a fossil-fuel based company excluded the chance to support it to change.  Divesting means someone else buys it but is likely to continue acting against one’s moral principles.  But the advantage of divesting includes sending a strong message to fossil fuel companies that their behaviour endangers the world, and is appropriate action when change is no longer possible.

The third step is engagement: how does the fund engage with organisations to persuade them to change?

The fourth step is reporting: how does the fund report on its performance, including the outcomes of its engagements.?

3: Use of Other Ethical Frameworks or Rules

A Fund may state its values by reference to another organisation’s statement.  Examples include the

  • the United Nations Principles of Responsible Investment (UNPRI);
  • Certified B Corporation (B Corp);
  • the Responsible Investment Association of Australasia (RIAA) ; and
  • International Finance Corporation (IFC) Performance Standards and Equator Principles.  

These examples are chosen because Pathfinder and two of the companies it invests in (which are examined below) use them to try to assess and authenticate claims to being ethical. 

A common approach to ethical investing is to rely on the notion of responsibility and or sustainability with an environmental, social and governance (ESG) framework [7].  The Reporting Exchange stated that in 2019 there were more than 1700 different frameworks [8].  Pathfinder states that companies with high ESG metrics will be selected for investment options without stating which of the over 1700 frameworks it will use.


The problem with ESG definitions is that these are not moral terms and measures.  What social behaviour, environmental impact, or governance behaviour is morally right or wrong? The ESG framework is lacking in this moral dimension, and standards and codes such as the UNPRI are not valid.

Validity is where a measure or standard actually measures what it is intended to measure.  There are two steps to establish whether this is the case: content and construct validity. To be a valid measure, both tests need to be passed. Content validity requires consideration at a conceptual level: does the measure make sense?  Construct validity requires empirical considerations: is the application of the measure consistent with other empirical evidence?

Regarding content validity, ESG definitions need to go beyond a superficial level, and define what social or environmental impacts are responsible or not. 

Regarding construct validity, one of the Co-Chairs of the Expert Group that drafted the UNPRI has stated that the Responsible Investment community has not been more responsible than the investment community generally. There was little difference in behaviour between companies that signed up and those that did not [9].  Simply adopting the UNPRI does not therefore lead to responsible behaviour, and is a very inadequate moral compass.

B Corp

B Corp certifies companies from an ethical viewpoint [10].  This is done with B Lab.  To be certified each company has to meet standards for social and environmental performance, accountability, and transparency and score least 80 / 200.  One certified company is Allbirds which producesfootwear.  One of the co-founders is the New Zealander, Tim Brown, and Allbirds received an overall total of 89.4 from B Corp.  B Corporation is not transparent about their process and hence there is no way of knowing how their standards are defined, scored or validated. 

GoodOnYou is a sustainability ratings platform for fashion. They have a well described transparent system to evaluate the impact of brands on the environment, labour and animals.  For the labour assessment they reference 67 certifications, accreditations, standards and guidelines when rating brands, including International Labour Organization Labour Standards. Regarding Allbirds for its labour performance,it gives it 2/5.  There is no evidence Allbirds has a Code of Conduct.  It sources its final stage of production from countries with extreme risk of labour abuse.  There is no evidence the company ensures payment of a living wage in its supply chain [11].

As a result, using B Corp to justify Pathfinder’s claim to be ethical fails because application of the standard approves companies’ inadequate care of their workers.


RIAA states that the responsible investment sector is hugely diverse, due to a plethora of investment approaches.  It declares that ethical investment cannot be defined.   This ignores New Zealand’s longstanding support for human rights through the Universal Declaration of Human Rights, the Human Rights Commission, and the Human Rights Act.  It ignores our protection of flora and fauna through, for example, the Ministry for the Environment [12]


IFC is a member of the World Bank Group and its Performance Standards are used by the Equator Principles for managing environmental and social risks for private investments in emerging markets.  There are a number of problems with the way IFC defines its ethical principles[13] because concepts like impact, teamwork and innovation are not ethical notions.  But the weaknesses of its ethics is best illustrated by the work BankTrack has done about the application of IFC’s principles.  BankTrack’s mission is to stop banks from financing harmful business activities[14].  One of their ongoing projects has been monitoring banks that have signed up to the Equator Principles.

In 2017, following the financing by banks of the Dakota Access Pipeline Project, BankTrack launched a campaign aimed at achieving a major overhaul of the Equator Principles which would stop Equator financing new fossil fuel projects.  It was triggered when in 2016 no fewer that 14 of the 17 banks financing the Dakota Access Pipeline in the USA were signatories to the Equator Principles.  This project was fiercely opposed by the Standing Rock Sioux Tribe and their allies because of the threat it posed to their water sources and leading to human rights violations when these protests were quelled.

The BankTrack evidence means that using the IFC and the Equator Principles leads to banks supporting unethical behaviour. 

Naïve or Dishonest

When frameworks such as these are used, it indicates that the Fund is either unaware of limitations of the standard or is deliberately using it for promotional purposes.  If it is in the former case then one must question the ability of the fund to choose and scrutinise potential companies to invest in.  If it is the latter, then use of it amounts to deception. Ignorance or naivety are not acceptable excuses and Pathfinder does not act with integrity when it uses such standards.

4: A Definition of an Ethical Organisation

An ethical company or organisation will act with care and respect for the Earth observing the principles of kaitiakitanga and manaakitanga, act fairly towards its stakeholders, and govern with honesty and openness in its decision-making, promotional and reporting behaviour.

From an environmental viewpoint, the organisation will respect and act in accord with nature and within the limits set by the ecological systems on which we are dependent for life.  This is a definition of a strong ecological sustainability.  In its use of resources, it will observe Daly’s three rules involving output, input and depletion rates, or their equivalent [15].

From a stakeholder viewpoint, it will act fairly to all people in its supply, production, distribution, waste chains or paths, and in the local communities in which it is present.  This will include observing human and animal rights and non-discrimination in all forms, the meaningful involvement of stakeholders in decision making, and in the fair allocation of benefits and rewards.

From a governance viewpoint, it will act with integrity and transparency, and in particular in its decision-making, its promotional, marketing and reporting activities.  The organisation will have statements of its purpose, governance and operational policies, codes of conduct, grievance and complaint procedures, strategies, risk analysis and robust audit procedures involving financial and non-financial behaviour and impacts.  In choosing these statements, the company will base these on modern science and validated standards of human-human and human Earth responsibilities.

In elaborating on some aspects of these standards, appropriate charters and codes can include reference to or be consistent with the Earth Charter; Daly Rules; ILO standards; Universal Declaration of Human Rights; and UNESCO Universal Declaration of Animal Rights.   The content validity for this definition is described elsewhere [16].


5: Evaluation of Pathfinder’s Values, Exclusions, Engagement and Reporting

Pathfinder’s principles for deciding its ethics are whether companies 

  • Work towards the UN Sustainable Development Goals (SDGs);
  • Have high ESG metrics;
  • Are aware of climate change and are working towards a lower carbon intensity (because it improves each company’s long-term investment performance)
  • Promote the dignity of individuals (for example how they treat staff, customers, suppliers or the community that the company operates in);
  • Do not exploit animals;
  • Do not have high levels of controversy;
  • Observe New Zealand’s legal or regulatory settings, as well as international laws and conventions applicable to New Zealand;
  • Do more social and environmental harm than good.

The Ethical Policy Statement is repetitive, and there was a mixture of higher and lower level criteria but not in order to show how they related.  There were parts which said that action should be taken (eg over climate change) because it provided better returns in the longer term.  This is not an ethical matter.  Exclusion of companies with very high levels of controversy is also not based on ethical criteria. 

The use of Social Development Goals is not the most appropriate framework.  Take the First Goal: End poverty in all forms everywhere. This is not an ethical statement.  It is a statement about a desired future state of affairs.  Why should we aim to end poverty?  Because it is not fair.  That is the moral principle that is important.  Also, it makes it more relevant for companies, because ending poverty is an issue for governments primarily, whereas the principle of fairness is directly applicable to companies.  The Second Goal, Zero Hunger, has a similar moral principle underlying it, which leads to duplication of the value.

Pathfinder has a list of 15 types of investment that it will exclude, including both civilian and military weapons.  But it is realistic to ban all weapon manufacturing?  Pathfinder does not appear to recognise that it is possible to actively invest in companies with the aim of changing them through engagement.

Pathfinder states that they vote at company meetings and meet with New Zealand company managers, but do not describe who these are or what impact they had.  Best practice requires a report describing the engagement and results of that engagement for each company that the Fund invests in.  Pathfinder’s engagement and reporting activities are minimal and inadequate.

Pathfinder uses the UNPRI, B Corp, and is a member of RIAA.  It loses claims to integrity by using these frameworks.

6: Evaluation of Pathfinder’s Selection of Investment Options

Pathfinder have a number of Managed Funds.  Auckland Airport and the Macquarie Group from the Ethical Growth Fund were randomly chosen to look at how Pathfinder applied it ethical standards. 

Auckland Airport: Evaluation

There are many impressive features of Auckland Airport from an ethical perspective.  They have mapped out a process to describe what their ethic is, how it should implemented and reported.  It is good that they are working towards a refreshed sustainability strategy.  There are aspects where changes are required so it is not possible to state that they are an ethical company in all dimensions, but they have taken a number of steps towards achieving that assessment. 

The Airport’s Ethics and Code of Conduct policy ignores any human-Earth factors.  Elsewhere I have argued that it is not enough to hold directors personally accountable for health and safety matters (following the Pike Mine disaster), but that a similar responsibility should also exist for human-Earth matters [17].  This responsibility should be included in the Ethics and Code of Conduct.

The Dow Jones Sustainability Asia Pacific Index and FTSE4Good are based on weak definitions of sustainability and are not good measures for assessing environmental impact.  The environmental component of the UN Global Compact is inadequate.  If the Airport is to reference sets of principles such as the Universal Declaration of Human Rights, it should report on how it is meeting those requirements (example: how it is dealing with slavery).

New Zealand’s footprint is 4.3 global hectares so we are living 2.5 times beyond our ecological footprint [18].  The measures used to track changes do not make it clear what the overall footprint of Auckland Airport is.

The Airport is part of the transport and tourism sectors.  As part of a strategic assessment of the capacity to meet future demands on it, it should not just unthinkingly return to pre-Covid and Business-As-Usual patterns.  What would future demand look like based on sustainable tourism?  What role could the Airport play in talking through the ethics of scenarios with other key players?  How can the Airport play a part in assisting New Zealand to meet a 1.50C GHG target?

The Airport is committed to transitioning their operational fleet from diesel to electric transmission.  But what about the ecological footprint of transport of visitors to the airport?  Could the Airport give parking priority to visitors using electric cars?  What plans has it made for increases in public transport?  What is the ecological footprint on the companies that sell goods within the airport facilities?

The ecological footprint of airlines contributes around 5% world-wide (taking into account contrails and other effects).   Does the Airport have a role through differential landing fees in encouraging private and public airlines with lower ecological footprints?     The Government has indicated that it wishes for a rethink of the basics of the tourism industry away from quantity to quality experiences.  The Airport has taken an active role in screening for slavery and Covid threats, but the climate warming threat is of greater severity.  What can and should the airport do about the fact that 1% of travellers cause half of global aviation emissions [19]?

Macquarie Group:

Macquarie is a global financial services group operating in 31 markets in asset management, retail and business banking, wealth management, leasing and asset financing, market access, commodity trading, renewables development, specialist advisory, capital raising and principal investment [20].

In the Group‘s Code of Conduct it states three principles: opportunity; accountability; and integrity.  Macquarie supports fundamental human rights as set out in the Universal Declaration of Human Rights and core ILO Conventions.

While human-Earth matters are not included in these principles, the Group does have an Environmental and Social Risk Policy [21]. The policy is based mainly on international guidelines of the International Finance Corporation Performance Standards.  Their weaknesses have been briefly described in 3 Use of Other Ethical Frameworks or Rules above.

Macquarie also requires companies to observe the UN Guiding Principles on Business and Human Rights; to aim at enhancing the evidence base for research and decisions relating to biodiversity; to support the objectives of the 2015 Paris Agreement; and to align with the relevant sections of the Task Force on Climate-related Financial Disclosures (TCFD). Macquarie Group also have Principles for Suppliers [22].  This includes policy for identifying and mitigating the risk of modern slavery within their supply chain and business operations.

The Group has commitments to be sustainable in its direct operations, through reducing emissions form energy use and business travel, using sustainable buildings, being carbon neutral and procuring sustainably. 

Macquarie Group Evaluation

There are major concerns about the ethical nature of the Macquarie Group. The Code of Conduct’s principles do not mention any human-Earth responsibilities.  The use of IFC and Equator Principles is a major weakness. When it was shown by BankTrack that 14 of the 17 banks financing the Dakota Access Pipeline in the USA were signatories to the Equator Principles, then warning bells should have been loudly ringing at the Macquarie Group. 

There are also problems with fragmentation: it is not easy to get an overall picture of the Group’s ethical behaviour because the reports tend to be tied to particular activity areas or issues. Examples: what is the overall ecological footprint of the Group?  What is the Group’s total for its carbon emissions?  What is the effect of adopting an anti- slavery policy? There is excessive reference to external codes and charters.  It would be much clearer if there was a single statement of its ethics that applied to all Macquarie Group activities and that was reported on, including the results of its engagement with companies. 

On these grounds there is not adequate justification for including them in an ethical portfolio.

7:  Pathfinder Evaluation

Why did Pathfinder include Macquarie Group in its Ethical Growth Fund?  Warning bells should have been loudly ringing at Pathfinder as well as the Macquarie Group.   I suspect it is because of their clumsy definition of their ethical criteria, and because of the weaknesses in their engagement and reporting processes.  Funds that invest in companies that are breaching basic human rights standards, destroying the ecological systems and threatening life forms critical for continued human life on Earth, are not ethical. 

Pathfinder does not meet these standards and hence cannot be considered an ethical fund.


[1] Pathfinder.  Retrieved from

[2] “Ethical” and “moral” for our purposes are the same.  Decisions about whether to invest on financial grounds are not discussed here.

[3] World Scientists’ Warning to Humanity: A Second Notice.  William J. Ripple, et al, plus 15,364 scientist signatories from 184 countries. Bioscience, Volume 67, Issue 12, December 2017, Pages 1026–1028,

[4] Earth Charter. Retrieved from

[5] Climate Change Commission. Retrieved from

[6] Retrieved from

[7] See Howell, R. 2020.  Issues Behind the News. Chapter 12.The Bankruptcy of Responsible Investment: How Can We invest Ethically?  ISBN 978-0-473-52926-0

[8] Measuring Sustainability.  The Economist 3 October 2020.

[9] Joly, C. 2012. Reality and Potential of Responsible Investment, in Responsible Investment in Times of Turmoil. Ed Vandekerckove, W et al.  Dordrecht: Springer

[10] Certified B Corp.  Retrieved from

[11] GoodOnYou.  Retrieved from

[12] Howell, R. op cit.

[13] IFC Retrieved from

[14] BankTrack Retrieved from

[15] Herman Daly proposes three rules for an economics based on modern science.  The Output Rule states that wastes should be kept within the assimilative capacity of the local environment. The Input Rule states that the harvesting rates of renewable inputs shall not exceed the regenerative capacity of the natural system that generates them. TheThird Rule says that the non-renewable depletion rate shall equal the rate at which renewable substitutes are developed by human invention and investment.  Daly, Herman E. (1996). Beyond Growth: The Economics of Sustainable Development. Boston: Beacon Press. ISBN 9780807047095.

[16] Howell, R. 2020.  Op cit.

[17] Submission by Wise Response Society on the Conduct of Financial Institutions June 2019.  Retrieved from

[18]  Global Footprint Network.  Retrieved from

[19] Husbo, I. 1% of people cause half of global aviation emissions.  Most people in fact never fly. Retrieved from

[20] Retrieved from

[21] Macquarie Group’s Environmental and Social Risk Policy.  Retrieved from

[22] Macquarie Group Principles for Suppliers Retrieved from