NZ Super Fund could do more to invest responsibly, report
New Zealand's Superannuation Fund (NZSF) has been accused of not being as responsible an investor as it claims to be.
NZSF invests to contribute to the cost of paying pensions.
It says it has a long-standing commitment to responsible investing, and believes environmental, social and governance (ESG) factors are material to long-term returns.
These are factored in to the way it monitors external investment managers, exercises its voting rights and engages with companies, as well as its own operations and reporting.
Its legislation also requires that its investments avoid prejudice to New Zealand's international reputation.
But Robert Howell, former chief executive of the now-defunct Council of Socially Responsible Investment, and one of the founders of the Australasian Centre for Corporate Responsibility, said the Fund was not doing enough.
He said the "international reputation" rule was inadequate because it did not identify morally unacceptable companies.
"The New Zealand Superannuation Fund is not a responsible investor because it invests in companies that are destroying the ecological systems essential for human life, or companies that do not treat their stakeholders fairly. Examples include Rio Tinto and Exxon Mobil," he said.
"It invests in too many companies with poor environmental or human rights behaviour, and does not actively engage with those companies to change their behaviour. The fund needs to exclude more (and in particular fossil fuel investments), invest in fewer numbers of companies, and engage more."
Howell said the Fund had a weak legislative mandate, adopted invalid codes of conduct, used a narrow definition of risk and inconsistent application of what principles and strategies it adopted.
"While it has publicly reported on many aspects of its activity, there are gaps in its public accountability and auditing over its engagement activities."
He said the legislation for the Norwegian pension fund, which includes human rights, environmental damage and corruption criteria, with an Ethical Council to assess the companies, was a model worth considering for New Zealand.
NZ Super Fund spokeswoman Catherine Etheredge said its approach was in line with best-practice portfolio management internationally.
"Responsible investment is a challenging area, but we are proud of our record and our approach is widely acknowledged as a leading one. The UNPRI rated our overall approach as A+ and our approach to Engagement an A in their 2015 benchmarking exercise.
"There are still areas we can improve on and the UNPRI benchmarking helps us focus our efforts."
She said the Fund was guided by Government policy positions, law and international conventions New Zealand had signed up to.
"There will always be people who want us to do more – or less – on some issues. We stand by our engagement programme, and note that in 2015 we appointed BMO Global Asset Management to undertake global engagements on our behalf.
"This represents a significant expansion of and additional investment into our engagement programme. We prefer to engage in order to use our influence as a shareholder to encourage companies to improve their policies and practices, and consider divestment a last resort."
Simon O'Connor, chief executive of the Responsible Investment Association of Australasia, said it was fair to ask what ethical investment should mean and how deeply the strategies were implemented.
"There is a range of depth to which people are implementing ESG."
He said it was important that it was not just a "tick the box" exercise for investment managers and there was adequate transparency.
But he said NZSF performed well against its peers internationally.
O'Connor said while it might not meet the ethical criteria of a boutique investment manager set up specifically to cater for investors who wanted ethical investments, it was doing well for a large-scale responsible asset owner.
He said taking a more intense focus would remove its ability to invest in large portions of the global market, which would be inappropriate.