NZ Super Fund cuts firms on ethical grounds

FIONA ROTHERHAM
Last updated 16:43 12/12/2012

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The New Zealand Superannuation Fund has excluded three companies from its $20 billion investment portfolio on responsible investment grounds.

All three companies - Africa Israel investments and subsidiary Danya Cebus, Elbit Systems Ltd, and Shikun Binui - are involved in constructing Israeli settlements or a separation barrier in the Occupied Palestinian Territories, which have been deemed illegal under international law. 

The stocks have now been sold. All three were held passively in the fund's global equity portfolio, which is managed externally and includes shares in more than 6500 companies worldwide.

The fund's investment in Africa Israel was only $9744, and $19,898 in Shikin Binui. Elbit had already dropped out of the passive index after its holding was valued at $19,898 in June, but today's move means it is now excluded from reinvestment.

The fund considered the companies' involvement to be inconsistent with the United Nations Global Compact, the key benchmark against which the fund measures corporate behaviour.

It also factored in votes by New Zealand for UN Security Council resolutions demanding the stopping and dismantling of the separation barrier, and the cessation of Israeli settlement activities in the Occupied Palestinian Territories, said Anne-Maree O'Connor, the fund's manager for responsible investment. 

"In deciding whether a company is breaching the fund's responsible investment standards and how material that breach is, we take account of the proximity and importance of the company's actions to an illegal or unethical activity," said O'Connor.

"We draw a distinction between being directly and materially involved in an activity versus being a supplier of materials or services in the normal course of business. In doing so, we consider whether the product or service is integral to the activity and tailor-made as opposed to being an off-the-shelf substitute or readily replaceable alternative."

One of the other considerations is whether engagement by the fund would lead to a meaningful change in behaviour. 

"In the case of these companies we have come to the conclusion that engagement is not likely to be effective,'' 'O'Connor said.

The fund's exclusions follow the Minister of Finance Bill English this week asking two government superannuation funds to confirm whether they are investing in cluster bomb manufacturing companies.

Investment in companies manufacturing cluster bombs, which often kill civilians, was outlawed by an international Cluster Munitions Convention in 2008 and passed in to New Zealand law a year later.

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The Green Party forced English to acknowledge in Parliament last week that the Government's National Provident Fund and Government Superannuation Fund (GSF) had investments in cluster munitions producers Lockheed Martin, Raytheon and L-3 Communications.

The Government's National Provident Fund (NPF) and GSF, which is for government employees, have invested a total of $2.2 million in those three companies, English said.

The government funds' investments were made through trusts and managed fund portfolios, which made them difficult to track. English had not yet stated what action, if any, would be taken on the issue.

Last year the Greens also accused the NZ Super Fund of investing in five different companies making cluster munitions, but the fund's guardians denied the named companies were cluster bomb manufacturers. 

In September, the fund also dumped four other companies deemed to have fallen foul of social and environmental standards.  

The fund sold holdings in US miner Freeport-McMoRan Copper & Gold, US petrochemical engineering firm KRB, Japanese electricity firm Tokyo Electric Power Co, and Chinese resource firm Zijin Mining because the firms failed to meet responsible investment standards over corruption, human rights, safety and environmental issues.

- BusinessDay.co.nz

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