War of words over nukes

One fund manager says dealing with investments in nuclear arms is complex, but a researcher says it doesn't need to be.

Friday, March 26th 2021, 6:44AM

by Daniel Smith

When Mindful Money revealed that over 88 KiwiSaver funds were invested in nuclear weapons it was a surprise to many in the industry.

But the managing director of one of those funds, George Carter of Nikko AM, says that this is because of varying definitions surrounding controversial weapons’ screening processes.

“We have a screen against controversial weapons in all our funds which includes nuclear weapons. But if you go to the Mindful Money website and search for a Nikko fund and ask, ‘Does Nikko screen for nuclear weapons?’, it will have a big cross and say ‘No, the fund owns 0.4% in nuclear weapons’.”

“But we do have a screen for nuclear weapons. The reason that the Mindful Money data shows that we have 0.4% is because different screens use different definitions of what is classed as nuclear weapons.”

Part of Nikko’s 0.4% investment in nuclear weapons is in a company called Airbus, which Mindful Money screens. Sustainalytics agrees and includes Airbus on its list of prohibited companies.

But Carter says that “Nikko’s global bond fund uses MSCI to screen out controversial weapons. MSCI does not screen out Airbus because the de minimis nature of Airbus’ nuclear holdings does not meet their threshold for screening nuclear weapons production.”

According to Carter, there are two separate conversations that are being muddled together.

“One is, philosophically does a fund manager want to screen out nuclear weapons’ technologies in its investments, or is it okay owning those companies?

“There is then a second much smaller question. That if we have philosophically agreed that we want to screen out controversial weapons in a fund, we then have to have the conversation of what do we mean by that, what is the definition?”

"Philosophically, I think we need to be really careful as to where we draw the line.”

Barry Coates believes that Mindful Money’s approach to screening nuclear weapons is aligned with what the public expects from fund managers.

“There are some issues where the public feel sufficiently concerned about an issue that we use essentially a zero threshold.”

But Coates said that this approach is not unique to Mindful Money.

“What we have done is taken the standards that are most commonly used across the investment sector and applied them across the board.”

Funds using screening companies such as MSCI or Sustainalytics can ask them to screen to different thresholds.

Among this differing interpretation of the data, Coates says “Whether or not the data comes from Sustainalytics or MSCI isn’t so relevant when both research companies agree that these companies produce nuclear weapons.”

Mindful Money uses a zero tolerance threshold where nuclear weapons are concerned. “We apply a consistent set of exclusions to all of these companies producing controversial weapons.”

Carter believes that the philosophy of the fund manager and the definitions behind exclusions should be two separate conversations.

A proposition which Coates largely agrees with. Unless controversial weapons are involved.

“Controversial weapons are a bit different. With cluster bombs there are legal reasons why investing in cluster bombs and chemical weapons are illegal in NZ under international treaties. Similarly, we believe this is also true for nuclear weapons.

“It is not only that you choose your exclusion level but you choose the degree to which you comply with international law. This should be of concern even when NZ laws lag behind international norms.”

Carter says that a fund manager must decide for themselves what degree they are to be invested in controversial weapons.

Coates believes “Any fund manager pretty much has to choose zero, otherwise they risk potentially breaking the law, as well as breaching the ethical stance held by most New Zealanders.”

Tags: Barry Coates ESG George Carter Mindful Money Nikko AM

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