In a decision last week, the court granted an application by the Palestine Solidarity Network for a review of NZ Super Fund’s ethical investment policies.
The network was concerned about investments in companies trading with illegal Israeli settlements, including Airbnb, Booking.com, Expedia and Motorola.
The Guardians of the NZ Super Fund are required to manage and administer it in a manner consistent with avoiding prejudice to New Zealand’s reputation as a “responsible member of the world community”, under the New Zealand Superannuation and Retirement Income Act.
The High Court found that the fund’s policy documents did not meet this obligation and were therefore unreasonable and unlawful.
Mindful Money said many KiwiSaver funds also had exposure to those companies. ANZ’s growth fund, for example, is invested in Airbnb and Motorola. ASB’s growth fund is invested in Motorola, Booking, com and Airbnb.
Mindful Money founder Barry Coates said the NZ Super Fund had a specific statutory duty under legislation that did not apply to KiwiSaver or other retail investment funds.
But the court’s critique of the responsible investment policy quality would have implications for other providers.
He said the criticism of vagueness would apply to other investment managers and it was likely that the Financial Markets Authority wiould start to look more closely at other policies.
It also highlighted the risk of using external providers, he said, such as MSCI by the NZ Super fund.
“Typically, the research providers with significant operations in the United States face limitations in their coverage of Palestinian human rights violations.”
Coates said the ruling would probably draw attention to what he said was the practice of NZ fund managers outsourcing management of their global investments to external providers, without adequate mandates, monitoring and accountability for specific investments, such as those breaching human rights norms.
“Typically, the NZ fund provider has an exclusionary clause that exempts the external providers from adherence to their policies.
“Perhaps the most important influence over NZ fund providers is that the NZ Super Fund has set that standard for their investment policies. If NZSF excludes the four companies cited in the judgement - and it seems difficult to understand why they would not, given their exclusion of other companies, such as Israeli banks on the same grounds, this will put pressure on many funds to follow the decisions of NZ Super Funds.”
KiwiSaver provider Milford Asset Management said the court decision was useful for all fund managers in its articulation of what might constitute best practice in terms of policies and processes.
“The NZ Super Fund is widely considered a leader in responsible investment within the New Zealand funds management industry, and it’s likely we will observe a refocus on sustainability policy and process across fund managers in New Zealand. Many fund managers do monitor the decisions the Super Fund makes in terms of policy and process, including which investments it excludes from its investment universe.
“The key purpose of Milford’s Sustainable Investment Policy is to ensure Milford’s clients are not exposed to undue sustainability-related risk.
These risks can be fast moving, and can evolve over time based on geopolitical, technological or legal factors. Maintaining a specialised team of Sustainable Investment analysts directly within the Investment team allows for timely integration of sustainable investment risk management within the investment process. The team will consider the court’s findings in relation to policies and procedures to ensure our Sustainable Investment approach continues to be robust, clear, and fit for purpose for our clients.”
ANZ and ASB have not yet responded to a request for comment.
Law firm DLA Piper said because the judgment related to the NZ Super fund’s’ specific duties it did not have direct impact on other managers.
“However, we expect the decision to influence regulator and consumer expectations for sustainable or responsible investment frameworks across the financial sector, including KiwiSaver providers.”
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