A high standard of responsible investing
30 yrs young 1988 - 2018
kiwisaver provider champions a higher standard of responsible investing Socially responsible investing has come a long way in New Zealand since KiwiSaver providers scrambled to adopt a no nuclear weapons, tobacco, cluster munitions or landmines approach, but unfortunately this is where some KiwiSaver providers still draw the line. Few New Zealanders want to build their retirement wealth by investing in companies that violate human rights or cause catastrophic environmental damage. But if the companies behind these actions are not producing landmines, nukes or tobacco, their shares could be owned by some of the KiwiSaver Schemes available in New Zealand today. NZ Funds, manager of the NZ Funds KiwiSaver Scheme, has taken a different approach by partnering with global giant Institutional Shareholder Services Inc (ISS). ISS is the world’s leading provider of corporate governance and responsible investment solutions for asset owners and managers. ISS covers both local and internationally listed companies. ISS employs over 1,100 employees across 19 offices in 13 countries. Last year, they covered 115 markets and conducted research over 40,000 meetings. ISS, through their ISS-Ethix solution, screens for the usual culprits: landmines, cluster munitions and nuclear weapons; and then goes further by also considering companies adherence to global principles on human rights, labour standards, environmental protection, and anti-corruption. By way of example, over the last two years NZ Funds, based on ISS Ethix’s research, have sold their holdings in BHP Billiton Limited for failing to remediate the environmental damage caused by a dam bursting and in Phillips 66 for failing to respect indigenous rights. In a similar vein, should a company fail to respect employees’ rights, be implicated in the use of child or slave labour or become involved in bribery then it too would be red flagged from investment. In addition, as NZ Funds has its own in-house investment team, its Portfolio Managers and Analysts are tasked with screening each new investment for environmental, social and governance (ESG) factors. Where an area of concern is identified – as NZ Funds recently did with a local fishing company – the first step is always to engage with management to understand what remedial steps are currently being taken. If NZ Funds is not satisfied with the company’s progress, they are willing to take a public stance or as a last resort, sell the investment. Successfully pressuring management to change their behaviour has the ability to improve the world, selling and walking away changes nothing and should therefore only occur as a last resort says NZ Funds. The good news is that an ESG approach is also likely to boost investment returns, as was evidenced in Bank of America Merrill Lynch’s research paper “ESG: Good Companies Can Make Good Stocks, December 2016”, so it is a win-win for all parties. In contrast, index managers are passive owners with little incentive to devote resources to monitoring companies and engaging with management. They tend to compete on fees and their primary objective is to match one of the hundreds of pre-selected indices available. There are many reasons not to consider a broader range of corporate behaviour but NZ Funds suspect cost is the main one. The old adage you get what you pay for is as applicable to KiwiSaver as it is to any other service.
responsible investment policy
Purpose 1. NZ Funds has adopted this policy to help ensure it invests in a socially responsible manner and does not invest in any controversial weapons prohibited under New Zealand law.
Scope 1. The policy applies to NZ Funds’ Investments team.
Principles 1. Investments’ research and investment management shall include consideration of environmental, social and governance matters. 2. NZ Funds shall contract a third party to provide socially responsible investment research that identifies ‘red flag’ companies. Investments may supplement this research and identify other ‘red flag’ companies. 3. Investments shall ensure that no fund it manages owns securities issued by companies identified by its socially responsible investment research as ‘red flag’ in the following sectors: •
Controversial Weapons; and
Investments will ensure that it is communicated to each underlying investment manager appointed to manage a discrete mandate that it must invest in accordance with clause 3 above. 4. Investments will communicate to each underlying investment manager appointed to manage a non-discrete (or pooled) mandate that it is NZ Funds’ wish for it to invest in accordance with clause 3 above, but that NZ Funds cannot obligate it to do so. 5. Any exemption to this policy must not be unlawful and must be approved by the CIO, Head of Risk, CE and a Director who is not also a member of Investments.
policy date: november 2016
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