The smart money

Re­spon­si­ble in­vest­ment can re­quire an in­ves­tiga­tive search into a fund’s in­vest­ments, but the wa­ters are clear­ing.

Element - - Business - By Adam Gif­ford

The de­bate over re­spon­si­ble in­vest­ing has been boosted by at­tacks on a high pro­file pub­lic in­vestor. At the end of 2012 the New Zealand Su­per­an­nu­a­tion Fund sold what were rel­a­tively tiny stakes in three Is­raeli com­pa­nies be­cause of their involvement with the con­struc­tion of set­tle­ments in the Oc­cu­pied Pales­tinian Ter­ri­to­ries and the sep­a­ra­tion bar­rier – ac­tiv­i­ties the United Na­tions says are il­le­gal un­der in­ter­na­tional law.

It ear­lier di­vested shares in Freeport-Mc­MoRan Cop­per & Gold be­cause of bribery and thug­gery around its Gras­berg mine in West Pa­pua, KBR (for­merly Kel­log Brown & Root) for per­sis­tent breaches of bribery and cor­rup­tion stan­dards, Fukushima nu­clear plant op­er­a­tor Tokyo Elec­tric Power Com­pany and the Zi­jin Min­ing Group for en­vi­ron­men­tal dam­age in China.

The Green Party has a fur­ther list of com­pa­nies they want the fund to quit be­cause of bribery and cor­rup­tion, se­vere en­vi­ron­men­tal dam­age, hu­man rights and the re­ported man­u­fac­ture of clus­ter mu­ni­tions.

The fund guardians say they do re­spond to ac­tual or re­ported breaches of their en­vi­ron­men­tal, so­cial and gov­er­nance (ESG) stan­dards, which are closely mon­i­tored.

Their fo­cus is on ad­dress­ing and chang­ing be­hav­iour, which can be through en­gage­ment with the com­pa­nies ei­ther di­rectly or in col­lab­o­ra­tion with other in­vestors. Di­vest­ment is the last re­sort.

The fund owned the shares, which amounted to less than $2 mil­lion of the $19 bil­lion fund, be­cause they were on pas­sive in­dexes.

Such com­pa­nies move in and out of the fund based on mar­ket cap­i­tal­i­sa­tion rather than through ac­tive stock pick­ing.

The New Zealand Su­per­an­nu­a­tion Fund is a tar­get for those who want to make a point about re­spon­si­ble in­vest­ment, but how can or­di­nary savers know their money is be­ing in­vested in ways that match their ethics and as­pi­ra­tions?

In their in­vest­ment state­ments, ev­ery Ki­wisaver fund provider dis­closes their ap­proach to re­spon­si­ble in­vest­ing, in­clud­ing en­vi­ron­men­tal and so­cial con­sid­er­a­tions.

Those who do go down this path have a grow­ing body of re­search to work from, which is used by other or­gan­i­sa­tions - many of who use the same fund man­agers.

Trust Waikato chief ex­ec­u­tive Bev Gatenby says the trust signed up to the Prin­ci­ples of Re­spon­si­ble In­vest­ment in 2007. “It’s a world­wide move­ment es­tab­lished by the United Na­tions. Through that we get ac­cess to frame­works and a huge amount of work on the is­sue, and it pro­vides a com­mu­nity to op­er­ate in,” she says.

“The trustees took the view that if the pur­pose of the trust is to make do­na­tions that do good for the com­mu­nity, then the way we in­vest should also do good.

“A num­ber of trustees also talked about the busi­ness case for re­spon­si­ble in­vest­ment and sus­tain­abil­ity. There is in­creas­ing ev­i­dence that funds based on ESG is­sues per­form bet­ter than the stan­dard bench­marks,” Gatenby says.

“...if the pur­pose of the trust is to make do­na­tions that do good for the com­mu­nity, then the way we in­vest should also do good.”

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