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