Thin end of the ‘ethical investment’ wedge

Last week it was reported that some Kiwisaver funds invested in munitions and tobacco companies. This prompted a lot of comment about ‘ethical investments’.

An ODT editorial looks at Socially responsible investments:

Last week, Commerce Minister Paul Goldsmith said in Parliament there were indications several KiwiSaver providers had broken strict laws banning investments in cluster bomb makers.

A newspaper investigation analysed more than 100,000 individual assets held in nearly 500 KiwiSaver funds looking for 169 companies blacklisted by the New Zealand Superannuation Fund.

The analysis found half of KiwiSaver providers — mostly smaller boutique providers — have avoided blacklisted investments, but some people were unwitting investors in big tobacco companies and makers of banned weapons.

The investigation found three KiwiSaver providers have made investments worth a total of $2.3 million in a trio of United States companies blacklisted by the New Zealand Superannuation fund due to their production of cluster bombs.

The latest KiwiSaver report shows more than $28 billion is invested in KiwiSaver by 2.5 million New Zealanders.

Although the amount invested is a tiny percentage of  total KiwiSaver funds, it is still unacceptable some funds have broken the law.

The KiwiSaver providers should have been more careful to adhere to the legislation specifically forbidding investments in such companies.

Yes, if it’s illegal to invest in a certain type of business it is simply unacceptable.

But it can get tricky because many investments are not simple and easy to identify. The investigation found that Kiwisaver funds from the ANZ and ASB invested in other funds that invested in munitions and tobacco companies.

And it can get more convoluted. The Fisher Fund invests in the ANZ in Australia, so could be seen to be (very) indirectly linked to cluster bomb manufacture.

But the rest of the problem becomes murkier.

It is still legal to smoke in New Zealand and there will be some KiwiSaver investors who are relaxed about their funds being invested in tobacco companies.

In total, New Zealanders were found to have $102 million in tobacco companies, a small proportion of the total amount invested.

I certainly wouldn’t choose to invest in tobacco. But would it matter if the fund I invested in indirectly had a small amount in tobacco? It would make no difference to tobacco production or use if I was minutely and remotely connected or not.

The Government has rightly said it was unlikely to further regulate the KiwiSaver sector and the choice of the fund — and where to draw lines on what was an acceptable investment —  was up to individuals.

This stance has outraged Opposition MPs who want the Government to step in to tell the funds where they can and cannot invest.

Telling New Zealand KiwiSaver providers where to invest is a thin edge of something rather larger.

And that wedge was given a nudge last week. For example Kevin Hague tweeted “No doubt you’re shifting your KiwiSaver account to a company that doesn’t invest in cluster bombs. When you shift, think fossil fuels too”.

Currently, about 50% of New Zealand investors hold shares in Australian companies, including mining companies dealing in fossil fuels and extractive industries such as uranium, a key component of nuclear energy generation.

If all investment ceased in fossil fuel and other extractive industries it would create chaos around the world. While natural energy like wind and solar is great we are still very reliant on oil.

No government has the right to decide whether New Zealanders can invest in liquor or tobacco companies.

It is the individual’s responsibility to ensure they ascertain where their money is invested.

But the Greens seem to want to hammer the ‘ethical investment’ wedge. Julie Anne Genter:

Govt must set the ethical standard on KiwiSaver investments

The Government needs to set higher ethical investment standards for its default KiwiSaver providers, the Green Party said today.

“Profiting from the production of cluster munitions, landmines, and nuclear weapons is immoral, and most Kiwis wouldn’t want their Government directed savings invested anywhere near these companies,” Green Party finance spokesperson Julie Anne Genter said.

“Default KiwiSaver Funds need to be legally invested, at a minimum, and preferably ethically invested, so that New Zealanders have the best choices over where their money goes.

Obviously investments need to be legal. But ‘ethical’ is quite different.

New Zealanders already have the choice where their Kiwisaver funds are invested. As they should.

But I have concerns about Government setting ‘higher ethical standards’ for investments.

An interesting New Yorker article on whether divestment (ethical reinvestment) makes any difference – DOES DIVESTMENT WORK?

And there can be a costly downside as the ODT reports in City pays cost for divesting

Some of the Dunedin City Council’s divestment decisions have cost the city, it was revealed at yesterday’s council finance committee meeting.

The council voted last May to scrap any investments the fund had in the munitions, tobacco, fossil fuel extraction, gambling or pornography industries and to bar future investment in those industries.

The fund had produced $783,000 in profit during the eight months to February 29. However, this was $1.657 million down on the budgeted $2.44 million profit.

Some of the unfavourable variance was because of divestment losses, Mr McKenzie said.

The Dunedin City Council has a strong green lobby, and they succeeding in forcing divestment from companies they considered to be unethical. At a cost.

Kiwisavers should have choice. That could cost them. Apart from ensuring illegal investments are avoided the Government should not dictate what we can invest in.