The New Zealand Superannuation Fund has announced that it’s excluding three Israeli companies from its $20 billion investment portfolio on responsible investment grounds.
Findings by the United Nations that Israel’s ‘Separation Barrier’ and settlement activities are illegal under international law are central to the Fund’s decision to exclude the companies, says Anne-Maree O’Connor, the Fund’s Manager for Responsible Investment.
The Fund also factored in votes by New Zealand for UN Security Council resolutions demanding the cessation and dismantling of the Separation Barrier, and the cessation of Israeli settlement activities in the Occupied Palestinian Territories.
The Fund also views the companies’ activities to be inconsistent with the UN Global Compact, the key benchmark against which the Fund measures corporate behaviour.
Details of exclusions
|Excluded Company||Criteria||Holdings at 31 October 2012|
|Africa Israel Investments and subsidiary Danya Cebus||Africa Israel and its subsidiary Danya Cebus have been excluded because of their involvement in the construction of Israeli settlements in the Occupied Palestinian Territories. The settlements have been cited as illegal under international law, and the Fund considers the companies’ involvement to be inconsistent with the United Nations Global Compact.||NZ$9,744|
|Elbit Systems Limited||Elbit has been excluded because of its involvement in the construction of the Separation Barrier in the Occupied Palestinian Territories. The Separation Barrier has been cited as illegal under international law, and the Fund considers the company’s involvement to be inconsistent with the United Nations Global Compact||NIL*|
|Shikun & Binui||Shikun & Binui has been excluded because of its involvement in the construction of Israeli settlements in the Occupied Palestinian Territories. The settlements have been cited as illegal under international law, and the Fund considers the company’s involvement to be inconsistent with the United Nations Global Compact.||NZ$19,89|
“In deciding whether a company is breaching the Fund’s responsible investment standards and how material that breach is, we take account of the proximity and importance of the company’s actions to an illegal or unethical activity,” says Ms O’Connor.
“We draw a distinction between being directly and materially involved in an activity versus being a supplier of materials or services in the normal course of business. In doing so, we consider whether the product or service is integral to the activity and tailor-made as opposed to being an off-the-shelf substitute or readily replaceable alternative,” she says.
Could companies’ behaviour change?
“We also consider whether engagement by the Fund with the company concerned would realistically lead to a meaningful change in behaviour. In the case of these companies we have come to the conclusion that engagement is not likely to be effective.”
Ms O’Connor says the exclusion decisions are based on an ongoing research and screening programme and, in the case of Elbit Systems Ltd, engagement with the company over an extended period. The stocks have now been sold.
All three stocks were held passively in the Fund’s global equity portfolio, which is managed externally and includes shares in more than 6,500 companies around the world.
Like many institutional investors, a sizeable proportion of the Fund’s investment portfolio tracks global equity indices (including the MSCI large-cap equity index, MSCI emerging market index and MSCI small-cap index) in order to gain cost-effective, diversified exposure to share markets around the world.
Investments in these companies move in and out of the Fund primarily according to their market capitalisation rather than through active stock picking. The portfolio is monitored daily for compliance with Fund exclusions.
The Fund’s responsible investment standards and activities are set out in its responsible investment framework, available on
* Elbit Systems Limited was deleted from the MSCI indices in June and subsequently dropped out of the Fund’s segregated investment portfolio. Excluding it will ensure it does not re-enter the portfolio in the future, should its market capitalisation change. At 30 June 2012 the Fund’s holdings in Elbit were worth $36,532.
The New Zealand Superannuation Fund invests money, on behalf of the New Zealand Government, to partially pre-fund future universal superannuation payments. The Fund is a founding signatory of the United Nations’ Principles for Responsible Investment (UNPRI). It is also a member of the Investor Group on Climate Change Australia/New Zealand, the International Corporate Governance Network and the Responsible Investment Association Australasia.