(December 12, 2012) – New Zealand Superannuation Fund has excluded three companies from its US$17 billion portfolio for their roles in the Israel-Palestine conflict.
The sovereign wealth fund passively held shares of Africa Israel Investments, its subsidiary construction company, Danya Cebus, and Shikun & Binui in its global equity portfolio. The Israel-based holding/construction companies transgressed NZ Super’s relatively strict responsible investing policy and cannot reenter the portfolio until in they are compliance.
The firms were excluded for “their involvement in constructing Israeli settlements…and a separation barrier in the Occupied Palestinian Territories,” according to a statement from NZ Super.
Findings by the United Nations that the barrier and settlement activities were illegal under international law were central to the fund’s decision to exclude the companies, said Anne-Maree O’Connor, head of responsible investment, in the statement.
“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,” she said. “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.”
Violating the fund’s responsible investing guidelines does not necessarily mean immediate exclusion from the portfolio. However, in this case, O’Connor said that the fund doubted its ability to bring the three firms into compliance: “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.”
A number of recent academic papers have highlighted public intuitional investors’ ability—and some say obligation—to leverage their financial clout into political and corporate power.
In “Pension Funds, Sovereign Wealth Funds and Intergenerational Justice,” Norwegian experts Alexander Cappelen and Runa Urheim argue that institutional investors’ responsibility to members/citizens extends beyond returns. For pension and sovereign wealth funds, “the combination of a diversified portfolio and a long time horizon creates incentives to internalize intergenerational externalities,” Cappelen and Urheim write. But that’s not news to most large asset owners, such as NZ Super, who “are increasingly realizing that they need to play a more active role in the shareholder democracy in order to promote their interest[s].”
NZ Super won aiCIO's Industry Innovation Award for the Sovereign Wealth Fund category in part for its commitment to transparency.