1 1.1 Responsible Investment Framework The Guardians of New Zealand Superannuation (Guardians) have made considerable progress during the year in the development of their responsible investment framework. The Guardians approved their revised Responsible Investment Policy, Standards and Procedures, to encompass both the Guardians ethical investment and voting requirements, with regards to the New Zealand Superannuation Fund (Fund). The Responsible Investment Policy, Standards and Procedures clarified how specific responsible investment issues, such as tobacco, would be considered in a manner that is consistent with the Guardians mandate. This is highlighted in the guidelines section 1.3 of the policy: The Guardians consider responsible investment (RI) to be part of evolving best-practice investment management. This RI policy has been developed to help the Guardians to manage the Fund in a manner consistent with: · · · Best-practice portfolio manageme nt; Maximising return without undue risk to the Fund as a whole; and Avoiding prejudice to New Zealand s reputation as a responsible member of the world community.
To the extent that it does not conflict with their obligations above, the Guardians, at their discretion, may consider other issues arising from the Fund s investments. In doing so, the Guardians may take into account factors including whether the issue is contrary to New Zealand law and New Zealand s international agreements, or is inconsistent with Crown actions. 2 2.1 Board s assessment and divestment decision As part of the Guardians on-going review of a range of issues, the Guardians analysed if the Fund s investments in tobacco companies was inconsistent with their responsible investment standards. This analysis (as outlined in sections 1.3 and 3.2 of the Responsible Investment Policy, Standard s and Procedures)1 included: · · · · · the nature of involvement by the company and the Fund; the materiality of the issue or breach of Responsible Investment standards; the regulatory environment, including international conventions and New Zealand law; the effectiveness of shareholder actions; and the impact on the Fund s portfolio.
The Guardians decisions must not be inconsistent with their mandate, and therefore the analysis gave particular consideration to the impact of tobacco investment on the Guardians requirements to: avoid prejudice to New 1
Responsible Investment Policy, Standards and Procedures dated 27 June 2007
23 Oct 2007
Zealand s reputation as a responsible member of the world community; and to maximise returns without undue risk to the portfolio as a whole (please refer to sections 5 and 6 of this document for more details). 2.2 Based on the Guardians assessment, the Board decided to divest tobacco stocks from the Fund. Although the Guardians consider the active use of shareholder rights through engagement and voting to be the main mechanism for responding to responsible investment concerns2, in the case of tobacco stocks such efforts would not be cost effective, and would risk the Fund being conflicted. Considering Crown action internationally, and at the domestic level, the unusual characteristics of the tobacco industry, particularly with regard to product safety and ethics, and the effectiveness of different shareholder responses, the Guardians concluded that divestment and exclusion of the Fund s tobacco holdings would be the most effective response. The decision to divest from tobacco should not be seen as a precedent for future decisions or actions. The Guardians have a transparent framework for responsible investment procedures, and a range of options for action including engagement, divestment, and e xclusion. It is to be noted that there is not a uniform response to the issue of tobacco investments by investors with a Responsible Investment policy. There are clear divisions in the arguments on whether or not to hold...