31 Aug 2016

The ethics of KiwiSaver funds

From Nights, 7:15 pm on 31 August 2016

An RNZ investigation earlier this month found several default KiwiSaver providers either directly or indirectly, invested in tobacco companies and weapons manufacturers.

So what's an ethical Kiwi saver to do?

Michael Littlewood tells Bryan Crump ethical investing is impossible in practice.

Mr Littlewood is the former co-director of Auckland University's Retirement Policy Research Centre.

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Photo: 123RF

He says KiwiSaver investment in weapons manufacture is more a question of social responsibility than criminal responsibility as New Zealand’s Cluster Munitions Prohibition Act (2009) states that a person commits an offense only if they intend or know their funds will be used in the development or production of cluster ammunitions.

Statements made by KiwiSaver fund managers have been more about PR than legal defence, he says.

“Some of our customers have expressed concern about this, so we’ll make our lives a bit easier and say we won’t invest in those particular type of shares.”

So could KiwiSaver providers band together to take a stand? Mr Littlewood predicts they'd have trouble agreeing on a definition of ‘socially responsible’.

“Should you also not be investing in property companies that own the land and buildings that these offending companies lease? Or what about not buying the other products that these companies produce?

“Are we happy about tobacco? What about liquor? What about oil exploration? Some people say responsible investing should exclude new oil exploration.”

Mr Littlewood says that is near impossible to be a ‘socially responsible investor’ given the complexity of world financial markets.

Even the UN’s Principles for Social Investing (which the ACC and New Zealand Super Fund have adopted) he describes as “pretty relaxed”.

"[The PRI principles still allow] those funds to invest in companies with small to moderate environmental, social or governance issues, even into arms or munitions companies, as long as they don’t make anti-personnel weapons or cluster munitions, into nuclear energy production… and even fossil fuel exploration,” he says.

He points out that even though it may be illegal to knowingly invest in companies manufacturing cluster munitions, it is still legal to invest in companies manufacturing land mines.

New Zealand’s Cluster Munitions Act also includes exceptions, he says.

“You can have cluster munitions as long as you’re aiming it at an offending aircraft, not aiming it at the ground.”

He goes further and asks if the production of arms is necessarily socially irresponsible.

“We’ve got an army. How do we arm an army if we can’t buy munitions?”

Can people investing their money independently (rather than with a KiwiSaver fund) invest with social responsibility?

Mr Littlewood says we cannot know with any certainty that government investments and bond funds don’t have interests in companies we oppose, or trust our banks to exercise the same kind of moral judgement we would ourselves.

Is the idea of socially responsible investing ‘a crock’?

“Personally, yes, I think it is.”

So do we all just need to learn to love the bomb-makers? What are the alternatives?

He suggests people may be better placed to make social change from the inside.

“You might have a better position as a shareholder, ‘cause you can say ‘I am a shareholder in your company and I don’t like what you’re doing. And if you can convince enough of your fellow shareholders to do that, then perhaps progress could be made.”

Read ‘Default ‘socially responsible investment for KiwiSaver? An alternative view’ by Michael Littlewood