The Gaza war is not changing KiwiSaver in the way Ukraine did

Sunday, 28 January 2024

ANALYSIS: When Russia invaded Ukraine in 2022 KiwiSaver schemes quickly ditched Kremlin-linked investments even before sanctions were imposed.

Within weeks of the invasion, KiwiSaver managers including ASB, Westpac, Bank of New Zealand and ANZ had sold shares in Russian banks linked to the Kremlin.

The war in Gaza has been far less clear-cut for KiwiSaver scheme managers, and most say there has been little pressure from savers for them to respond.

Only one, Simplicity has made changes, announcing in November that it was selling out of three Israeli banks, a move it called a response to the developing situation in the Middle East.

KiwiSaver funds invest in shares in companies from round the world, as well as in sovereign bonds issued by countries like the United States, so when a conflict breaks out, they can find themselves facing a test of their responsible investment policies.

The war in Gaza began with the October 7 attack by Hamas, in which just over 1100 people, mostly civilians, were killed. Since then, more than 25,000 people have died during Israel’s attempt to destroy Hamas, and the United Nations says about 1.9 million Gazans have been “displaced“.

But while KiwiSaver managers have not been facing mass investor pressure over the war in Gaza, there have been attempts at exerting pressure on KiwiSaver fund managers.

Ethical investment research charity Mindful Money organised a meeting in December between the big KiwiSaver managers and the UN rapporteur on human rights in Palestine, Francesca Albanese.

At the meeting Albanese called on KiwiSaver managers to stop investing in companies that supported the building of “illegal settlements” by Israel in Palestinian territories occupied by Israel.

Mindful Money founder Barry Coates, a former Green Party MP, said New Zealand’s foreign policy held that the expansion of the settlements was illegal, and that in 2016 New Zealand teamed up with Malaysia, Senegal and Venezuela to present Resolution 2334 to the United Nations Security Council condemning them.

Running an analysis on the more than 800 KiwiSaver funds, Mindful Money reported 367 had money in companies on a list of companies supporting the settlements, some drawn from a list published by the UN Human Rights Council, others identified by Mindful Money.

The companies not only include Israeli companies, but also overseas companies like Motorola Solutions and Caterpiller.

Investments in those companies represented just $122 million of the roughly $160 billion invested in funds, Mindful Money said.

Coates, and KiwiSaver managers, said the meeting with Albanese was positive, but a survey of the largest KiwiSaver schemes appears to show that most were not swayed by what they heard from her.

Activist John Minto, who has helped organise pro-Palestine protests around the country, said he was an observor at the Albanese meeting, called the expansion of Israeli settlements a “flagrant breach of international law”.

KiwiSaver schemes invested in companies supporting the settlements were not following Government policy, Minto said.

That echoed arguments made to press KiwiSaver schemes to stop investing in tobacco companies, and companies involved in the making of controversial weapons like cluster munitions, and nuclear bombs.

Minto said he would go further than have KiwiSaver managers sell out of companies on the UN list, and would have New Zealand ban “anything coming from Israel” in a bid to end the war.

Dr David Cumin from the Israel Institute of New Zealand is critical of the “Boycott, Divestment, Sanctions” or BDS movement, criticising the New Zealand Super Fund in 2021 when it sold out of some Israeli banks.

Cumin saw hypocrisy in the NZ Super Fund’s decision, saying at the time the NZ Super Fund continued to invest in Chinese and Russian banks, when both countries had bad human rights records.

He also criticised the stance of Mindful Money, saying the “ethical concerns of Mindful Money on Israel do not seem to be extended to territorial disputes that do not involve Jews - Cyprus, Western Sahara, Hong Kong, Falklands, etc.”

Coates said Mindful money had worked to draw the public’s attention to KiwiSaver fund investments in companies involved with not only the Kremlin, but Myanmar, oppression of the Uihgurs in China, and companies operating in Western Sahara.

Cumin said “Mindful Money relies on United Nations reports and quotes from activist NGOs that are disproportionately fixated on Israel and lacking in context.”

Cumin cited British author Dan Harris’ book The Trojan Bourse on the BDS movement, who has warned that biased information was making its way into investment decisions, and activists were attempting to use people’s retirement savings to further political agendas.

“In the past you would stand with your placard in the rain, hoping some people would take notice,” Harris said in a presentation to UK Lawyers for Israel. “Now, we are in a different world where BDS and their agendas are able to be directly injected into the financial markets, and weaponised.”

Antisemitism was spread by the malicious, and amplified by the well-meaning and ignorant, Cumin said.

“When it comes to managers of KiwiSaver funds, one would hope they educate themselves on the decisions they are making in their professional capacity.”

The response to the Albanese meeting appeared to show KiwiSaver managers making their own decisions, though Coates said many KiwiSaver managers had outsourced much of their investing to overseas fund managers, and strategic decision-making here in New Zealand had been weakened.

Coates said the majority of people in New Zealand wanted an immediate ceasefire in Gaza, and while Coates said many people were coming to Mindful Money with their concerns, KiwiSaver managers said they had not been fielding many calls from the public.

The country’s largest KiwiSaver provider ANZ said $93m out of the roughly $32b it had invested was in companies with exposure to Israel, its KiwiSaver funds currently invested in three of the companies on Mindful Money’s list – Bank Hapoalim, Motorola Solutions and Caterpillar.

ANZ was at the Albanese meeting, but did not indicate any plans to change its investments as a result, adding “we have received a very small number of member enquiries regarding our investments in Israel.”

BNZ, the seventh-largest KiwiSaver provider, said it has been “asked by some members about our Israeli holdings, but we have not seen any notable change in switching activity that could be attributed to this”.

It had $5.4b in its KiwiSaver scheme, with about 0.13% invested in companies identified by Mindful Money.

It was reviewing its responsible investment policy to include a human rights framework, but that was to regulate its approach and response to human rights globally, not just in the Middle East.

Fisher Funds, the second-largest KiwiSaver provider, had money invested in Caterpiller, but said geopolitical issues were sensitive and complex by nature.

“From time-to-time we might have an investment on a list created by a third party, but we regularly review our holdings to ensure they comply with our policies, our own exclusion list, and relevant legislation,” the fund manager said.

Fisher Funds was at the Albanese meeting, saying “we like to hear a range of views before ultimately forming our own”.

However, it said: “We will change our investment exposure as a direct result of global conflict in the event of a United Nations or New Zealand Government directive.”

Frances Sweetman, head of sustainable investment at Milford, the fifth-largest KiwiSaver provider, said it had no holdings in the companies on the UN list, however, that was not because of their inclusion on the list.

“Our priority is to ensure we are being good stewards of capital by ensuring we don’t invest in unsustainable companies that don’t meet our required standard of conduct,” she said.

“However, we are very careful not to reflect political positions in our investing because we are investing on behalf of clients with a wide range of different views.”

Milford used information from the UN when it was considering a conflict from an environmental, social and governance (ESG) perspective, she said.

In the case of the Gaza war, she said “the UN has condemned acts on both sides of the conflict, but hasn’t determined the actions of Israel or Gaza are contrary to the principles of the Charter of the United Nations.”

Philip Houghton-Brown, head of investment solutions at BT, which invests for the fourth-largest KiwiSaver scheme for Westpac, said “investments in Israel make up 0.02% of our total funds under management, and our ESG research provider does not consider any Israeli companies we invest in meet our exclusion criteria.”

Simplicity, the 10th-largest KiwiSaver provider, said since the early weeks of the Gaza war, it received a wide range of feedback from members, predominantly on social media, representing strong views on both sides.

But like other providers, the Gaza war had not continued to be a flashpoint for KiwiSaver.

“This traffic reduced prior to the end of the year,” Simplicity said. “We are not aware of any material investor inflows or outflows linked to our responsible investment stance.”