News Releases

Auckland (12 December 2008) - The Guardians of New Zealand Superannuation today announced that they were excluding from the New Zealand Superannuation Fund companies associated with the manufacture of cluster munitions and the manufacture or testing of nuclear explosive devices.
 
The Fund will divest from stocks in six companies involved in the manufacture of cluster munitions, one of which is also involved in the simulated testing of nuclear explosive devices. The Fund will divest from another company involved in simulated testing. The Fund does not, and has never, held shares in any company that manufactures nuclear explosive devices. The total value of the Fund's shares in these companies is approximately $37 million, or 0.3 percent of the Fund's portfolio. The table at the end of this document provides the full list of companies involved.
 
"Today's announcement follows the New Zealand Government joining with 93 other nations in signing an international treaty banning the production or use of cluster munitions, and a comprehensive review of the nuclear weapons issue. We will continue to review our portfolio through our specialist screening agencies to ensure our list of excluded companies remains up-to-date," said Guardians Chief Executive Officer Adrian Orr.
 
The Guardians are required to invest the Fund in line with best-practice portfolio management, to maximise returns without undue risk, and to avoid prejudice to New Zealand's reputation as a responsible member of the world community.
 
The Guardians have a Responsible Investment Policy that is based on this.  If a responsible investment issue arises, the Guardians prefer to try and influence the practices of companies through engaging directly as a shareholder, and by exercising their voting rights. However, under certain circumstances, divestment and exclusion are considered. Past exclusions have included companies involved in landmines, whaling and tobacco.
 
"Today we are following through with the commitment we made earlier this year," said Mr Orr. "We said then we would exclude companies involved in the production of cluster munitions once an international treaty was signed.
 
"Our review of companies associated with nuclear weapons programmes again applied the principles and rules of our Responsible Investment Policy."
 
The Responsible Investment Policy guidelines consider the effect of the Fund's investments on New Zealand's international reputation, the investment practice of global peers, and key international treaties, New Zealand law, and relevant Crown actions.
 
"It is clear that the manufacture of nuclear explosive devices would be illegal under the New Zealand Nuclear Free Zone, Disarmament, and Arms Control Act 1987. Those activities are undertaken by governments and controlled by the Non-Proliferation Treaty" said Mr Orr.
 
"We also believe that the simulated testing of nuclear explosive devices is critical to the development of those devices. We have therefore decided to exclude from the portfolio companies involved in such testing. This will require our fund managers to divest from holdings, totalling approximately $13 million, in two such companies.
 
"What has been more difficult is our decision on companies that are in some other way involved in nuclear weapons programmes such as in manufacturing delivery systems or in managing military bases.
 
"New Zealand's Nuclear Free Act specifically excludes delivery systems from its definition of nuclear explosive devices, and so those activities appear to be exempt from a ban under that Act.
 
"Our review also considered the investment practices of our peer funds as a gauge of the effect of our decisions on New Zealand's international reputation as a responsible member of the world community.  We found that investment in companies involved with delivery systems or bases is commonplace amongst other funds. Other government funds like ours around the world hold these investments. 
 
"It is also common for governments, including New Zealand's, and consumers to have commercial dealings with those companies. For example, both majority government-owned Air New Zealand and New Zealand's defence force buy aircraft and other products from some of these companies.
 
"The New Zealand Government's international agreements on disarmament have also been directed at countries, not companies.
 
"We therefore don't see these investments as damaging New Zealand's international reputation or conflicting with Crown actions," said Mr Orr.
 
"Many of the companies we identified produce products we use every day. These include, for example, aircraft, fire alarms, and elevators. Some of these companies are also involved in renewable energy technologies such as fuel cells and zero-emission hydrogen buses. This highlights how complex these decisions are.
 
"We realise many New Zealanders feel deeply about this issue. Following a careful consideration of our mandate and by applying the principles and rules of our Responsible Investment Policy, we believe we have made the right decision to focus our exclusions on companies that are involved in the manufacture or testing of nuclear explosive devices," said Mr Orr.
 
 
- Ends -

For more information please contact:
Jolene Stack, Communications Administrator on 09 373 8963 or 09 300 6980.

Notes for Editors:
For further information please see our Responsible Investment Updates page on our website.
 
For further information on the Cluster Munitions Convention please go to www.clusterconvention.org
 
About the New Zealand Superannuation Fund:
The New Zealand Superannuation Fund, which commenced investing at the end of September 2003, is designed to partially provide for the future cost of New Zealand Superannuation. An ageing population means the cost of providing New Zealand superannuation is expected to double over the next 50 years. To prepare for this, the Government plans to allocate around $2 billion a year to the Fund over the next 20 years while the cost of superannuation is relatively low. In the meantime, the Fund will invest the money on a prudent but commercial basis.
 
As the cost of superannuation escalates, the Government will progressively draw on the Fund to help smooth the impact on its finances. As at 31 October 2008 the value of the Fund was $12 billion. The Fund is expected to grow to around $100 billion by 2025.
 
In addition to best-practice portfolio management, and to avoiding prejudice to New Zealand's reputation as a responsible member of the world community, the Fund's objective is to maximise returns without undue risk to the Fund as a whole.
 
Attached: Table One
 
Table One - Companies involved in the manufacture of cluster munitions and simulated testing of nuclear explosive devices
 

Of the 12 companies listed above, the Fund has excluded 11 companies involved in the manufacture of cluster munitions and 2 companies involved in the testing of nuclear explosive devices.  However, the Fund had already divested from some of these companies in 2006 (indicated by an * in table above) due to their involvement in the manufacture of anti-personnel mines.  The companies listed in bold are those that we currently hold shares in.
 
 
 
Exclusion of investment in securities of companies involved in cluster munitions or nuclear explosive devices   
Questions and Answers 

12 December 2008
 
 
Now New Zealand has signed the Cluster Munitions Convention what does this mean for the Fund?
We are implementing our decision to divest from companies involved in the manufacture of cluster munitions now the Convention is finalised and New Zealand has signed. We have directed our fund managers to divest and exclude from the Fund securities in the companies identified as involved in the manufacture of cluster munitions.
 
What decision has the Guardians made with regard to companies involved in nuclear weapons?
We have adopted a policy to exclude companies that are directly involved in the production or simulated testing of nuclear explosive devices (nuclear warheads).
 
Companies can be involved in other ways such as managing military bases (where the nuclear warheads are stored), contributing to missiles programmes, or indirectly through dual-use components.  We have not excluded these companies.
 
What impact will these decisions have on the Fund's returns? 
They will not have a material impact as they account for less than one per cent of the Fund's investments and the funds will now be invested elsewhere.
 
Is investment in such companies inconsistent with the Guardians' mandate to avoid prejudice to New Zealand's reputation as a responsible member of the world community?
No it isn't. It is rare for other governments' investment funds to exclude companies on the issue of nuclear weapons involvement.
 
New Zealand and most other nations trade with companies involved in nuclear weapons programmes. For example, Boeing has recent contracts supplying aircraft to government owned Air New Zealand.
 
It is therefore highly unlikely that investment in the securities of such companies could prejudice New Zealand's reputation amongst the international community.
 
New Zealand and most nations are signatories to the Non-Proliferation Treaty but it is important to remember that this is directed at the actions of countries, not companies. 

How does the Guardians' Responsible Investment (RI) Policy apply to this decision? 
In addition to considering if investments are consistent or not with our mandate, our RI guidelines consider if the company's activities are contrary to New Zealand law and other Crown actions relevant to this issue. This provides a good proxy for what is generally acceptable to New Zealanders.
 
New Zealand Law:
The New Zealand Nuclear Free Act clearly bans activities involved in the production of a nuclear explosive device (nuclear warhead). The other activities companies are involved in are not clearly covered by the Nuclear Free Act. In fact, the Nuclear Free Act specifically excludes delivery systems from its definition of a nuclear explosive device.
 
Other Crown actions:
New Zealand is a strong advocate of nuclear disarmament and anti-nuclear testing in its international negotiations with other nations. The focus of international agreements is with nations, not companies, as it is governments that own and control nuclear weapons.
 
New Zealand has commercial relationships with companies involved in nuclear weapons programmes, as these companies make many other products e.g. planes, conventional arms, defence equipment and training services.
 
We will exclude companies if they are identified as being directly involved in the manufacture of a nuclear warhead, as this is contrary to the Nuclear Free Act. We also exclude companies involved in the simulated testing since this is crucial to the development of the nuclear warhead. Neither New Zealand law nor Crown actions provided a strong basis for excluding companies involved in the other activities considered. 
 
What about companies whose products have many uses and might end up in nuclear weapons programmes?
Our RI Policy guidelines provide a clear framework for considering this sort of complex issue.. Companies selling products with multiple uses with little control over how customers use them are remotely involved and are not excluded under our RI Policy. It would also be impossible to identify all such companies.
 
How long will the process of divesting from these companies take?
We expect that the process for divesting the Fund from its holdings in these companies will be completed by the end of January 2009.
 
How do you identify the companies involved and what process do you use for updating this list of companies?
We use specialist screening agencies to identify companies involved in cluster munitions and to provide us with updated lists. We may also receive relevant information from other organisations with expertise in this field or from the companies themselves. Our screening agencies review their research on a regular basis. We update our exclusion lists as required and inform our managers. Our portfolio is monitored daily by our custodian for compliance with our RI exclusions.
 
What process do you use for updating this list of companies?
Our specialist screening agencies update us with new information on the nature of involvement of companies. We update our exclusion lists as required and inform our managers. Our portfolio is monitored by our custodian for compliance with exclusions applied to the Fund.