KiwiSaver providers unfazed by NZ Super ruling but heed its warning
A recent legal ruling against NZ Super underlines the need for a rigorous approach to sustainable investing according to Kiwisaver providers (Eddie Mark Blair/Unsplash)
Executives from two New Zealand KiwiSaver providers tell AOX they expect limited legal fallout from a recent High Court decision that found NZ Super's sustainable investment policies were “unreasonable and unlawful”. But the case is a timely reminder to ensure such policies are well-defined and properly followed, they say.
The ruling stemmed from a challenge brought by Palestine Solidarity Network Aotearoa over NZ Super’s holdings in four US-listed companies named in a United Nations human rights database.
George Crosby, CIO of ANZ Investments, New Zealand’s largest KiwiSaver provider, says that the decision is specifically related to the NZ Super Fund due to the requirements of the New Zealand Superannuation and Retirement Income Act 2001 (the NZS Act).
“Those statutory obligations do not apply to KiwiSaver providers, so we do not expect the ruling to have a direct legal impact on the KiwiSaver sector. However, the decision reinforces the importance of ensuring sustainability policies are clearly articulated and consistently applied in practice,” he says.
Sam Stubbs, CEO of Simplicity, a non-profit provider that he says was the first in New Zealand to apply ethical screens, draws a similar conclusion, noting that the ruling “validates that you've got to have a systematic approach”, even though Simplicity disagreed with the ruling.
“It appears as if the judiciary is making ethical decisions, so that struck us as unusual. We follow a process, and we're not going to change that,” Stubbs says.
Stubbs is not alone in his doubts. Several days after the judgment, law firm MinterEllisonRuddWatts noted that former attorney-general Christopher Finlayson KC argued the decision was wrong because Parliament deliberately gave NZ Super a “flexible mandate” that left ethical-investment calls to an expert board rather than the courts.
What the court found
NZ Super was taken to court by PSNA over its NZ18.3mn holding in Airbnb, its NZ$48.6mn in Booking Holdings, its NZ$467,000 in Expedia Group and its NZ$123.3mn in Motorola Solutions.
In a decision delivered on April 13, the judge did not rule those investments wrong or order the fund to sell them. Instead, the finding turned on NZ Super’s sustainable investment policies, which had been trimmed down to the point that they were too vague to apply.
Justice Mount described NZ Super’s policy as “unreasonable and unlawful”. Separately, he noted that the fund could not simply leave the four holdings unexamined once compliant policies were in place, though he stressed that being on a database “does not amount to a legal finding”.
The following month, NZ Super announced that it would not appeal the decision. Cristina Billett, NZ Super’s general manager of corporate affairs, said in a statement that the fund accepts that the policies need “more specificity” and will be “amending them accordingly”.
Performance the next test?
For the wider market, the impact looks limited, with MERW noting that it is “narrower than has been implied by some of the media coverage”.
However, MERW also cautioned that some KiwiSaver providers and investment managers have used NZ Super’s sustainability framework as a reference point for their own, which may result in flow-on effects across the broader industry.
Stubbs says Simplicity is among them, but stresses that NZ Super was one reference point rather than a template to be strictly emulated. “We do like to check what they do, and if they have informed something, it's been at the margin… but yes, it is possible [other KiwiSaver providers] are impacted,” he says.
What transfers beyond New Zealand, he adds, is the reminder that sustainability policies must be rigorous and genuinely applied, not aspirational.
“I don’t think [scrutiny of asset owners] will ever go away, and to be honest, we never would want it to; there should be an active debate forever,” he says.
Looking ahead, Stubbs sees a sharper test coming, and it isn’t a legal one. Ethically screened investments, once a “no-brainer” for many asset owners, have recently been performing roughly in line with the unscreened market, according to Stubbs.
“The next level of debate will be if [ethically-screened investments] underperform — in which case you're saying, ‘hold on, your screens are costing me money’,” he says.