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Ethical Investing

Human rights violations may hide behind some companies your KiwiSaver is investing in. Olive Coulson, of Mindful Money, takes a close look.

21 April 2024

In our last story we explored some simple steps around ensuring your investment aligned with your values. This month we take a deep dive into how to ensure you’re not investing in companies that commit human rights abuses.

You spend so many years diligently saving and investing for our retirement, picturing a future filled with relaxation, good books, and time in the garden. But what if the very money you are putting aside for your future was hurting people, the planet, and animals? 

It's a troubling thought, but the reality is that a staggering $2.4 billion of New Zealand investments are currently backing companies involved in forced labour, war and conflict, suppression of free speech, and other devastating human rights abuses.

The very same dollars we tuck away for our dream retirements could be shattering the lives of others, without us realising it.

The good news is that it’s quick, easy and free to see if you're hurting people with your investments and making a change can even positively affect our returns. By being informed and taking action we have the power to make a difference and invest in a brighter future for all.

But what exactly do we mean by human rights violations? Let's take a closer look at the various ways in which companies can infringe upon the rights and freedoms of individuals.

Human Rights abuses and investing

War & Conflict: When companies are complicit in violating the Geneva Convention or infringing on the rights of individuals in war or conflict situations, they contribute to the suffering of countless people. 

A staggering $77,533,521 of KiwiSaver funds and a total of $138,387,296 across all retail managed funds are invested in companies involved in such abuses. Although this is a relatively small percentage of overall KiwiSaver funds, it’s still a lot of money. 

Ashtrom Group Ltd, an Israeli property company, leases commercial and industrial premises in illegal Israeli settlements in the occupied West Bank, violating the rights of Palestinians and infringing on international law. Another example is Adani Ports, which signed a deal with a military-owned conglomerate in Myanmar to develop a port terminal, despite the military’s history of repression, ethnic cleansing, and violent suppression of protests.

These are just two instances of companies directly involved in war and conflict, contributing to the suffering of countless individuals.

Conflict is brutal on civilians. Imagine being forced from your home, your livelihood destroyed, and your family torn apart by conflict, only to discover that the very companies responsible for your suffering are being supported by the retirement savings of people halfway around the world.

Business Ethics: Poor business ethics, including inadequate governance, oversight, and incidents of bribery and corruption, can create significant harm. A total of $102,999,06, including $49,483,84 from KiwiSaver funds, is invested in companies with questionable ethical practices. Credit Suisse, a prominent example, has been subject to international criminal investigations for suspected tax evasion, market manipulation, and money laundering, as well as failures in governance and risk assessment.

Public Safety Issues: When companies prioritise profits over public safety, the consequences can be devastating. A shocking $718,342,06 of KiwiSaver funds and a total of $1,116,113,94 are invested in companies involved in significant harm to individuals or communities due to unsafe products or inadequate responses to evidence of harm.

Johnson & Johnson has been involved in repeated incidents related to the quality and safety of several of its products across all three of the company’s business segments — drugs, devices and consumer products. Several products have been associated with allegations of severe or even fatal adverse impacts on patients.

Human Rights Abuses: Human rights abuses, including violations of global standards on freedoms and the customary rights of indigenous people, have far-reaching consequences. A total of $883,522,410, including $547,524,89 from KiwiSaver funds, is invested in companies associated with such abuses. Thermo Fisher Scientific, for example, sells DNA testing kits that have been linked to surveillance and discriminatory purposes by the legal authorities in Xinjiang, China, for monitoring and tracking the Muslim Uyghur ethnic group and other minorities, despite the company announcing it would halt sales to the region in 2019.

Labour Rights Violations: When companies fail to uphold global standards on workers' rights and freedoms, the consequences are dire. Shockingly, $93,890,384 of KiwiSaver funds and a total of $182,714,421 are invested in companies guilty of poor treatment of workers, child and forced labour, and modern slavery.

FGV Holdings, an agri-business conglomerate specialising in oil palm plantations and sugar products, has faced numerous allegations of labour abuses, including wages below legal minimums, employer retention of travel documents, unsafe working conditions, physical abuse, extortion, debt bondage and human trafficking. These allegations have led to the suspension of FGV's sustainability certifications by the Roundtable on Sustainable Palm Oil (RSPO).

As the world transitions to low-carbon technologies, the question of a Just Transition becomes increasingly important. Communities reliant on high-carbon industries could face economic hardship without adequate support, and the production of green technologies itself can pose risks of human rights abuses, such as child labour in lithium mining. It is essential that companies and investors prioritise a Just Transition to ensure that the shift to a low-carbon economy does not exacerbate existing inequalities or create new forms of modern slavery.

Ethical investment works

Many investors believe that ethical investing means sacrificing returns, but the truth is quite the opposite. A growing body of evidence from credible research institutes and universities show that responsible investment funds often perform as well as, if not better than, conventional funds.

Companies with strong ethical practices often experience better employee retention, customer loyalty, and brand reputation, translating into long-term financial success. By directing our investments towards these companies, we send a powerful message that human rights violations will not be tolerated.

Take the Russia-Ukraine conflict as an example. Most Kiwis were appalled by the Russian targeting of civilians and the suffering of the Ukrainian people. But few realised that we were more than innocent bystanders. Within days of the conflict escalating, almost all of the $100 million invested in Russian companies had been divested.

Most of the KiwiSaver and investment funds that were slow to divest lost 80-90 per cent of their investment value. That has served as a painful lesson in the risks of ethical complacency. Those were New Zealanders’ retirement savings, gone.

In today’s world, it’s hard for companies to hide their human rights violations. There have been numerous instances of companies behaving badly and suffering financially as a result, such as Meta/Facebook, VW, BP, Enron, and Solid Energy (Pike River mine).

By contrast, companies that are well-managed in terms of environmental performance, social policies, and governance tend to do well financially. They avoid fines for environmental damage, have better reputations (crucial for brand value and customer loyalty), and have more productive employees. Moreover, companies with strong social, environmental, and governance standards typically have lower risks.

Long-term studies consistently show that, on average, ethical investing earns as much or more than conventional investing, generally with lower risks. As public awareness of human rights issues continues to grow, companies that fail to address these concerns may face boycotts, legal action and reputational damage, which can negatively impact their financial performance. By investing in companies that respect human rights, we can mitigate these risks and support businesses that are more likely to thrive in the long run.

Become an ethical investor

As an investor, you have the power to effect change. By making informed decisions and advocating for responsible investing, we can collectively create a significant impact and build a more just and equitable world.

Here’s how you can ensure your retirement savings align with your values:

  • Check your fund on Mindful Money: Visit the Mindful Money website to see if your KiwiSaver or other investments are supporting companies involved in human rights abuses.
  • Sign the open letter to the government on modern slavery: Add your voice to the call for stronger regulations and accountability for companies involved in modern slavery.
  • Engage with your fund manager: Express your concerns about human rights issues and encourage them to adopt more responsible investment practices.

Informed Investor's content comes from sources that Informed Investor magazine considers accurate, but we do not guarantee its accuracy. Charts in Informed Investor are visually indicative, not exact. The content of Informed Investor is intended as general information only, and you use it at your own risk.


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