The more than $51 billion Accident Compensation Corporation (ACC) fund pressured a third-party manager to establish a separate mandate after identifying underlying holdings that breached its ethical investment policies.
Paula Rebstock, ACC chair, told the Education and Workforce parliamentary committee that the fund had experienced a couple of brief ‘technical’ ethical investment breaches.
But in a more serious case, the ACC “told an external fund manager that it would divest its holdings if they could not provide a fund that excluded the parties in question”, the parliamentary review published last week says.
“In response, the external manager set up a separate fund for ACC,” the report says.
Rebstock told the committee, chaired by Labour MP Marja Lubek, that the ACC dedicated a “whole back office” to ethical investment compliance duties.
“The board chair emphasised that ACC is incredibly careful with its investments,” the report says.
As well, the committee noted the ACC had targeted a 60 per cent reduction in carbon emissions compared to 2019 levels by 2030 for its corporate operations.
“It is also trying to reduce emissions by being more selective about its investments,” the report says. “We understand that it is aiming to reduce the carbon intensity of its investment portfolio by at least 50 percent by 2030, compared with 2019 levels.”
The latest parliamentary review of the ACC also highlighted the growing dependency on investment returns for meeting claims liabilities for the no-fault national accident insurer.
As at the end of last June, the ACC reported a $16 billion gap between long-term claims liabilities and assets (including the investment fund), creating committee concerns about how the scheme would meet 2021 obligations.
“ACC’s board chair told us that its investment fund has consistently over-performed and brought in additional capital. She said the fund is invested to meet the cost of claims already incurred, but because it has over-performed it can use money from the fund to meet the cost of claims this year,” the report says. “She acknowledged that this system is not sustainable as it cannot always rely on its investment fund over-performing, and there is risk involved.”
Currently, the ACC is developing new levy recommendations, although the government has put any increase on hold until at least 2022.
The committee, too, appeared reluctant to back any increase in ACC levies.
“We recognise the risk of ACC relying on its investment fund, but we are also aware of the economic challenges as New Zealand—and the world—deals with the effects of COVID-19,” the report says. “We trust that ACC will find a solution and will monitor the situation closely.”
In other parliamentary committees, the government-owned Kiwi Wealth was also quizzed about a minor exposure to Raytheon Technologies held via a third-party manager. Raytheon has copped flak for supplying weapons to the Saudi Arabian military.
“We were informed that Kiwi Wealth was going to review its investment in the company based on recently available environmental, social, and governance (ESG) research for Raytheon Technologies,” the committee report says. “The Board of Kiwi Group Holdings said it would be watching this issue closely, as it expects subsidiary companies to deliver on their ESG responsibilities.”
Kiwi Group Holdings is half-owned by NZ Post with the remainder split between the ACC and NZ Superannuation Fund (NZS).
NZS, meanwhile, told the parliamentary committee the fund was investigating crypto-currencies as a potential investment.
“We asked whether the Fund is investing in digital currencies or whether they feature in its investment strategies,” the report says. “The Guardians told us that there is not an asset allocation for digital currencies at present. It was something that they were thinking about, particularly around the issue of valuing currencies and in the context of the long-run value of different markets.”