Guardians respond to Metro magazine story, December 2011 issue
POSTED ON: 28 November 2011
The Guardians of New Zealand Superannuation have today responded to a story in the December 2011 issue of Metro Magazine.
The Metro piece is written by freelance photojournalist and AUT University postgraduate student Karen Abplanalp. It focuses on the operations of the Grasberg mine in West Papua and criticizes the Guardians‟ investments in Freeport McMoRan Copper and Gold and in Rio Tinto plc which, among numerous other business activities, operate the mine.
The Guardians believe that Metro readers would benefit from a fuller account of the Guardians‟ responsible investment approach and processes. A full account was provided to Ms Abplanalp during the series of in-person, email and telephone interviews conducted for the story, but that is not reflected in the piece.
The Guardians‟ Chief Executive Officer, Adrian Orr, said he was proud of the Guardians‟ approach to responsible investment. "Investing responsibly is in our mandate, we take it seriously, we do it every day and we are internationally regarded as being among the global leaders in this area. By leader, we don‟t mean the investor that talks the most about being a signatory to the United Nations Principles for Responsible Investment – we mean we can point to a significant amount of evidence of having put the principles into practice."
"We have only very small, passive investments, representing a fraction of a percent of the near $18 billion in the New Zealand Superannuation Fund, in Freeport McMoRan Copper & Gold and in Rio Tinto plc. Nevertheless, we have over the past five years repeatedly communicated our concerns about the social and environmental issues associated with the operation of Grasberg to company management," Mr Orr said.
"We believe that our engagement, and that of other investors and of Non Governmental Organisations, has improved the practices at the mine and the disclosure of those practices," Mr Orr said. "That would not have happened had we, and the other investors who got involved, simply divested our holdings.
"For us, walking away might be simpler and quicker than staying engaged, it might avoid critical coverage, but it changes nothing. Many investors with far larger stakes have taken no action on the social and environmental issues and yet there is no mention of these investors, nor discussion of their investment processes, in the Metro piece."
"We fully integrate social and environmental principles within our investment processes and we act on those principles. We have done so in respect of the Grasberg mine and we have had a positive impact," Mr Orr said.
The following points were made during Metro interviews and readers of the piece may find them useful:
1. The Guardians do not invest directly in the Grasberg mine. The story says the Guardians have „less than‟ NZ$20 million invested in the Grasberg mine. This is inaccurate. The Guardians have passive investments in Rio Tinto plc and in Freeport McMoRan Copper & Gold totaling close to NZ$20 million. However, of that NZ$20 million only about NZ$1.3 million is invested in Freeport, the key operator of the mine. That the investments are „passive‟ is also important. Investing passively means that the securities of both companies come to be in the Fund because they are part of an equity index, not because the Guardians or their investment managers have „picked‟ the stocks. This is called investing passively and the Guardians make extensive use of this investing approach because it is a very cost effective way to get exposure to equities. The Guardians have nevertheless engaged on Grasberg.
2. It is not useful to compare exclusion approaches between different funds. The piece compares Norway‟s exclusion approach to the Guardians‟ approach. Different funds have different approaches to Responsible Investment based on their portfolio holdings and the legal frameworks particular to the fund. This is not a competitive proposition. There are some differences between the Guardians and Norway‟s approaches to responsible investment – we exclude some stocks the Norwegians do not and vice versa – and this is for clearly stated reasons arising from legislation, investment mandates or both (as in our case). However, both the Guardians and the Norwegians use both exclusion and engagement.
3. We engage with a company precisely because we acknowledge there are significant problems with its operations.The piece says that the Guardians have „no answer to the charges that [the mine] fails the [Guardians‟] standards on human rights, corruption and environmental harm‟. This is a fundamental misunderstanding of engagement and of responsible investment generally. The Guardians engage precisely because we acknowledge that company operations fail our standards. The past five years of engagement has occurred because the Guardians are trying to effect change in company operations sufficient to meet those standards. The article, as do some other outside observers of responsible investment practice, equates responsible investment to exclusion. However a properly considered responsible investment approach should also include a significant element of seeking to change company behaviour as it is that, not walking away, which makes the biggest impact on the people and environments most affected by problematic company behavior.
4. Responsible Investment is not about making New Zealanders feel good about the Guardians’ investments.The Guardians cannot and do not invest to be popular. The Guardians must apply the law and its own and relevant international standards to making responsible investment decisions, because those decisions must make enduring sense from both a responsible investment and a commercial perspective.
The Guardians‟ approach to responsible investment is transparent. Anyone wishing to further understand why the responsible investment programme exists, how it is conducted and how it is benchmarked, can find a considerable amount of information on the Guardians‟ website.
For more information please contact: Paul Gregory, Head of Communications [email protected], 09 308 2041, 021 274 9994