Briefing into ACC's ethical investment policy

Released 05/12/2019

Question – “My question is around climate change and you talked about digital and social priorities. One of the medication registered is forestry which is the place value and a good thing to be doing in response to climate change and its certainly part of government policy but one of the concerns out in rural areas is that investment into speculating on carbon credit score or forestry such that an attractive investment that could have wide social effect of closing down [inaudible] but from your perspective, have you put much though into that? [inaudible]

Answer – “Well we do look at forestry investments and we have some and I would and I can’t say what we might do in the future but it certainly would be on our horizon [inaudible] if it wasn’t. So, we do look closely at the impact and we have looked at other investments in the past, we very carefully considered and I can give you an example, not under consideration, we looked at investing in it down from years ago now and there were intense issues around impact on the community which was broadly seen as positive. And there were also climate effects and impacts on the environment and we got our own expert advice on those things. We always picked those decisions very carefully. It’s probably, this is going to be a judgment area particularly when you get into social areas in terms of the impact of change.”

Answer – “Because again it’s not for the board of ACC that the laws and rules in this country but we do abide by them and we do follow them closely and we do try to take in account of what the fuse of the community are.

Question – “Bearing that in mind, that you do take into account the low, changing law alongside the ethical view of the substantial number of New Zealanders, should the zero carbon, when the zero carbon is before the select committee, when that passes, will that materially impact on ACC’s investment strategy and are you already preparing for that?”

Answer – “Well, we will certainly review our stance to ensure that we are consistent, entirely consistent with that bill, there is no question about that. Our investment team are very aware of what’s been discussed, because they must be. They are not going to be left there [inaudible] little or no value. So, I can assure you that we are following it carefully and we will absolutely be compliant with any bill that the government passed. If you just think of this as our judiciary duties then we take great care to ensure that we are not the last one on the table, I can assure you.”

Question – “Couple of questions. First thing is, just coming back to what the law is right, there is a difference between your [inaudible] list and then the test in the law which is that if substantial majority of New Zealanders would find something unethical. So, actually we worked though the zero-carbon bill, is it in your view that in the passing of that law, we would then have a situation where by the large part we will have, I think you mentioned a billion dollar of investment, that would fit into that category of being in the situation where substantial majority of New Zealanders thought are unethical? Because the big difference is when you are complying with the law, which I took as your last statement, to which of course we would be consistent the law, versus…”

Answer – “If majority of New Zealanders felt it was unethical, would they use [inaudible]? Would they use those [inaudible]? So, I think the bill, as I understand it was a signal we are moving in a direction and there is a strong intention that there is a clear direction, we will become carbon neutral. That is not the position that is going to happen tomorrow and there is no basis, I mean, I don’t know if there is any basis, we certainly, we follow the opinion polls of what New Zealanders think at any time. We look carefully at that and we would be guided by that as well. I mean this is not black and grey, like when we saw the ban on semi-automatic guns.”

Question – “I think the point is we wouldn’t want you to be misled out of this committee that when that bill passes, either you have got things that are excluded under ACC policy or substantial majority number of New Zealanders see something as unethical. Second thing is, you mentioned, you referenced that there was a previous issue with investments and as a result ACC changed their policy around direct investment units and clarity in terms of fund management. You have got direct investments, can you just talk us through that because ACC have clariid their policy, basically much more aware of what they are investing in and have confidence in the fund managers that are making some of those investments?”

Answer – “So, just to be clear, that involved an indirect investment is the matter that I previously commented on and I’ll take you through that. The way our policy works, if we discover, we have directly invested in a company [inaudible] we sell it straight away. No ifs, ands and buts with the way the policy works. And our compliance team continuously screens our investments to ensure that we do not directly invest. So, that’s our own people directly investing in the market. Regarding indirect investments, such as through a collective investment vehicle which is the case that I believe you are talking about, it is the case that ACC, in those cases that if we find out there as investment that was made, we engage with our external funds manager as a first step and try to influence their behaviour. It is not required under our policy that we instantly de-invest, so we will take that. In 2016, where we did become aware that ORBIS, one of our fund managers, had acquired a small holding in Lockheed martin, there once was and may still be a maker of ammunition and is banned under our investment policy. We contact the fund and was informed that it was planning to sell its small shareholding as they had about .3 of a percent of its overall portfolio was in that and it did sell.”

Answer – “This was the purchase of Lockheed martin by ORBIS was done on a secondary market and no money went directly to Lockheed martin. But you can see how it can get murky for us. ACC was satisfied that our investment in the pooled fund and the collective investment vehicle did not place breach of the cluster [inaudible] act 2009. However, we were quite certain that if we hadn’t breached the policy, we decided as a board that we would tighten our policy in relation to collective investment vehicle.”

Question – “[inaudible], the final question that I had is around government. Because ACC is independent, because of the grey area, unethical to number of substantial New Zealanders, totally separate to direct inclusions, if the government wanted to change a policy for ACC around [inaudible] for instance, could you just clarify the mechanism for that to occur, one is that the board make that decision and the other mechanism that I understand would be a direction through the [inaudible] right, which I think is possible as its never really been done. The second part is, could you confirm, I am aware that the ethical investment policy is included in the service agreement with the minister, would that be the mechanism that a government could signal how much would ACC butt against that in terms of your obligation in fighting the judicial system for the fund in the act?”

Answer – “We never looked into whether it could be directed through the service agreement. I would like to come back to you on it. But my thinking would be that it might be difficult given the [inaudible] act and even giving us a direction under that, I just can’t answer the question on the sport. Generally, the crown has the direct to direct the corporation it chooses. If the government was to consider doing that, we would certainly provide advice to the government so it understood what it meant.”

Question – “[inaudible], because ACC is independent, they have got these fund issues obligation that it’s not that simple and we would need to get another advice on that issue.”

Question – “I have got a question in regards to the ethical investment policy and its slight change of subject to around tobacco which is the only exception you have got currently excluded because of New Zealand law. And in the ethical investment policy it says that any relationship with tobacco companies that is inconsistent with the government policy in ACC role in health sector, and I just want to compare that with what you have got their around cannabis. Because we have a referendum coming up on whether we legalise cannabis. And that’s in relationship with any cannabis companies that are inconsistent with NZ law. So I guess my question around this is hypothetically is that if the referendum was passed and the government was to change the law, what thinking have you had around that? Would you be also looking to take a similar view to cannabis as you currently do to tobacco where you not only take a look at the government policy but also the role you play in the health sector as it is a similar unit to drug but depends on what New Zealand’s views are?”

Answer – “We have recently had discussions on this very point and if the law changed, I mean if you look at our exclusion list right now there are a lot of companies that are excluded for that reason. We probably need to look at that right now as I suspect some of that is stricter than it needs to be particularly with prescriptive cannabis and we are aware of that. The board has asked for advice on what the evidence is around health effects including [inaudible], road accidents that we pay for but I would say to you that you have to remember that alcohol is also a major contributor to the accidents. So, this is exactly our issue as we go down this path and it’s very hard to know where you draw the line. And ACC has number of pools to ensure its purpose is moulded with every action that we take. In the case of alcohol, we have invested a very substantial amount of money [inaudible] around alcohol. I suspect that if the government went down the path with cannabis, we would be looking at a similar thing. We would turn to prevention first before we would look at other options. Plus, our levies, in the future, we could see increased risk rating on behaviour. So, we have a number of tools we can look at, what we do with the ethical investment policy is one way in which we think about our mission and what it means in what we do. Cannabis, I am not sure where we would end up on cannabis but we are mindful of the issues and we have asked for evidences of the impacts, not just because of the investment policy but because of what we might want to do in a running way in terms of the prevention activity.”

Question – “So, what you are saying is the terms of your investment, that’s the decision that you haven’t yet made but there are other aspects to how ACC operates [inaudible].”

Answer – “And I mean even now, we think hard about those issues because they impact the community and they impact the levies.”

Question – “Could we see some information on that? On specifically the issue of cannabis referendum and ACC preparing around prevention potentially initiatives which is what you would do under the law to make sure you are [inaudible]?”

Answer – “This issue came up in the last board meeting so I am always happy to share that information but it will take some time. But when we have it then I will certainly make sure that you have it.”

Question – “Brilliant, if I also may madam chair, very conscious of the time so I would really like it if we could stay in the brief of [inaudible] policy and absolutely understand that we can go further with the regards to cannabis later. So, thank you very much Paul, James and Scott. I just have a few quick questions and I would appreciate it if could keep answers brief given the time limit. So, the first is, do you think that ACC as presumably, arguably the largest investor in NZ has the ability to make or break the market essentially?”

Answer – “I don’t know, I have not thought of it that way. We certainly can impact the markets in a significant way and in terms of investment policy, when we shift our investments, we do it very quietly and usually over a very considerable period. So, for instance, as an example, Z energy is on our list of fossil fuels investment. If we were to think about disinvesting there, given out size in the market and our need to do things properly, we would take many hundreds of days to change that.”

Question – “But you can accept that you can be hugely influential throughout the market?”

Answer – “We can influent markets and market prices but making and destroying markets is a difference.”

Question – “Understood. But hugely influential nonetheless. So, you excluded tobacco in 2006 and noted that it was the first time you have moved to exclude an investment that wasn’t illegal. You noted a few months ago when semi-automatics became illegal, you then moved to exclude that. But tobacco on the basis on health and safety, you have excluded or on the basis of majority of New Zealanders opinion. Can you run me through the variable that you took into account as a board to make that decision?”

Answer – “I would have to go back and look at the board discussion on that and the board investment committee. From memory, it would be difficult for me to do it but there are two issues here for us. One is the impact on health and safety. The second is what are mission is. And while we are not responsible for the health effects of tobacco, we are a large player in the health market. And our mission is very much directed towards health and safety of New Zealanders.”
Question – “Understood. And you have also noticed that one of the major factors taken into consideration is the feeling of majority of New Zealanders. You have noticed that the will of the parliament is one measure that you use, however, Poland I believe you mentioned, so would you count the majority of New Zealanders that being 8 and 10, that personally being worried of the climate change as a factor that you would take into account with regards to possible fuel investments?”

Answer – “Yeah, in fact I have got those number right in front of me. And for that reason, we are increasingly investing in renewables and we can see, you can see that shift in what we are doing. Does it mean that tomorrow we disinvest in genesis energy for instance, I doubt it. Because I think that if the crown thought that the majority of New Zealanders thought that genesis energy was not an ethical investment, it would disinvest in it itself.”

Question – “I don’t think it’s necessarily about making companies themselves be seen as evil, rather wise, but just to tie a few different threads together, one of them is that you have spoken to and I quote, you said that earlier in response to that “do you think that majority of New Zealanders feel as though it is unethical to invest in fossil fuels? You said that if the majority of New Zealanders feel it was unethical, they wouldn’t use it.” However, many New Zealanders, everyday New Zealanders would say that they simply have no other option. You have also said that you can be heavily influential in the market. Given that you are investing in disproportional amount in renewables versus fossil fuels, you said $778 million in renewables and $1 billion in fossil fuels, do you think that you have got that balance right?”

Answer – “Well, I think that I also explained to you that what we count in the $1 billion included a lot of things other than, a company may have some small part of their business involved in fossil fuels, we can’t our investment in that company. So, genesis is a very good example, their involvement is very small but it’s our 4th or 5th largest holding that we add in to the fossil fuel calculation. So, I’d be very careful about those numbers. Don’t say what you just suggested.”

Question – “I understand. I guess, I presume that it would be the same with tobacco that you would exclude any company that had any interest in investing. If I may ask, could you provide the figures of how much you currently invest in alcohol?”

Answer – “We don’t invest, oh alcohol, I don’t know if we can do that, it would take some work I am sure. Because we have to trace through our global investment and they are often invested in hundreds of companies themselves so.”

Question – “Do you consider alcohol and tobacco to be two different issue when it comes to the health and safety of New Zealanders? Do you see them as substantially different?”

Answer – “If I look at the governments public policy approach to them, they are quite different and you know, and again these become issues at the boundary. Is ACC concerned about the impact of alcohol on injury? Absolutely. And we are making very large investments in another space to try to address that.”

Question – “And just finally, if I could request form you guys if it was possible, I understand that it may take a while to get this information. If you are able to provide this committee information or variables taken into account for the decision in 2006 as to how the board decided to exclude tobacco? So, what the characteristics of that investment were seen as making it and seeing it holistically as unethical and also that information around on how much is presently invested in [inaudible] in regards to alcohol?”

Answer – “Very happy to do that and you know probably didn’t mention that a major consideration for what the government is doing with the government policy and we saw a change in the government policy around discouraging the consumption of tobacco and we see it right across the system.”

Question – Just a couple of quick questions. Firstly, if the government passed the law or cannabis reform was passed, just to clarify with the committee, even if that becomes legal, ACC have an obligation under the act, if it’s your view that there is a significant entry caused by more people getting in cars and having accidents, then ACC is going to have a prevention programme, just like you would with any other area like alcohol and that’s what you would work on. So, it doesn’t matter is it becomes legal, if it’s your view that something is causing significant injurie, you will work on a prevention programme on that?”

Answer – “Absolutely. I mean we haven’t made that decision I but can’t imagine we wouldn’t. So, I mean the first best approach is always on these things is to influence behaviour where you can. And we look at that across what we do as company. Whether it’s investments or how we do rehabilitation.”

Question – “[inaudible], but it is very important under the act, regardless of a, if we had to differentiate between, regardless of something being legal versus you making a decision as an independent crowning entity about where you need to reduce injuries and what’s causing that?”

Answer – “But that is a different issue to what…”

Question – “But I’ll just come, second issue which comes back to primary sort of core questioning by Chloe. Coming back to the test under the law which is that if a substantial number of New Zealanders find it unethical and again, how much can you talk us through the balance of like ethical issues, because if you take something like climate change and then talk about long term views, potentially the best to invest more in fossil fuels. There might be some people that may argue that if you go too fast then you could have blackouts, right? So, that is literally the debate that is happening if we didn’t have investment in genesis etc. and if we didn’t have power generators. How sophisticated are the conversations that you would have about the pace of that and what that would then cause in terms of injury right?”

Answer – “I frankly think that the board of ACC has to be very careful. It is, we will never get in front of government and parliament decision making. It is not our job to second guess or to presume that we know better than the elective representatives of this country, what the public consider ethical and so we are very careful about that.

Question – “Has ACC considered the health and safety impacts of increasing climate change risks to New Zealanders?”

Answer – “Health and safety impacts, no, probably not. Other than in the very general sense.”

Question – “Is there an intention to?”

Answer – “We always look at what evidence there is on, we always look closely on the key drivers of accidents and injuries and I would have to say we are currently undergoing, doing some work that has not…”