Robert Howell: Good values for our money

When the Sudoku has got too diabolical, the monster crossword has been tamed, relatives and friends have told you about their year's activities, and you are searching for something to revive the banter across the barbecue, then you might like to discuss how the Government should invest its money.

There is presently $24 billion for pensions and earthquake and accident compensation reserves, which will grow over the next 15 or so years to something like $120 to $150 billion.

The criterion that is used is to avoid prejudice to New Zealand's reputation as a responsible member of the world community. While this sounds impressive, it has not stopped investment in tobacco companies, and companies with unacceptable or questionable human rights, or social and environmental practices: companies for example, that operate in Myanmar, or are at the forefront in contributing to the problems of global climate change. This means that the "prejudice to our international reputation" criterion is useless in providing direction.

It also raises a problem for the consistency of government policy when our health agencies are trying to reduce use of the addictive weed (the legal one at least), and our climate change office to ponder how best to tax animal belching, Japanese car hand-me-downs, and other environment nasties, and predict the effect of ever rising tides (global warming adds a new dimension to the Maori foreshore debate).

To invest in a socially and environmentally responsible way does not mean that financial returns have to be compromised. There are indications that investments in some areas, such as renewable energy, are more profitable. In addition to directing investment in a positive way, it also means adopting ways of screening out unacceptable companies, and engaging in ways of changing the behaviour of others.

Engagement is best done collectively to be effective and efficient. For example, there are 155 institutional agencies overseas with $21 trillion under investment which have grouped together under the Carbon Disclosure Project and have been asking the largest 500 companies under the FT index what their policies are regarding climate change.

They have decided that the risks of climate change are too great for long-term sustainable returns on their investments and that they need to exercise their ownership responsibilities. Our government funds have not joined them because the international reputation criterion is too weak to justify such action.

The task then is to find another criterion. In Sweden they have said that the international norms that their country has signed up to at the United Nations and other international assemblies are to be taken into account. They have used these to confront a major Japanese finance agency about their discrimination against women employees, Walmart about its use of child labour in China, and a petroleum company about its abuse of international labour laws.

In France the Fonds de Reserve state pension fund aims to maximise investment returns over the long term and under the best possible conditions of security. Its investment policy must also be consistent with certain shared values that promote economically, socially and environmentally sustainable development.

Another option is to act as a responsible world citizen. The international reputation criterion is negative, and excludes New Zealand playing its part as an international citizen in a positive way.

There may be other options that you come across. The trick is to develop a simple set of words that avoids our parliament having a hands-on approach, but gives clear direction for the funds to invest in a way that fair-minded New Zealanders would want to happen. Let the discussion continue.

* Dr Robert Howell is chairman of the Council for Socially Responsible Investment