Leading lawyers have described a recent High Court ruling on the New Zealand Super Fund’s policy documents as “rare” and “wrong”.
On April 13, Justice Simon Mount granted judicial review and declared the policy documents of the $86 billion fund to be unlawful and unreasonable.
The case was brought by activists against NZ Super’s manager, Guardians of NZ Superannuation.
'Rare judgment'
Lawyer Mai Chen described it as a "rare judgment where the court finds unreasonableness" and "not one but two breaches of statutory duty".
Former attorney general Christopher Finlayson, KC, said in his opinion, "The judgment is wrong."
He said, “Parliament deliberately gave Guardians of New Zealand Superannuation a flexible mandate on ethical investment.”
Finlayson added that the issue raised “political and policy questions for an independent expert board accountable to Parliament, not the courts”.
Meanwhile, Chen said the ruling was a “stunning victory for the legal team of the Palestinian Solidarity Network Aotearoa”.
This result affects how much discretion the Guardians of the NZ Superannuation has to set return levels and may result in law reform, she added.
What next
NZ Super has said it is considering its response to the ruling.
Chen said, “In the short term, the Guardians will have to amend their policies to be legally compliant. Medium term, they could appeal the judgment or seek law reform. Neither route will be easy.”
Finlayson noted there “is a prospect of an appeal. In my opinion, however, Parliament should legislate urgently to fix it.
“I expect there will be a lot of concern” in the industry as a reaction to this judgment,” he said.
Pathfinder chief executive John Berry said, "The New Zealand Super Fund is widely regarded as setting the standard within the industry for the stocks it chooses to avoid and not hold.
“[The] announcement from the High Court is a profound and monumental ruling that should send shockwaves through the industry and will likely drive changes at KiwiSaver providers.
“We see this as an opportunity for the industry to take this ruling as an indication that we need to rethink how we’re approaching investing ethically, and work toward better outcomes for Kiwis,” he added.
Kate Vennell, co-CEO of Mindful Money, said, "It is unacceptable that KiwiSaver and retail investment funds should continue to invest in these companies", as "Kiwis do not want their hard-earned savings invested in companies that violate human rights".
Case background
The case was brought by two Palestinian New Zealanders and the co-chair of the Palestinian Solidarity Network Aotearoa, who claimed that NZ Super’s policy documents do not comply with the requirement to avoid prejudice to NZ’s reputation.
They singled out four companies held in the fund with links to Israeli settlements in the occupied Palestinian territories: Airbnb (~$18.2m), Booking.com (~$48.5m), Expedia (~$467k), and Motorola (~$123.3m).
A 2022 edit reduced the content of the policy documents, and specific standards were replaced with broad, undefined language such as “serious risk of material breach of standards of good corporate practice”, without defining what those standards are.
The evidence showed that NZ Super applied multiple thresholds in practice when deciding whether to exclude investments from the fund (eg, “severe breach”, “direct involvement”, “significant breach”) that don’t appear in the policy documents at all.
The judge said the policies couldn’t be applied consistently and didn’t adequately specify who made exclusion decisions.
The judge also considered it hard to justify the absence of the UN Guiding Principles on Business and Human Rights, widely recognised as the authoritative global standard on business and human rights.
He found the policy documents were unlawful and unreasonable.
He also found the Guardians to be in breach of two statutory duties: to manage and administer the fund in a manner consistent with avoiding prejudice to NZ’s reputation and to establish internal policy documents to assist in this purpose.