Dr Robert Howell
Introduction and Summary
AMP has two separate entities. AMP Capital, based in Australia, is run separately from AMP Wealth Management New Zealand (AMPWMNZ) which operates the Kiwisaver Funds. Discussion of AMP Capital is not included in this analysis.
This article describes and evaluates AMPWMNZ’s approach to ethical investing (which they label Sustainable Investment). AMPWMNZ states that their philosophy puts sustainable investing at the core of their investments. It states that investing in AMPNZ is good for the planet, that AMPNZ will avoid the bad and support the good, and that it will exclude investing in companies involved in controversial activities. Their definition of the good is that – where possible – they will apply higher weighting to companies that are doing a better than average job in managing ESG issuesi.
This article describes AMPWMNZ exclusions, how ESG is integrated, the Reporting, Engagement and Voting processes. It also describes and evaluates AMP Balanced Fund No 2 (previously the AMP Ethical Balanced Fund).
The evaluation of AMPWMNZ’s methodology and implementation of that methodology shows that the group’s claims that avoids the bad and supports the good is not justified. There are a number of components of a comprehensive and detailed human-human and human-Earth relationship, that are not included in the list of exclusions. Examples include the ecological footprint; abuse of animals; biological diversity; forest protection; use of chemicals.
The AMP Balanced Fund No 2 invests in 20 of the top 60 biggest banks to have financed fossil fuels (to the sum of around $3.8 trillion) in the five years since the Paris Agreement. This is a major threat to the validity of AMPWMNZ’s claim that it invests to protect the planet, unless they engage with these companies to change them. Yet there is no reference to any such engagement in their Annual Report and neither is there any separate AMPWMNZ report to describe or give the results of any such engagement.
Of particular concern is that AMPWMNZ invests in Citi and Bank of America which are among the banks issuing a new deal for Russian coal giant SUEK just two months before COP26. Of concern also are the broken promises of Deutsche Bank, JPMorgan and Standard Chartered with their loan of US$1 billion to Adani coal miner for its Australian coal mine: these banks are all also invested in by AMPWMNZ.
AMPWNZ invests in a number of Chinese companies; yet there is also no evidence in AMPWMNZ reports that these companies protect human and worker rights.
AMPWMNZ’s claims that they avoid the bad and support the good are not justified.
AMPWMNZ exclusions are:
All companies that provide components or services used in the manufacturing of controversial weapons, including:
• Anti-Personnel Mines
• Biological and Chemical Weapons
• Cluster Weapons
• Nuclear Weapons
• Depleted Uranium
• White Phosphorus
All producers of civilian firearms and any companies that earn more than 5% of their revenue from the distribution, retail and supply of civilian firearms.
All companies deriving 5% or more revenue from the production of conventional weapons, weapons systems, components and support systems and services.
All companies that earn revenues from the exploration, extraction, production, refinement, transportation and storage of fossil fuels, including:
• Arctic oil & gas
• Oil & gas
• Oil sands
• Shale energy
• Thermal coal
All companies generating (or that have installed capacity to generate) more than 5% of their electricity from nuclear sources.
All producers of tobacco products and all companies that earn more than 5% of their revenue from the distribution, retail and supply of tobacco-related products.
All producers and any companies that earn revenue from the distribution and supply of palm oil.
Companies that derive revenue from whale meat production.
UN Global Compact violators
Any companies that are assessed to be non-compliant with the UN Global Compact principles.
Primary industry exclusions
Any companies with Primary Industry Exclusions as defined by GICS codes:
• Integrated Oil & Gas
• Oil & Gas Drilling
• Oil & Gas Equipment
• Oil & Gas Exploration and Production
NZ Super Fund exclusions
Any companies on the NZ Super Fund exclusion list.
The exclusions criteria in the table above identify companies directly involved with each of the areas noted, or if they are the majority owner (50% ownership or more) of other companies involved in any of the criteria we are looking to exclude.
An additional ‘significant ownership filter’ is used to identify and exclude companies who own between 10% and 50% of any companies with any involvement in one of the exclusions in the table above. In our approach we only apply the significant ownership filter when we have total exclusion of the activity, e.g. Controversial Weapons, Fossil Fuels, Palm Oil, etc.
AMPWMNZ states, where possible, they will implement a weighting to the “good” by overweighting their exposures to companies that have a higher ESG rating where they consider it appropriate to do so based on factors such as expected returns, volatility and liquidity. They seek to achieve this overweighting by preferring indices (where available and appropriate) that re-weight portfolios to companies that have higher ESG ratings relative to others.
Reporting, Engagement and Voting
AMPWMNZ state that they will engage with companies and use proxy voting to promote sustainability. Their underlying investment management services provider, BlackRock, will undertake these activities on their behalf (or in consultation with them).
Description and Evaluation of AMP Balanced Fund No 2
The AMPWMNZ Kiwisaver option AMP Balanced Fund No 2 (previously the AMP Ethical Balanced Fund) has 1900 investments in shares, property, other, bonds, and cash.
These are some of the bank holdings in the AMP Balanced Fund No 2 ii:
Bank Central Asia;
Bank of America*;
Bank of China*;
China Construction Bank* Citibank*;
JP Morgan Chase*;
Sherbank of Russia*; Santander*;
The 20 banks with * are in the top 60 biggest banks to have financed fossil fuels with around $3.8 trillion in the five years since the Paris Agreement.iii
There are other indications that some of these banks are not good investments from an ethical perspective.
Sberbank of Russia has been subject to USA and EU sanctions since 2014 for its role in the annexation of the Crimean Peninsula. iv
Citi and Bank of America are among the banks issuing a new deal for Russian coal giant SUEK just two months before COP26. v
Deutsche Bank, JPMorgan and Standard Chartered have broken their promise not to and loaned US$1 billion to Adani coal miner for its Australian coal mine. vi
Bank Central Asia is one of the financiers of APP. According to the Environmental Paper Network, APP is a conglomerate connected to 30 years of deforestation, forest and peat fires, and the destruction of wildlife habitat in the 2 million hectares of land under their control in Indonesia. vii
HDFC Bank is India’s largest private sector bank by assets and by market capitalisation as of April 2021. Its Environmental Policy is outdated and minimalist. viii
In 2014, Standard Chartered bank was fined $300 million by the New York Department of Financial Services for breach of money-laundering compliance related to potentially high-risk transactions involving Standard Chartered clients in Hong Kong and the UAE. ix In 2019 the bank was penalised by the Financial Conduct Authority £102 million for anti-money laundering breaches. x
Macquarie has loaned $5026M to fossil fuels globally since 2016. Macquarie (via Macquarie Investment Management and other subsidiaries) also holds more than $2.5 billion of shares in numerous coal, oil and gas companies, including Peabody Energy Corp, BP, Chevron and Shell (shareholdings current as of latest filing date reported by financial data provider Refinitiv Eikon in June 2020). Macquarie also relies on the Equator Principles. This standard is inadequate, given that no fewer than 14 of the 17 banks financing the Dakota Access Pipeline in the USA were signatories to the Equator Principles. This project was fiercely opposed by the Standing Rock Sioux Tribe and their allies because of the threat it posed to their water sources. There were human rights violations when these protests were quelled. xi
In addition to banks, there are other investments that are problematic for the fund.
Baoshan Iron and Steel is a maker of steel based in China. xii It uses coal. xiii Weichai Power Co is involved in the production of engine, transmission, axle/hydraulics, vehicles, machinery and intelligent logistics. The Company owns brands such as “Weichai Power Engine”, “Fast Gear”, “Hande Axle”, “Shacman Heavy Truck”, and “Linder Hydraulics”. It has no reports describing its impact on the environment or how its deals with paying a living wage, or health and safety responsibilities. There are problems for funds investing in Chinese companies regarding the protection of human and worker rights.
The International Labour Organisation (ILO) Country Office for China and Mongolia was opened in Beijing in 1985, shortly after the start of the country’s reform process. Despite various programmes to work towards decent work practices, China has not ratified 60 ILO conventions that cover fundamental principles such as forced labour and the right to collective bargaining. The All-China Federation of Trade Unions is the nationalised organisation federation of the People’s Republic of China. It is the largest trade union in the world with 302 million members in 1,713,000 primary trade union organizations. The ACFTU is the country’s sole legally-mandated trade union, with which all enterprise-level trade unions must be affiliated.
China Labour Bulletin is a non-governmental organisation based in Hong Kong that supports and actively engages with the workers’ movement in China. It states (Workers’ rights and labour relations in China: 22 June 2020) that
The failure of the ACFTU to stand with its members has meant that, after four decades of economic reform, the majority of China’s workers have yet to benefit from the country’s so-called “economic miracle,” while a small group of Party and business leaders has become obscenely wealthy. Moreover, this extreme wealth inequality has worsened over the last five years as China’s fast-paced economy slows down and an ever-increasing number of workers are consigned to low-paid, precarious employment with little or no welfare benefits. Even Premier Li Keqiang admitted in a press conference at the end of the 2020 National People’s Congress that, based on official statistics, 600 million people in China still had an average income of less than 1,000 yuan. (US$ 140). “It’s barely enough to cover monthly rent in a mid-sized Chinese city,” Li told a press conference in Beijing (South China Morning Post 29 May 2020).
Evaluation of AMPWMNZ and AMP Balanced Fund No 2
Definition of Bad and Good
In the article Simplicity Fund and Vanguard Ethically Conscious International Shares Index Fund – Are They Ethical?xiv a checklist was prepared to assess whether the notion of harm was comprehensive and rich enough to cover all the Human-human and human-Earth aspects required for an ethical company (Appendix 1). That checklist can be used to assess whether the AMPWMNZ definition of good and bad is comprehensive and rich enough to ensure the fund genuinely warrants the status of an ethical investment. By relying on their own listed exclusions to define bad, there are a number of components of a comprehensive and detailed human-human and human-Earth relationship that the fund’s so-called sustainable investments do not consider. Examples include the ecological footprint; abuse of animals; biological diversity; forest protection; use of chemicals.
The use of ESG frameworks has limitations as described and discussed elsewhere. xv
Evaluation of AMP Balanced Fund No 2
The investment in 20 fossil fuel financing banks is a major threat to the validity of the AMPWMNZ’s claim to invest to protect the planet, unless they engage with these companies to change them.
There is also no evidence about Chinese companies protecting human and worker rights.
There is no AMPWMNZ report to describe any engagement and the results of that engagement. There is no reference to anything in their Annual Report.
As a result the claims of AMPWMNZ to avoid the bad and support the good is not justified.
2.3.1 Does a company’s Code of Conduct, or the statement of its values include both human-human and human-Earth responsibilities, and do they include concepts such as harm or its equivalent(s) ?
2.3.2 In its Code or in social impact reports, does the human-human dimension include reference to the UDHR and the Conventions of the ILO? And in particular
2.3.2a Does the company have a policy manual or its equivalent that describes how it describes its obligations under the UDHR and ILO conventions?
2.3.2b Does the company pay a living wage?
2.3.2c Does it report on its lowest to highest employee payment ratio?
2.3.2d Does it have adequate health and safety policies and practices?
2.3.2e Does it require its contractors, suppliers and distributors to meet its own ethical standards?
2.3.2f Does it have adequate internal and external complaint procedures?
2.3.2g Does an organisation, in its lobbying, donations and gifting, avoid those organisations and activities which do not support the authority of government, and in particular the expression in periodic and genuine elections which shall be by universal and equal suffrage and shall be held by secret vote or by equivalent free voting procedures?
2.3.2g Are its decision-making, its promotional, marketing and reporting activities
based on the concepts of integrity and transparency? In particular does it have statements of its purpose, governance and operational policies, codes of conduct, grievance and complaint procedures, strategies, risk analysis and robust audit procedures involving financial and non-financial behaviour and impacts?
2.3.3 Does the human-Earth dimension include reporting on its ecological footprint, and efforts to reduce it?
2.3.4 Does the human-Earth dimension include abuse of animals? Does it recognise the moral arguments for vegan and vegetarian diets, and give investors choices for the exclusion of companies associated with the killing and production of animal based food?
2.3.5 Does the company adhere to CITES, and the Convention on Biological Diversity?
2.3.6 Does the company adhere to the Forestry Stewardship Council’s
Principle 3 (Indigenous People’s Rights);
Principle 4 (Community Relations);
Principle 5 (Benefits from the forest); and
Principle 6 (environmental Values and Impacts)?
Does it protect individual trees and tree types on grounds that incorporate cultural and historical factors and where preference is given to indigenous species? Does it protect rivers, lakes and oceans from any discharge from its forests?
2.3.7 Does it measure and report on its ecological impact on rivers, lakes and oceans, and waste that it puts into them, using the best available regional standards available based on modern science, and taking into account international reports, such as those based on the Convention of Biodiversity.
2.3.8 Does it account for any production and use of chemicals, to ensure that they are not harmful. When appropriate, does it follow the precautionary principle?
2.3.9 Does it adhere to the World Health Organisation’s most up to date Air Quality Guidelines?
2.3.10 Does it report on its Greenhouse Gas Emissions, and its plans to reduce them?
AMP. Retrieved from https://www.amp.co.nz/kiwisaver?utm_source=google&utm_medium=sem&utm_campaign=ks-brand&utm_term=ks-brand&gclid=Cj0KCQjwqKuKBhCxARIsACf4XuG4c2gamxu20wnwwubk8Zo45Z7BK7GJxxw2FDhzVFRr5FdxURv3xMUaAp9LEALw_wcB&gclsrc=aw.ds
ii Retrieved from https://smartinvestor.sorted.org.nz/kiwisaver-and-managed-funds/SCH10367/OFR10393/FND616/
iii Retrieved from https://www.ran.org/bankingonclimatechaos2021/#score-panel
iv Retrieved from https://en.wikipedia.org/wiki/Sberbank_CIB#Troika_Laundromat
v Retrieved from https://www.banktrack.org/article/us_and_german_banks_issue_new_deal_for_russian_coal_giant_suek_just_2_months_before_cop26
vi Retrieved from https://www.banktrack.org/news/deutsche_bank_jp_morgan_and_standard_chartered_break_promise_and_loan_us1_billion_to_adani_coal_miner
vii Environmental Paper Network. Retrieved from
viii HDFC Bank Limited Environmental Policy. Retrieved from
ix Retrieved from https://en.wikipedia.org/wiki/Standard_Chartered
x Retrieved from https://www.fca.org.uk/news/press-releases/fca-fines-standard-chartered-bank-102-2-million-poor-aml-controls
xi Retrieved from http://wiseresponse.org.nz/2021/05/21/pathfinder-ethical-funds-are-they-ethical-lessons-to-be-learned-by-dr-robert-howell/
xii Retrieved from https://www.baosteel.com/group_en/contents/2898/40043.html
xiii Retrieved from https://www.magaldi.com/en/expertise/coal-fired-power-plants/baosteel-baoshan-iron-steel-co2
xv Retrieved from http://wiseresponse.org.nz/2021/09/22/generate-and-the-moral-bankruptcy-of-esg/
The sentence AMP Capital’s moral principles of harm or denial of humanity are limited to the human-human domain and exclude human-Earth matters should read AMPCapital’s moral principles of harm or denial of humanity are limited to the human-human domain and exclude human-Earth matters in regard to engagement.