Amicus Curiae: Accident Compensation & Corporate Responsibility – Two Sides of the Same Coin?
The Accident Compensation Corporation (ACC) does more than provide cover for personal injury; it is also New Zealand’s largest investment fund, managing $31.4 billion in funds. ACC invests in order to make up any difference between the levies collected and the cost of compensation.
As a signatory of the UN Principles for Responsible Investment, ACC is obliged to consider the long-term environmental, social and corporate responsibility of its investments to ensure that they align with the broader objectives of society. This framework prevents both ACC and the NZ Superfund from investing in companies which manufacture or test nuclear explosives, anti-personnel mines, tobacco or whale meat. Furthermore, ACC is banned by statute and other international agreements from investing in certain stocks. For example, investment in companies involved in the manufacture of cluster bombs is specifically banned by the Cluster Munitions Prohibition Act 2009 and the 2008 Cluster Munitions Convention.
It has recently emerged that some of ACC’s investments have breached these rules. For example, ACC has invested indirectly in companies on the exclusion list, including a $1.4 million investment in weapons manufacturer Lockheed Martin, often due to investments by collective investment management companies which ACC is involved in. Subsequently, it has emerged that ACC’s ethical investment policies did not apply to collective investment funds, which ACC invests into but where the specific investments are managed by the company who runs the fund. Furthermore, ACC’s joint venture with Serco New Zealand to run the Wiri Prison Facility in South Auckland, has been highlighted as a potential breach of investment rules on the basis that Serco New Zealand’s British parent company, Serco Group, is involved in the management of Britain’s nuclear weapons bases. ACC defended this investment arguing that Serco was just a shareholder in the company set up to own the Wiri Prison and as such it had not actually invested in Serco.
Even if these investments are not a direct breach of ACC’s investment rules, they would appear to breach the intent of the rules. The difference between investing in an ‘unethical stock’ directly or indirectly is negligible because the company who is being invested in receives the same benefit –– investment in its stock. This point may be reflected by ACC’s decision following these revelations to instruct the managers of the collective investment funds it is involved in to only invest ACC money in ‘ethical’ stocks.
All New Zealanders contribute to funding ACC though levies paid on income, by businesses, in vehicle registrations and as a part of fuel taxes. Levies are used to pay for the cost of personal injury compensation and contribute to ACC’s investment fund. Therefore, ACC’s investment fund reflects the cumulative contributions of tax payers either via these levies or from direct government contributions. As such, there is arguably a reasonable expectation that a company in ACC’s position should have higher ethical standards than private investment funds. For example, given the clear and well-supported government policy of reducing smoking rates, it would be ironic for ACC to use taxpayer’s money to support tobacco companies by investing in them. Furthermore, there is some irony in ACC, using money intended to insure against future personal injury claims in New Zealand, investing, either directly or indirectly, in companies, such as Lockheed Martin, which could contribute to the personal injury of others.
Finally, if ACC doesn’t invest in so called ‘unethical’ stocks and continues to achieve exemplary returns (such as the 190% growth between 2010 and 2015) it sends a powerful message to institutional investors, particularly Kiwisaver funds who have recently been accused of investing in banned companies, that they don’t need to invest in ‘unethical’ stocks in order to achieve good returns. Similarly, this communicates to individual investors that there is no ethical or financial justification for investing in ‘unethical’ stocks.
As a purportedly responsible investor, ACC clearly should not invest in banned stocks and nor should it use loopholes to escape the intent of principles which seek to encourage ethical investments. Furthermore, as an organisation which invests on behalf of all New Zealanders, ACC’s duty to be a socially and environmentally ethical investor is greater than it is for a private investment fund, both as a matter of principle and because of ACC’s ability to communicate to other investors that ethical investments are both socially and fiscally responsible.
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