Mindful Money On Investments In Russian Companies And Government Bonds
In response to Russia’s invasion of Ukraine, the US and its allies have adopted sanctions aimed at individuals, state-owned enterprises, military suppliers and the financial sector. New Zealand has imposed travel bans and diplomatic restrictions but no sanctions on companies.
The effect of international sanctions will have little impact on New Zealand investment funds, other than some Russian companies being removed from international indexes. Ethical investment specialist, Mindful Money, is calling on fund managers to respond more strongly.
Barry Coates, CEO of Mindful Money said: “Fund managers should immediately divest from Russian companies, particularly major state-backed enterprises, government bonds and the oil and gas companies that fund much of Russia’s military spending. This would be a responsible investment position. The New Zealand public should be assured that their funds are not supporting the Russian state at a time of massive suffering for the people of Ukraine.”
Total investments by New Zealand investment funds totalled over $100 million at end September 2021, including holdings in KiwiSaver, retail investment funds, NZ Superannuation Fund and ACC. Hundreds of KiwiSaver and investment funds have been invested in Russia. Fund holdings include major state-backed institutions, such as Sberbank, Gazprom and Rosneft, as well as Russian government bonds.
While the value of this investment is not globally significant, many New Zealanders will be concerned that their funds are being used to support Russian companies at a time when civilians are being terrorised and killed by Russian aggression.
Barry Coates, CEO of Mindful Money commented “Sanctions may not be required for the KiwiSaver and investment funds that invest our savings, but those funds should divest anyway. It is not a responsible position for New Zealand funds to be investing in Russian companies or the Russian government. It is important that the New Zealand public’s hard-earned savings are not used to support Russia’s war mongering.”
Exports of oil and gas are crucial to the Russian economy, but these have not been included in the list of sanctions at this stage. This is primarily due to Europe’s dependence on Russia’s supplies of fossil fuels – 70% of Russia’s gas and over half of its oil are exported to the EU.
Most of the New Zealand investments are in Russian oil and gas companies, such as the state-backed Gazprom and Rosneft, as well as large companies such as Novatek and Lukoil. The earnings from these companies play a major role in financing the Russian military. There are also investments in Russian government bonds. While sanctions are not required of New Zealand fund managers, an ethical position would be to divest immediately.
Until recent divestment, hundreds of New Zealand funds have been invested in Russian companies, but their investments are generally a small proportion of their overall holdings. Divesting from Russian companies is unlikely to have a major impact on the value of KiwiSaver or other investments.
“The smart and ethical investment managers have exited from Russian companies long ago when Russia’s aggression towards Ukraine and other was already obvious. They will have avoided the huge fall in the value of these companies, and even further declines in the value of companies that are subject to formal sanctions and divestment.”
Most of the large Russian companies are producers of oil, gas and coal, and they are not at the forefront of the transition to renewable energy.
Barry Coates: “Many ethical KiwiSaver and investment funds in New Zealand have already excluded fossil fuels from their portfolio holdings. But there is still over $1.5 billion of KiwiSaver funds invested in fossil fuels. It is time for other KiwiSaver and investment funds to get out of fossil fuels, starting with Russia’s major oil and gas companies, and instead invest in the climate transition. Mindful Money has a list of the KiwiSaver and investment funds with investment in major Russian companies and Russian government bonds.
“This is not an issue of ethics versus the economy. The huge losses in fossil fuel investments over the past decades suggest that this makes sense financially as well as ethically.”