Responsible Investing and Risks of Investing

The Responsible Investment Association Australasia (RIAA) promotes responsible investing for all investors. Its public mission is to promote, advocate for, and support approaches to responsible investment that align capital with achieving a healthy and sustainable society, environment and economy.

FMA research¹ shows 68% of New Zealand investors prefer their money to be invested ethically and responsibly. However, of these investors who prefer their money invested responsibly, only 26% know where their investment goes at their wills, but around 74% of them do not know where their money is investing. Their investments are probably invested irresponsibly and non-ethically. This mean their money is in risk.

The New Zealand Super Fund (NZSF) has blacklisted a handful of companies for some reasons, mostly for selling products from developing world suspected of gross human rights abuses (or forced labour).

What are human rights abuses.

The International Labour Organization (ILO) has listed 11 indicators of human rights abuses. These include abuse of vulnerability, deception, restriction of movement, isolation, physical and sexual violence, intimidation and threats, retention of identity documents, withholding of wages, debt bondage, abusive working and living conditions, and excessive overtime. This issue is significant.

ILO estimates that the number of people globally in forced labour has increased from 24.9m in 2016 to 27.6m in 2021. Asia Pacific has the highest number of 15.1m (55%). Africa has a number of 3.8m (14%), and Americas of 3.6m (13%), Europe and Central Asia 4.1m (15%), and Arab States 0.9m (3%). Arab States have the highest prevalence per 1,000 population. Migrant and refugee workers are the most vulnerable.

What enforcements are in place on forced labour?

Currently it is primarily the US that is driving and leading the worldwide enforcement of forced labour issues through the use of Withhold Release Orders (WRO). If US Customs and Border Protection (CBP) has conclusive evidence of forced labour, they will issue WROs and a “finding” that allow seizure of all goods at ports of entry. The figures from the US CBP show that they have 54 active WROs and 9 findings in place. China shares 35 active WROs and 5 findings, Malaysia 6 active WROs and 1 finding, and Taiwanese operated fishing vessels 5 active WROs and 1 finding.

What are the impacts for NZ investors?

In the June of 2022, US enacted “The Uyghur Forced Labor Prevention Act”. It makes a determination that “any goods, wares, articles, and merchandise mined, produced, or manufactured wholly or in part” in the XUAR should be assumed to be the product of forced labor unless proven otherwise by “clear and convincing evidence.” This “rebuttable presumption” means that all such goods are barred from entry into the United States under Section 307 of the Tariff Act of 1930. . There are four priority industries that are targeted by the US CBP: (1) Tomatoes and tomato products – 40% of global tomato paste comes from China, 80% of which is from Xinjiang; (2) Cotton – approx. 20% of the world’s cotton is produced in Xinjiang; (3) Apparel – largely a by-product of the cotton industry; (4) Polysilicon – 50% of global polysilicon comes from Xinjiang (primary use is in solar panels, semiconductors, and sealants). We do not know how many NZ investors and firms are linked to these industries. But we believe there is investment in somewhere on the supply chain. We know New Zealand has strong business, economic and investment ties with Asia, particularly with China and South East Asia.

Key challenges for responsible investment

New Zealand is not immune from forced labour issues. There are large imports from Asian countries, especially in household brands and consumer products. There may have forced labour in the fishing and horticultural industries, and the ethnic restaurants. The overall awareness of the issue in NZ needs to be lifted higher.

The main challenges are:

2. investors have limited level of knowledge and financial literacy to be able to do research in a meaningful way.

3. Investors have limited awareness to get supporting services, e.g. to seek advice from financial advisers.  People feel like there is no resource they can get.

4. Individual investors do not get much info and support from big fund managers. Also, websites of big banks seem to offer very limited information on ethical products and their call centres are not much better in offering useful information.

5. Industry sector language appears jargon-heavy.  For investors, there is a steep learning curve that requires time and energy to pursue this information.