EXPLAIN : Following Russia’s sending of troops to Ukraine, KiwiSaver programs could face “referred” sanctions forcing them to sell shares they hold in certain Russian companies, experts say.
The full extent of sanctions against Russia and Russian companies by countries including the United States, Britain and Germany has yet to be revealed, but global stock markets have fallen following the measures. taken by Russia to invade parts of Ukraine.
Sharemarket falls lead to lower value of KiwiSaver funds, but KiwiSaver schemes could also face public concern that private retirement savings were being invested in Russian companies with ties to the Russian government, said Barry Coates, managing director of Mindful Money, an ethical research company KiwiSaver.
Some large KiwiSaver funds, including growth funds ASB and Westpac, hold shares in listed Russian companies with close ties to the Kremlin, including Sberbank, as does the New Zealand Superannuation Fund.
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So far, Britain has imposed sanctions on five Russian banks, not including Sberbank, but international media are reporting that the United States may impose broader sanctions on Russian banks, including banning them from carrying out transactions in US dollars, depending on the next measures of the Kremlin in Ukraine.
NZ Superfund spokesman Conor Robert said if the United States imposed sanctions on any of the twelve Russian companies in which the fund had stakes, it was likely the fund would sell them.
By the end of June, the NZ Super Fund had invested just under $25m in Russian companies, including $9.3m in Sberbank, which faced limited US sanctions following annexation of the Crimean Peninsula by Russia in 2014.
The European Union has already threatened reprisals.
Roberts said none of the Russian companies the fund invested in were on the wrong side of its responsible investing policies.
“To date, we have not received any indications that the companies to which we are exposed are involved in gross human rights abuses or other issues related to Ukraine,” he said.
But US sanctions could force him to sell some of the Russian companies he owned.
“It is important to note that when our US-based index provider, MSCI, updates its index listings as a result of US government sanctions, it will result in these companies being removed from our portfolio. “, said Roberts.
Simplicity KiwiSaver managing director Sam Stubbs said most of KiwiSaver’s funds are invested using international indices, which show how much of their money is in each country and each company.
International index providers included U.S. firms Standard & Poor’s, FTSE Russell, S&P Dow Jones Indices, JPMorgan and MSCI, and they would be highly susceptible to U.S. sanctions, Stubbs said.
If some Russian companies were removed from these benchmarks, they would disappear from KiwiSaver’s portfolios, he said.
“Funds will not be able to invest in it.”
But Russia was only a small part of those indexes, and many of Russia’s big companies were involved in oil and gas extraction, so the KiwiSaver funds, which excluded investments in fossil fuel companies , were already avoiding them, Stubb said.
Some KiwiSaver schemes, including the Westpac KiwiSaver growth fund, had low exposure to bonds issued by the Russian government.
Aaron Lloyd, partner at MinterEllisonRuddWatts, said New Zealand had no laws allowing it to impose unilateral sanctions on Russian companies, but would comply with any sanctions imposed by the UN.
There was, however, no prospect of UN sanctions because Russia has a permanent seat on the UN Security Council with veto power over any proposal, he said.
But New Zealand businesses, including banks, would face any US sanctions, which they risk failing to comply with, Lloyd said.
Sberbank was among the Russian companies the United States was considering sanctioning, he said.
New Zealand banks would certainly stop processing US dollar transactions involving sanctioned banks and may stop doing business with them for legal or risk management reasons, he said.
Even without sanctions having the force of law in New Zealand, there could be pressure on KiwiSaver suppliers and the NZ Super Fund to sell certain Russian businesses.
“I would have thought one of the biggest issues would be public perception,” Coates said.
The fund’s mandate required it to avoid “damaging New Zealand’s reputation as a responsible member of the global community”.
Foreign Minister Nanaia Mahuta chastised Russia for sending troops to Ukraine on Tuesday in violation of international law.
Roberts said the government has said it strongly supports Ukraine’s sovereignty and that Russia’s actions violate international law.
“However, to date the UN and the New Zealand government have not passed any sanctions that would cause the Fund to exit any bond holdings we are exposed to in Russia,” Roberts said.
A spokeswoman for the SBA said the bank requires its fund managers to ensure that KiwiSaver funds meet all international sanctions obligations.
A spokesperson for BTNZ, which runs Westpac’s KiwiSaver program, said: “While our exposure to investments in Russia is less than 0.1% of our holdings, we are taking the situation seriously and are monitoring developments closely. .
“BTNZ holds all assets directly, allowing us to apply any exclusions we deem appropriate. A decision of this nature would generally be made in light of any international or New Zealand sanctions against Russia and/or any breaches human rights major, and currently we are reviewing current international sanctions with our investment managers and research providers.