UKLFI: Supporting Israel with legal skills

New Zealand Fund Decision to Divest from Israeli Banks Breaches Legal Requirements

The Guardians of New Zealand’s Superannuation Fund have recently decided to divest from Israeli banks in apparent breach of legal requirements.

The Superannuation Fund, known as the Super Fund, was set up in 2001 to secure funding for universal pensions for New Zealand’s aging population with a fair sharing of the cost between present and future taxpayers.

The Guardians’ statutory mandate is to invest the Fund on a prudent, commercial basis and manage it in a manner consistent with:

  • best-practice portfolio management;

  • maximising return without undue risk to the Fund as a whole; and

  • avoiding prejudice to New Zealand’s reputation as a responsible member of the world community.

International financial markets lawyer, Dan Harris, has pointed out:

  1. The published reasons for the decision to divest from Israeli banks show a failure to properly consider material information and give too much weight to questionable sources. This appears to be inconsistent with “best-practice portfolio management”.     For example, the reasons placed considerable weight on the UN Human Rights Council’s report dated 12 February 2020. However, breaches of human rights are a matter of law, and yet the UNHRC report clearly states that it offers no legal conclusions. Moreover, the methodology used for that report was demonstrably flawed and based on biased sources.

  2. The decision appears to have been taken with a dominant improper purpose to be a political player, rather than applying a responsible investment policy; and on the basis of opposition to an Israeli proposal to extend Israeli law to part of the West Bank, even though at the time of the decision that proposal was no longer being pursued.

  3. There was a fundamental error of law in treating the Israeli Banks as responsible for acts of the State of Israel. Lawful acts of private companies cannot automatically be equated with those of a government.

  4. The divestment may damage New Zealand. US politicians on both sides may react in a negative manner. The Guardians are required to avoid prejudice to New Zealand’s reputation, not attract it.

Jonathan Turner, chief executive of UKLFI commented: “As well as being an improper purpose, the Guardians’ political aims discriminate against Israel. At the same time as divesting from Israeli banks, they are investing in companies operating in Western Sahara and probably in other disputed territories”.