New Zealand’s $36 billion sovereign wealth fund divested $4 million from five Israeli banks last month because of their West Bank operations. This could cause reputational and financial problems for New Zealand and for companies managing its sovereign wealth fund.
Flawed information and analysis spurred the fund’s decision. In a letter explaining the move, the Guardians – the government entity that runs New Zealand’s sovereign wealth fund – cites concern about Israel’s plans to annex portions of the West Bank. However, Israel agreed to suspend its annexation plans in September 2020 as part of its peace deals with the United Arab Emirates and Bahrain. Subsequently, UAE-based Abu Dhabi Islamic Bank signed a memorandum of understanding with Bank Leumi, one of the Israeli banks subject to divestment.
The letter erroneously describes United Nations Security Council Resolution 2334, which declared that Israeli settlement activity “has no legal validity and constitutes a flagrant violation under international law,” as “binding.” However, the council passed that resolution under the non-binding Chapter VI.
The Guardians’ letter also relies on reports by the UN Human Rights Council, a body composed of numerous autocracies that has passed nearly as many resolutions criticizing Israel as the rest of the world combined. This reality undermines the credibility of the council’s reports.
Thanks to the Guardians’ decision, Israeli companies now comprise 11 of the fund’s 53 divestments not related to tobacco or cannabis. Two of these are Israeli construction companies from which New Zealand divested in 2012 for building West Bank settlements. The Guardians excluded the others for manufacturing certain weapons or for alleged labor or unethical-conduct issues.
Yet even as they condemn Israel, the Guardians invest in one of the world’s leading human rights abusers. The fund holds nearly half a billion dollars’ worth of investments in 625 Chinese companies, including two companies blacklisted by the United States for violating the rights of ethnic minorities. China has detained up to 1 million Uighurs from Xinjiang province, suppressed pro-democracy protests in Hong Kong, and continues to occupy Tibet.
Likewise, while the fund divested from Israeli banks, it invests in companies extracting natural resources from another disputed territory. On March 15, New Zealand’s High Court upheld the sovereign wealth fund’s right to invest in companies operating in Western Sahara, a non-self-governing territory occupied by Morocco.
Two New Zealand companies included in the fund import around $30 million worth of phosphate from the disputed territory annually. Morocco’s alleged facilitation of the extraction of natural resources from an occupied territory appears to contravene Article 55 of the 1907 Fourth Hague Convention.
Israeli banks have faced divestment in the past. In January 2014, Dutch pension firm PGGM announced it was divesting from the same Israeli banks that New Zealand’s fund excluded. The Financial Times reported that several senior PGGM executives later regretted the decision because it inadvertently thrust the company into the politics of the Israeli-Palestinian conflict. In the same month, Denmark’s Danske Bank terminated operations with Israel’s Bank Hapoalim, prompting Illinois’ Investment Policy Board to bar investment in Danske.
Accordingly, U.S. states such as Illinois that impose restrictions on the investment of public funds in companies boycotting Israel should prohibit investment in financial management firms implementing the Guardians’ anti-Israel divestment policy.
On their website, the Guardians state that avoiding reputational damage is one of their guiding principles. The fund’s exclusion of Israeli companies while continuing to invest in problematic businesses elsewhere could damage the fund’s reputation if members of Congress voiced their displeasure. This would carry significant weight, since the United States is New Zealand’s third-largest trading partner.
David May is a research analyst at the Foundation for Defense of Democracies (FDD), where he also contributes to FDD’s Center on Economic and Financial Power (CEFP). For more analysis from David and CEFP, please subscribe HERE. Follow David on Twitter @DavidSamuelMay. Follow FDD on Twitter @FDD and @FDD_CEFP. FDD is a Washington, DC-based, nonpartisan research institute focusing on national security and foreign policy.