whether the collective investment vehicle has provided new capital or lending to entities involved in unethical activities, or whether the investment in unethical activities has only involved the purchase of existing securities in the secondary market. b) For each unlisted collective investment vehicle in which ACC invests: o Where ACC has a direct contracting relationship with the manager of the collective investment vehicle, ACC will provide the manager with: ACC s ethical investment policy and any subsequent amendments; and ACC s Direct Investment Exclusion List for the case of direct investment (or where ACC uses an external investment manager on a segregated account basis) and any subsequent updates. o Any changes in the holdings of the collective investment vehicle in companies on ACC s Direct Investment Exclusion List will be reported promptly to the ACC BIC. If a company on the list becomes a new holding or existing holdings are materially increased, on the advice of ACC s CIO and Head of Investment Office, ACC s CFO must recommend to the ACC BIC whether or not ACC should continue to invest in the collective investment vehicle. This recommendation must take into account: whether the increase in holdings represents a purchase from the secondary market or whether the increase in holdings has directly resulted in a flow of new money to a company or companies on the list; and the total proportion of the collective investment vehicle s fund held in shares that are on ACC s Direct Investment Exclusion List; and the total proportion of the collective investment vehicle s fund held in companies engaged in activities subject to investment restrictions under New Zealand legislation, such as companies engaged in the manufacture of cluster munitions. (iii) Implementation Approach where ACC Directly Invests in Exchange Traded Funds (ETF) In this case ACC: monitors such holdings at a minimum annually and regularly reports these to the ACC BIC; or where any such shares are considered to be inconsistent with ACC s ethical investment policy they are to be added to the ACC Direct Investment Exclusion List; or in evaluating whether exchange traded funds or other listed collective investment vehicles are inconsistent with ACC s ethical investment policy, ACC must take account of: o the total proportion of the ETF s assets held in securities that are on ACC s Direct Investments Exclusion List; and o the total proportion of the ETF s assets held in companies engaged in activities subject to investment restrictions under New Zealand legislation, such as companies engaged in the manufacture of cluster munitions. 7 Engagement In addition to engagement activities undertaken by ACC s PMs (which are outside the following procedures), ACC may engage with companies whose securities are (or could be) held in ACC portfolios. ACC is likely to engage with New Zealand and Australian companies directly, or in collaboration with other CFIs (see section 4). Engagement with companies further afield is
more likely to be in collaboration with other investors, including via the UN PRI Engagement Clearinghouse and/or via contracted ESG engagement specialists. Formal engagement may involve: a) writing letters to senior management or the board of the company; or b) meeting with senior management or board of the company; or c) proposing and/or supporting resolutions at company general meetings; or d) collaborating with other like-minded investors with any of the above. The priority issues for engagement under this policy are: a) significant human rights abuses; or b) culture of corruption; or c) gross environmental damage; or d) persistent and serious disregard for the health and safety of workers or customers. Decisions on ACC s involvement on any overlay engagement activities may be made by the Chief Investment Officer (CIO) or the Head of Investment Office. The ACC BIC Chair, the Chief Executive Officer (CEO), and the Chief Financial Officer (CFO) are to be informed of any overlay engagement on ESG issues that will be made public, or there is a probability that it will be debated publicly. Any engagement activities outside this policy are to be approved by the ACC BIC. 8 Engagements Not Effective If engagement activities are not achieving results (or considered not likely to achieve results), then the target company may be excluded from direct investment by ACC, provided: a) there is a material breach of Responsible Investment standards relative to ACC s ethical investment policy, with evidence from reputable sources; or b) there is a lack of response to ACC s attempts to engage and/or the difficulties of engagement with the company do not justify the level of resources required; or c) the potential collective impact of exclusions on overall risk-adjusted returns is considered. In the majority of cases, ACC will only inform a company that it has been excluded from ACC s list of companies excluded from direct investment after the event (see next section). 9 Changes to Direct Investment Exclusion List The determination of which companies are to be excluded is delegated to the Head of Investment Office in consultation with the CIO for both: a) Section 8 Engagements Not Effective: where engagement has been or is considered likely to be ineffective; and b) Section 5 Direct Investment Exclusion List: determining which companies are to be excluded under each excluded activity. The Senior Compliance Analyst is responsible for advising all internal PMs and the Manager Externally Managed Funds is responsible for advising all external managers, of the companies excluded from direct investment. The formal Exclusion Notices sent to external PMs change the Investment Instructions under the individual investment management agreements with each manager and hence need to be approved in line with the Investment Delegation Schedule. The effective date for excluding companies should allow for reasonable time for PMs to divest any holdings of securities issued by that company in their ACC portfolio. The ACC BIC, the CEO, and the CFO are to be informed before implementing any changes in the list of excluded companies.