Bank of New Zealand has developed a responsible investment policy which excludes companies involved in the production of cluster munitions, anti-personnel mines, nuclear weapons and tobacco or tobacco products from its international equity holdings, it said.
"In the last 3.5 years our funds under management have grown from $1.5 billion to almost $4 billion today, so we've undertaken a comprehensive review of our investment business," BNZ head of wealth and private bank Donna Nicolof said in a statement.
In the past BNZ invested in commingled funds alongside other institutional investors.
"One of our key investment beliefs is that risk and return are equally important and we have made the decision to exclude companies involved in the manufacture of tobacco on the basis that there is no safe level of use and engagement with these companies is futile. The regulatory and litigation risks faced by this industry are significant," Nicolof said.
The investment policy at BNZ, a subsidiary of National Australia Bank, spans all investments it makes on behalf of customers and includes the investments of the BNZ KiwiSaver Scheme.
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The move follows investor uproar last year after media investigations found New Zealanders had unknowingly invested $152 million in arms manufacturers and big tobacco companies through their KiwiSaver funds.
Earlier today the opposition Green Party said the government needs to set a clear deadline for when all KiwiSaver providers should have divested from companies involved in the manufacture of cluster bombs, landmines, and nuclear weapons.
According to a report by Radio New Zealand four default providers - Australia & New Zealand Banking Group, Kiwibank, Westpac Banking Corp and Mercer - still had passive investments in such companies through global index funds.
"It's time for the government to get tough on investment companies that are dragging their feet on ethical investment," said Green Party co-leader James Shaw.