The Super Fund is selling its stake in the parent company of a tobacco manufacturer after being caught out holding more than $300,000 of shares despite a policy banning investment in the industry.
In response to a written question from the Green Party in Parliament, finance minister Bill English said the Superannuation Fund had 80,000 shares worth about $333,000 in Shanghai Industrial Holdings Ltd, whose Nanyang Brothers Tobacco subsidiary is involved in making tobacco.
Since 2007, however, the fund has had a policy of excluding "companies whose activities include the manufacture or production of tobacco" from its portfolio.
English said several screening methods were used to ensure the policy was complied with.
"All of these screening methods involve the use of industry classifications. Shanghai Industrial Holdings Ltd is an example of a company which, because it is involved in a broad range of activities including tobacco, it is classified as an industrial conglomerate and so is not captured by the screening process," he said.
"We were aware of this issue and have recently completed a project to broaden our screening methodology to resolve it. This has grown the number of companies on our tobacco exclusions list."
That list would include Shanghai Industrial Holdings Ltd, he said.
Green Party co-leader Dr Russel Norman said the fund had failed to live up to its self-imposed standards as a responsible investor.
"The Super Fund directors have acknowledged their oversight, but their long record of complacency towards ethical investment makes it no surprise that they have been caught investing in tobacco."
He said its directors had previously been caught profiting from the whaling industry and the cluster munitions industry.
"This is not a professional way to manage a $19 billion investment fund and risks serious damage to our reputation as a responsible member of the world community."
The Greens are now pushing for the fund to pull its $2.1 million investment investment in Larsen & Toubro, an Indian defence engineering company, which is involved in nuclear manufacturing.