AmanahNZ - Ethical Mandate

AmanahNZ applies an Ethical Mandate which is defined in its Trust Deed and Statement of Investment Policy and Objectives. The Ethical Mandate states the types of investing activities allowed and the ethical screening criteria applied in the selection and monitoring of investments.

We believe that applying an Ethical Mandate to our investing approach provides transparency for our investors, and allows our investors to take responsibility for how their investing affects society. AmanahNZ advances a strong ethical statement and makes it an appropriate investment vehicle not only for persons who abide by similar religious principles, but also for those who ethically value these investment ideals.

 

ABOUT OUR ETHICAL MANDATE

Our Ethical Mandate complies with the investment standards set by the Accounting and Auditing Organisation for Islamic Financial Institutions (AAOIFI). We believe that the AAOIFI standards promote investments which seek to consider both financial return and social good. We believe AmanahNZ advances a strong ethical statement and make it an appropriate investment vehicle not only for persons who abide by similar religious principles, but also for those who ethically value these investment ideals.

The following principles we apply which are derived from the AAOIFI standards are as follows:

Prohibition of interestThe use of money for the purpose of making money is expressly forbidden. Wealth must be generated from legitimate trade and asset-based investment. Any cash held by our investment products are held in interest-free bank accounts.

Prohibition of excessive uncertainty/speculation and gambling: These principles require investments to have social and ethical benefit to wider society. They prohibit investments which would involve excessive uncertainty or risk such as speculative investment, gambling and day trading. 

Prohibited business activities: Our Ethical Mandate prohibits investment in businesses that source significant income (defined as more than 5% of their total income) from the following business activities:

  • Defence/Weapons
  • Gambling
  • Alcohol
  • Tobacco
  • Adult entertainment
  • Pork
  • Dealing in interest

These restrictions mean that our investment products may not leverage (borrow against) investor funds, or invest in derivatives and other complex, high-risk financial products. Additionally, hedging instruments cannot be used to manage currency risk as they are derivatives and therefore prohibited by the Ethical Mandate.

The AAOIFI standards set specific limits relating to interest and debt which all our investments must comply with. In application to companies, we may not invest in a company whose interest-bearing debt is greater than 30%, whose interest-bearing income is greater than 30% or those which hold more than 67% of total assets in cash and cash equivalents. 

 

AUTHORISED INVESTMENTS

AmanahNZ may only hold “Authorised Investments”; this is currently defined as the stocks of up to 50 corporations listed on the approved stock exchanges (NYSE, NYSE MKT LLC or NASDAQ), or cash (which shall be US dollars). All investments must comply with the Ethical Mandate.

 

ADVISORY BOARD

The Amanah Ethical Advisory Board is responsible for reviewing the Ethical Mandate compliance of AmanahNZ and its investments. The Advisory Board reviews compliance with the Ethical Mandate but does not undertake investment selection. The current members of the Advisory Board can be viewed here.

 

PURIFICATION

Purification is the method used to cleanse any investment income that may have been generated by a corporation from non-permissible activities (for example, pork or alcohol) by a donation to charity. 

Despite the best vigilance of the Manager, investments may, without the Manager’s knowledge, breach the Ethical Mandate of AmanahNZ. For investments in stocks, the screening criteria developed by AAOIFI considers companies that receive up to 5% of their total income from non-permissible sources compliant, provided that the appropriate purification process is undertaken. Where a company’s non-permissible income exceeds this threshold, the investment is sold immediately.

With the assistance of financial screening service IdealRatings, we calculate the required purification for each investment, which is then accumulated and “purified” by a donation to charity. The amount of purification varies between investments and is based on the portion of the company’s income that is derived from non-permissible sources.