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KiwiSaver provider Simplicity says it is not bowing to political pressure after divesting its shares in three Israeli banks.
The non-profit fund manager announced it would no longer have holdings in Bank Hapoalim, Bank Leumi and Mizrahi Tefahot Bank.
Simplicity has faced pressure from members over the issue since the outbreak of conflict between Hamas and Israel.
Simplicity chief operating officer Andrew Lance said when it investigated the issue, it found research by the Super Fund, that highlighted the banks' financing of illegal Israeli settlements in the occupied West Bank.
The West Bank settlements are considered illegal by the international community.
Simplicity said it was not aware of the issue until it was raised by members.
Lance said the banks did not meet its responsible investment threshold, and the divestment was not political.
"We very explicitly do not want to be taking a political stance. It's not part of our policy at all.
"But in this particular instance, given the research that we've now been given access to, we feel that it's correct under our responsible investment policy, these companies would've breached that."
Lance said its usual screening processes did not pick up the issue earlier, and was working to ensure it would not be repeated.