The investigation analysed more than 100,000 individual assets held in nearly 500 individual KiwiSaver funds looking for 169 companies blacklisted by the New Zealand Superannuation Fund. The analysis found half of KiwiSaver providers – mostly smaller boutique outfits – had avoided blacklisted investments, but more than 2 million people were unwitting investors in big tobacco companies and makers of banned weapons.

Many fund providers today defended their schemes, claiming individual investments in controversial companies – such as British American Tobacco and nuclear bomb component maker Honeywell International – were made only as part of indiscriminate investments in entire stock indices.

In total, New Zealanders were found to have $102m invested in tobacco companies, with more than half of this stake made by one fund provider – ANZ, and its OneAnswer funds. The Herald analysis ranked the ANZ pair as having invested the highest proportion of client funds into blacklisted assets

Today ANZ, the country’s largest provider managing $8.3b on behalf of 830,000 New Zealanders, announced it was reviewing its investment policies.

“ANZ Group is currently conducting a review of the governance and selection criteria of its underlying investments,” a spokesperson for the bank said.

The spokesperson said ANZ was transparent about where funds were invested, offered a specific ethical investment fund as an option, and clients were free to change funds any time they wished. The investigation also found three KiwiSaver providers had made investments worth a total of $2.3m in a trio of United States companies – Textron and General Dynamics – blacklisted by the NZSF due to their production of cluster bombs.

New Zealand signed an international treaty banning such weapons, and in 2009 passed enabling legislation specifically forbidding investments in such companies.

Funds managed by Westpac, AMP and Aon hold shares in three companies. Aon did not respond to questions.

A spokesperson for Westpac said the bank was “not aware of any non-compliance with any legislation”.

A spokesperson for AMP said its holdings were only indirect, via unit trusts, and it was “moving to remove exposure from cluster munitions in accordance with its legal obligations”.

Minister for Commerce Paul Goldsmith told Parliament he had today requested advice on the matter and had been told by officials there were “some indications” the cluster bomb laws had been broken.

"I've asked for advice on that and there is some indication that the law may apply but that's for the appropriate enforcement authority to decide whether there's been a breach of the law," Goldsmith said.

Goldsmith drew a contrast between issues of ethics and laws. "We expect KiwiSaver providers to follow the law, but we believe individual investors are best placed to make moral judgments," he said.

The questions to Goldsmith came as Opposition MPs urged the Government to act on the issue.

Labour’s Grant Robertson said: “Most New Zealanders would be appalled that their KiwiSaver funds are being invested into cluster bombs and land mines.”

The Green Party’s Julie Anne Genter said default funds – which half-a-million people had enrolled in and not moved from – should be cleaned up.

“The Government should be showing strong leadership by clarifying the legality of investing in cluster munitions and landmines,” she said.

Prime Minster John Key said the Government was unlikely to further regulate the KiwiSaver sector, and the choice of fund – and where to draw lines on what was an acceptable investment – was up to individuals.

“So in the end every KiwiSaver investor, I guess, needs to look at the investments they are making and make a decision about whether that’s an ethical investment,” he said.

The Herald series will next week crunch more KiwiSaver data, particularly over performance and fees charged, to find the sector’s best performers and worst performers.