Auckland Council has investments in soft drink, alcohol and tobacco companies, despite banning sugary drinks and smoking at some of its facilities because of health concerns.
The council had about $320 million invested with 11 different fund managers in New Zealand and overseas.
One of those funds, Janus Global Research Growth Fund, held shares in the world's biggest soft drink manufacturer Coca-Cola, the chocolate and confectionary giant Hershey and the international coffee chain Starbucks, whose drinks were recently found to contain very high levels of sugar.
The Janus fund also invested in two of the world's biggest alcohol companies SABMiller and Pernod Ricard, as well as in British American Tobacco.
Last week the council announced it would ban all sugar-sweetened drinks from vending machines at its 21 leisure centres in a bid to "show leadership in the battle against obesity and type 2 diabetes."
In 2013, smoking was banned at all parks, playgrounds, stadiums, sportfields, swimming pools, council buildings and bus and train stations.
The council will this week consider strengthening its smoke-free policy as part of its commitment to making New Zealand smoke-free by 2025.
Auckland councillors contacted by RNZ were shocked to learn of the investments.
"This is more than a little embarrassing for council," councillor Chris Darby said.
"It's inconsistent with where the council wants to go and without question it's not a good look. I believe that my colleagues around the council table will see this rectified," he said.
"For two years I have been working with the Smoke-free Coalition and Cancer Society on getting council to move faster towards being smoke-free.
"After almost a year's delay the Smoke-free Policy Review paper comes before the Regional Strategy & Policy Committee this Thursday. So the British American Tobacco stake poses an even bigger embarrassment, one that requires full sell down as soon as possible," Mr Darby said.
He would be contacting the council's chief executive Stephen Town first thing today to ask for an explanation, he said.
Auckland Council finance committee chair Penny Webster was also surprised to learn of the investments in soft drink, alcohol and tobacco companies.
"I wasn't aware of it, but I will certainly go back and ask some questions now," she said.
The council had a responsible investment policy but councillors would not necessarily be given that level of detail unless they asked for it, she said.
Auckland University epidemiologist and FIZZ founder Gerhard Sundborn said the council needed to better align its policies with its financial decisions.
"It's important that councils do check where they are investing their funds and ensure they're investing them responsibly in companies that meet the ethical considerations that they have," he said.
"The decision to remove sugary drinks from vending machines was a great start. I'm confident that the council and government will take into consideration more now where they invest their funds," he said.
Auckland Council treasurer John Bishop said the council did not know exactly which companies its 11 funds were invested in because that information was often confidential.
The decision to drop sugar-sweetened drinks from vending machines at council-run leisure centres was an operational, not policy, decision, he said.
"The portfolio originates from funds held by legacy councils. Investments are made through a range of fund managers, based in New Zealand and overseas, and advice is taken from a professional investment advisor," he said in a statement.
"As part of this process we continually look to align our investment policies with best practice, including those associated with responsible investment.
"Auckland Council has a responsible investment policy which is regularly reviewed in association with our overall investment policies. We have certain confidentiality restrictions with some of our fund managers which inhibit our ability to disclose specific asset holdings," he said.
The fund managers were required to act consistently with the council's responsible investing policy, he said.
The council's policy did not ban particular investments but stated it should choose fund managers that could demonstrate a high degree of alignment with the principles of responsible investing.
"Council considers that a policy of active engagement with companies rather than screening or avoiding companies based on environmental, social and governance criteria will deliver the least cost, best outcome," it stated.
The government-owned New Zealand Superannuation Fund and ACC banned investment in tobacco companies in 2007, but still invested alcohol, soft drink and fast-food companies.
The council was looking at divesting its investment portfolio over the next two years to help pay for infrastructure costs.