Responsible investing is more than a buzzword

February 2018

responsible-investing-super-informed-feb-2018

If you’ve heard the term ‘responsible investing’ a lot lately, you’re probably not alone. More and more people are looking to the way their super fund responds to environmental, social and governance issues. We take a closer look at what it means to invest responsibly, what UniSuper’s doing about it, and how you can get involved.

Talieh Williams’ role as UniSuper’s Manager of Governance and Sustainable Investment is a busy one.

“We’re constantly out in the field, talking to and working with the companies we invest in,” Talieh says.

“Members are always interested to learn that UniSuper is focused on the environmental, social and governance (ESG) performance of the companies we invest in. But actually, I think what’s even more interesting and important is the work we do behind the scenes with these companies.”

UniSuper assesses ESG factors for all investment decisions

“We can’t afford not to. We need to know the broader ESG risks and opportunities that all our investments face, so we can better understand how they might impact our analysis and decisions. Ultimately, if a company manages ESG well, it likely manages other issues well, too,” she says.

UniSuper adopts a holistic approach to responsible investment.

“We use climate change risk assessments, conduct internal ESG due diligence before we invest, and continuously monitor the portfolio.”

‘Active’ ownership

John Pearce, Chief Investment Officer, believes that central to UniSuper’s approach to responsible investing is being an ‘active’ owner—and key to this is taking an ‘engaged’ rather than ‘activist’ approach.

“Activist investors tend to invest in underperforming, poorly-governed companies, and seek to aggressively drive change to shake up company management and boards,” John says.

“Ultimately, we believe that being an engaged owner and using our ownership rights responsibly, through private and respectful engagement—combined with our shareholder voting rights—is the most effective way to communicate with and influence these companies.”

Talieh says some of the key topics UniSuper addresses with companies are remuneration, board succession planning, climate risk management, occupational health and safety, and human rights in the supply chain.

“And where necessary, we seek to drive change where we have concerns about the way companies are managing ESG.”

Talieh’s team has been especially active in engaging with companies about the way they manage the physical and transition risks associated with climate change.

“As a result of our and other investor efforts, we’ve seen a number of companies make better disclosures about how they’re managing these risks.”

Duty bound

John adds that UniSuper is restricted legally in terms of what can and can’t be included in portfolios. In short, we have a ‘fiduciary duty’ to invest in members’ best financial interest.

“As a fiduciary, we simply cannot consider an investment that delivers below-market rates, regardless of the virtues of such an investment from a public benefit perspective.”

And while trends such as ‘impact’ and ‘ethical’ investment are growing across the super fund sector, John warns that members of such funds should be mindful of outcomes.

“Super funds getting more involved in this space is, of course, admirable—provided that investments are consistent with their fiduciary responsibilities to act in their members’ best financial interests,” he says.

“I note, for example, our Sustainable Balanced option has outperformed most other ethical and environmental peer fund options over the last five years, in terms of lower costs and higher returns.”

In addition to being a responsible investor and considering ESG across all investments, we also provide a range of investment options for members interested in sustainable and ethical investing.

“Our Sustainable Balanced and Sustainable High Growth options invest in companies that are highly rated for their sustainability performance,” Talieh says.

These options don’t invest in alcohol, gaming, weapons and fossil fuel exploration and production sectors—in addition to the fund-wide exclusion in tobacco. Sustainable Balanced also invests in ‘green bonds’, which provide debt finance to fund the development of renewable energy and energy efficiency projects.

The Global Environmental Opportunities option invests in companies that focus on delivering products or solutions across five key areas: clean energy, energy efficiency, waste/pollution control, clean water, and green buildings.

All three of these options seek to exclude investments in companies in breach of the UN Global Compact.

In addition, seven of our 16 options have no direct exposure to fossil fuels: Sustainable Balanced, Sustainable High Growth, Global Environmental Opportunities, Cash, Australian Bond, Diversified Credit Income and Listed Property.

“So really, members have quite a few options to consider if they’re interested in getting involved,” Talieh says.

Resources

  • Hear Talieh discuss UniSuper’s approach to responsible investing in detail in episode 11 of our Super Informed Radio podcast.
  • Ask a question about responsible investing during our webcast in March.


Past performance isn’t an indicator of future performance.