The growth of responsible investing in super
ESG (environmental, social and governance) considerations have been part of our investment decisions for a long time – but what does it actually mean?
Corporate responsibility is now a given. Consumers are choosing to engage with businesses that are aligned with their personal values and leaving behind companies that rely on poor business practices.
This comes as no surprise to us. We’ve been considering ESG (environmental, social and governance) in our investment decisions for a long time, and it forms part of every investment decision we make.
In this article you’ll find:
What does responsible investing mean?
We believe companies with good corporate behaviour make for better investments, because these companies also tend to manage other aspects of their business well.
When we say we’re a responsible investor, we mean we seek to invest in companies that:
- have appropriate financial structures
- treat their workers well
- consider their environmental impact
- have good governance practices and structures
- have a strong and knowledgeable board of directors
- seek long-term sustainable growth
- adapt to changing societal expectations
- have good relationships with customers and the community.
Considering ESG issues helps us understand the bigger picture—the importance of good corporate behaviour in producing better financial outcomes for our members and its importance to you.
Our ESG framework guides us in managing our investments, and outlines the essential issues we consider when assessing companies to invest in.
Some of issues we consider include:
What’s our approach?
Our approach to managing your super responsibly includes the following four areas of practice:
- We’re an active owner.
- We consider ESG risks when investing (integration).
- We provide you with member choice.
- We advocate and collaborate.
So, what does this actually mean?
1. We’re an active owner
While we’re guided by our fiduciary duty, we regularly engage with the companies we invest in to drive change, maintain high standards, and produce better ESG-related outcomes.
Our Chief Investment Officer, John Pearce, believes that central to our responsible investing approach is being an ‘active’ owner—and key to this is taking an ‘engaged’ approach.
“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.”
2. We consider ESG risks when investing (integration)
When we invest in companies, we consider ESG risks and how they’re managed as part of our due diligence process. Ultimately, we need to make sure that this is reflected in the price we’re willing to pay for an investment.
We regularly engage with fund managers, seeking their input in analysing stocks and assessing climate risks. Our portfolio assessment of climate change risk includes fossil fuel exposure, carbon foot printing, physical exposure, and qualitative analysis.
While our commitment to ESG is across all our investment options, we understand that some members prefer not to invest in particular industries or want to invest in environmental themes.
We offer a range of sustainable and environmental investment options to give you the flexibility to create a portfolio that best suits your needs.
In addition to our fund-wide exclusion on tobacco and companies deriving over 10% of their revenue from thermal coal extraction , we apply additional screening criteria to our Sustainable High Growth, Sustainable Balanced and Global Environmental Opportunities options to ensure that companies with material exposure to the following are excluded:
- Fossil fuel exploration and production
Global Environmental Opportunities targets companies that receive more than 40% of their revenues from addressing environmental challenges like renewable energy, energy efficiency, water and waste treatment, green buildings, and sustainable forestry.
- Sustainable High Growth, launched in 2002, has delivered 24.6% in the 12 months to 30 June 2021, and 11.7% p.a. over 10 years.2, 4
- Sustainable Balanced, launched in 2008, has delivered 17.1% in the 12 months to 30 June 2021, and 9.6% p.a. over 10 years.3,4
- Global Environmental Opportunities, launched in 2012, has delivered 48.9% in the 12 months to 30 June 2021, and 17.0% p.a. since inception.3
4. We advocate and collaborate
We work with peak industry bodies and like-minded investors to gain better insights in to our ESG practices and collaborate to drive initiatives.
For example, when it comes to climate change, this includes, participating in research briefings on energy market developments, participating in seminars around adapting to climate change, and contributing to public policy and industry studies.
Our sustainable path to 2050
At the core of our position on climate change is our acceptance that human activity is a significant contributor to the warming of the planet. Global warming represents a long-term risk to societal wellbeing, economic growth, and by extension, the retirement outcomes of our members.
Writing in our fourth edition of Climate risk and our investments (our annual climate risk report), Chief Investment Officer, John Pearce, says decarbonising the economy will be one of the most significant investment themes for at least the next decade.
The report’s key updates include:
- 40 of our top 50 Australian investments now have targets aligned with the Paris Agreement, with another five committing to setting targets this year.
- 66% of investments across our entire portfolio now have Paris-aligned targets (up from 51%, 12 months ago).
- 0.4% of the fund is exposed to fossil fuel producers, with overall fossil fuel exposure down to 2.55% from 5.05% last year.
- 26% of our portfolio is, or will be, carbon neutral or net-zero by 2022. This includes our $2.6 billion direct unlisted property portfolio.
- The attainment of carbon neutral status for our own operations.
We’ve achieved this progress by divesting some positions, eliminating holdings in companies that generate more than 10 per cent of revenue from mining thermal coal, and not adding to existing positions as the portfolio has grown.4
Our report, Climate risk and our investments helps members understand our approach to carbon-related issues, our role as a fiduciary (what this means), and details those responsible for managing climate risks and what we invest in. We also have podcasts and webinars that provide more insights into our approach.
Things you need to know
1 Past performance isn’t an indicator of future performance.
2 Average investment returns p.a. for the 10 years to 30 June 2021.
3 Returns quoted are for accumulation investment options, after fund taxes and investment expenses, but before account-based fees.
4 Learn more about our thermal coal exclusion and its limitations.