It wasn’t that long ago that sustainable development was considered a marginal issue within the investment and business sector. Few in the corporate world saw the need to allocate staff to properly understand terms like global warming or carbon trading, let alone investigate ways to reduce carbon emissions in their own workplace.
But with climate change set to dominate political, economic and social debate around the globe this year and beyond, it’s timely that business and governments not only acknowledge the relevance of environmental, social and governance issues (ESG) in the corporate world but also think about ways they can lead by example.
This is particularly important for Australian businesses given that, in the industrialised world, Australia is one of the highest carbon emitters on a per capita basis. AIST recently became one of the first Australian industry bodies to join the United Nations Principles for Responsible Investing (UN PRI).
Launched in April 2006, the PRI is in essence a set of global best-practices for responsible investment. By joining one of three PRI categories – asset owners, investment managers or professional partners – signatories such as AIST make several key undertakings including incorporating ESG issues into decision-making processes and ownership practices, thereby improving long-term returns to beneficiaries. In subscribing to the PRI, AIST adds its name to an Australian list of more than 20 superannuation funds, the majority from our not-for-profit sector.
In total, Australian organisations account for almost 20 per cent of global PRI signatories with VicSuper, Cbus and Hesta and many other fund signatories as well as industry groups like the Australian Council of Super Investors (ASCI) already well-recognised for taking a leading position on ESG issues.
The PRI provides a set of common guidelines for incorporating ESG issues into mainstream investment decision making and business practices. The Principles are voluntary and signatory superannuation funds are not required to divest or screen out particular companies or sectors based on ESG issues, although this may be an appropriate approach for some investors. The absence of legally binding requirements for PRI signatories doesn’t mean that the initiative is simply another warm and fuzzy statement designed to make global signatories feel good about themselves.
By joining the PRI, signatories become part of highly-influential collective voice to be heard in board rooms, at international conferences and annual general meetings across the globe. In such situations, words can be just as effective as actions. The PRI recognises that industry bodies such as AIST – while not stewards or managers of assets in their own right like the super funds – have considerable influence over how their clients or members might address ESG issues.
This year AIST will conduct sessions on ESG issues and the PRI at our upcoming CMSF conference in Brisbane in March and our Global Dialogue conference in San Francisco in June. We are also taking steps to incorporate ESG initiatives on an operational basis, such as reducing the carbon footprint at the CMSF conference.
Working with our carbon neutral partner, Industry Funds Management, CMSF will introduce measures such as reduced paper usage, air-travel offsetting and sourcing local produce for conference meals to reduce food transport. Meanwhile for asset-owner signatories like the not-for-profit super funds, the PRI provides guidance on addressing ESG issues and integrating them into investment decisions.
The principles of PRI are based on the premise that ESG issues can affect investment performance and that the appropriate consideration of these issues is part of delivering superior riskadjusted returns and therefore firmly within the bounds of investors’ fiduciary duties.
AIST recognises that the goals of the superannuation industry go hand-in-hand with the objectives of the United Nations to build a more stable, sustainable and inclusive global economy. Just as the success of the superannuation industry rests on its ability to forward plan, addressing ESG issues such as climate change is about making decisions today in order to protect and advance our future economic prosperity.
While AIST members will be under no additional obligation as a result of AIST becoming a PRI signatory, it is hoped that more member funds will recognise the benefits in joining a global communique of this kind.
By harnessing the power and influence of hundreds of global businesses that together control an impressive $A13 trillion in assets, the PRI has the potential to deliver real and lasting outcomes – both through words and actions. For more information about the Principles visit www.unipri.org