Australia’s first -ever shareholder vote on climat e change, put to Woodsi de Petroleum in April, provided superannuation funds with a prime opportunity to support the sustainability principles that many of them have espoused for years. But at this first hurdle, many crashed and burned, prompting the question: how seriously are funds pursuing sustainability through their investments? PHILIPPA YELLAND reports.
Think back to the sunlit days of mid-2006, when, amid the bull market’s double-digit gains, superannuation funds began pursuing financial and societal benefits by integrating sustainability into their investment strategies. In the years that followed, many asset owners and funds managers took up the United Nations’ Principles for Responsible Investing (UN PRI), and proudly marketed these new commitments. With 40 super fund signatories, Australia soon boasted the largest number of UN PRI signatories among all countries. The bottom-line benefits and societal dividends gained by marrying environmental, social and governance (ESG) considerations into investment decisions were openly discussed at industry events and in the media, including the pages of this magazine. Part of the worldwide sustainable investing movement, funds joined global pensions initiatives. They travelled to the Copenhagen Climate Conference in 2009 to pressure public officials on the case for carbon reduction, and, on their home turf, backed initiatives such as ESG Research Australia, which supports and recognises highquality sustainability research from brokerages. Even as the financial crisis brought more immediate dimensions of investing to the fore, such as liquidity and costs, ESG still gained airtime from its chief advocates: HESTA Super Fund, Local Government Super (LGS) and Colonial First State Global Asset Management, among others. The Australian Institute of Superannuation Trustees (AIST), under the chairmanship of LGS trustee Ian Robertson, kept the fire alive with an annual asset-owners survey, which asks funds to disclose their carbon exposure and is in its third year.
Minimising ESG risks – such as gauging the impact of a carbon price upon investment performance, or looking for governance transgressions that can destroy shareholder value – were believed to deliver financial benefits. Today, the case still stands, and was reinforced earlier this year when Mercer Investment Consulting publicly recommended that funds allocate 40 per cent of their investment portfolios to climate-sensitive assets – a 38 per cent increase from current standard allocations. This finding, in conjunction with the exhortation from Jeremy Grantham of GMO to adapt to a world in which scarce and expensive natural resources are imminent, demonstrate that investors need to broaden their thinking. So when the Climate Advocacy Fund (CAF), an index vehicle managed by Australian Ethical Investment and backed by The Climate Institute (TCI), proposed an amendment be made to the constitution of Woodside Petroleum so that it was forced to disclose the carbon-price assumptions it uses when planning future resources projects, it would seem probable that super funds would support this move as it could provide investors with greater visibility of carbon risk. But many didn’t, despite being UN PRI signatories and the fact that the governance advocate for industry funds, the Australian Council of Superannuation Investors (ACSI), threw its weight behind the resolution. It was, after all, an opportunity for super funds to use their voting power to extract valuable information about an external risk that could harm future investment returns for their members.