A correction to this story was issued on Friday September 30, 2011*.
As a union secretary, Ian Robertson is used to delivering blunt messages – it’s an approach that hasn’t changed in 14 years sitting on the board of the $6.2 billion Local Government Super (LGS). “I suppose I don’t put up with wankers or posers,” the chair of the LGS investment committee says, when asked about his straight-shooting reputation. It was an approach that put some establishment noses out of joint when he was chair of the Australian Institute of Superannuation Trustees (AIST) from 2007 to 2010. But Robertson, who first pushed for LGS to drop its investments in tobacco in 1998, says he will not relent from challenging fellow trustees in other funds to match their words with deeds when it comes to concrete action on environmental, social and corporate governance (ESG) issues. Earlier this year LGS, along with Cbus, HESTA and MTAA Super, were the only large Australian funds to vote in favour of a resolution to amend Woodside Petroleum’s constitution requiring the company to disclose its carbon-price assumptions.
Robertson says it was a crucial litmus test for Australian funds, which separated those that had merely aspirational green marketing statements from those prepared to demand a greater level of transparency from companies in which they were long-term shareholders. “While funds can get away with saying they are UNPRI signatories and that ‘we belong to the IGCC’, but in reality do absolutely nothing other than that, they will,” Robertson says. LGS has taken an active role in developing a range of innovative in-house strategies for tackling climate change and equity market risk in its portfolio. This year it has extended a “socially-responsible overlay” across all its investments. This involves applying ESG principles to both its actively- and passively-managed equity assets, and an ongoing effort to measure its carbon risk across its entire portfolio. In addition, the fund is working on ways to hedge climate-change risk across all the asset classes in which it invests.
The fund has used external adviser Mercer to look at the overall carbon exposure of its portfolio, and uses other sustainability consultants to advise on what companies pose a potential risk. Since 2004 it has not invested in Australian companies that derive more than 10 per cent of their revenue from a range of areas, including armaments manufacturing, nuclear energy, uranium mining, gambling and the logging of old-growth forests. Earlier in the year it extended its socially-responsible overlay to its international equities portfolio. LGS presently indexes 50 per cent of its Australian equities portfolio and 40 per cent of its international equities portfolio. It has gradually increased its passively-managed mandates after re-examining its approach to equities in 2009. It also indexes a sizeable portion of its bond portfolio. The socially-responsible overlay the fund designed allows LGS’ internal investment team to short a particular stock in the index to hedge against its potential ESG risk.