Local Government Super (LGS) has bolstered its commitment to responsible investment practices by making three significant changes to the investment restriction criteria within its Sustainable Australian Shares investment option (SAS).
The latest changes to the SAS investment restriction criteria include:
- A broadening of existing screens to exclude investment in companies, which provide ‘significant services’ to prohibited industries (armaments, weapons, tobacco, mining and gambling)
- A new screen to exclude companies exposed to fossil fuels (this means no investments in any fossil fuel industries)
- An additional screen that excludes financial services companies based on their corporate conduct.
Peter Lambert, chief executive officer at LGS, said, “These changes were made to distinguish our SAS as the ‘deeper green,’ more responsible and sustainable investment option for existing and potential LGS members. However, these changes do not apply to our existing blended investment options.
“The SAS only invests in Australian companies listed on the Australian Stock Exchange. The changes to the SAS investment restrictions reflect the concerns that many of our members and our stakeholders have about some ASX-listed companies and particular sectors of the economy.
“These environmental, social and governance (ESG) issues can also pose significant investment risks and these changes to the investment restrictions are designed to ensure we are safeguarding our members’ retirement savings.”
The new screen, which effectively excludes any investments in fossil fuel industries, reflects increasing global concern about the impact of fossil fuels on climate and the environment.
“Fossil fuels have emerged as an important factor for ethically-minded investors and the new screen complements our existing ‘high carbon’ screen and reinforces our belief that climate change remains one of the most significant long-term investment risks,” Lambert added.
“There is also growing public concern about some corporate marketing and sales practices in the Australian financial services sector. The new innovative SAS screen uses external research to benchmark the sector on corporate conduct and then restricts investment in those companies with the highest number of serious repeated infringements. As a result, some financial services companies have been excluded from the SAS portfolio.
‘Poor conduct’ in the sector
“The risks for investors as a result of poor conduct in the financial services sector include the potential of legal action, harsh penalties and increased regulation as well as the erosion of community trust and social license in the financial services sector.
“Some of the behavioural factors causing this poor corporate conduct, such as overt focus on short-term profits and excessive levels of bonus-based remuneration, may result in the re-emergence of long-term systemic risks to the financial sector and this is not in the interests of long-term shareholders such as LGS and our members.”
LGS’ ‘negative screening’ approach has been applied across the entire fund and has been regularly reviewed since its inception in 2000. The approach is designed to actively screen out investment in tobacco, gambling, armaments, old growth forests, high carbon sensitive sectors (such as coal mining, coal-fired utilities and oil tar sands) as well as excluding companies with poor management of ESG risks.
All companies that are excluded from the LGS investment portfolio due to the negative screens are subject to ongoing review.