Fiduciary duty includes social awareness, panel says

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23/05/2018

It’s important for asset owners to use their clout and raise labour concerns, First State Super head of responsible investments Liza McDonald has said.

As part of a discussion panel on human rights at the 2018 Australian Council of Superannuation Investors Annual Conference, McDonald explained how more socially conscious companies could improve their performance.

“You can’t underestimate, when you have a large holding in a company, the influence that you can have,” McDonald said. “Companies that act sustainably, think about the environment and think about the community and their workforce are going to perform better over the longer term and, therefore, provide returns to our members.”

Colonial First State Global Asset Management head of responsible investment, Asia-Pacific, Pablo Berrutti added that mitigating investment risk goes beyond financial responsibility.

Berrutti said the United Nations’ Guiding Principles of Business and Human Rights (Ruggie Principles) are clear and investors have a responsibility to follow them.

“We often talk about the financial impact of practices in relation to human rights and fiduciary duties but our duties do not extend to breaking the law or supporting companies that break the law,” he said. “Though financial responsibilities are critical, I don’t think it’s excusable if those financial impacts don’t exist that we do nothing. We have a responsibility to make sure companies are doing the right thing.”

He spoke in the context of the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry and in line with other commentators at this year’s conference, who explored the ways in which funds could be more ethical in their decision-making. In the final presentation of the day, Berrutti and his fellow panelists explained the dangers associated with labour and human rights risks when it comes to investing.

PPB Advisory partner Siobhan Hennessy said when her firm speaks to a company, it’s usually themes relating to efficiency, reputation or risk that resonate with them.

“Avoiding risk can bring a problem into sharp focus,” Hennessy said. “Competition is important as well, because of the risk of being seen to lay behind competitors. If you can always bring this back to [companies] then you can have a sharper conversation.”

Berrutti added that the personal reputations of directors are also related to how companies engage on labour issues.

“If a company is prepared to systematically screw over its workers, then what makes you think, as a shareholder, it’ll take care of your interests?” Berrutti said. “We’re not actually talking about being nice to people, we’re talking about paying them what they’re entitled to. That’s a really telling part of how you look at companies and understanding whether you can trust the management. It’s around how they treat their people and the communities they operate in. Are they good financial stewards?”

ACSI states that there has been increased demand for sustainable and socially conscious business in recent years and, therefore, a need to disclose how asset owners contribute to their returns.

To assist with this, the organisation launched a new set of principles at the conference called the Australian Asset Owner Stewardship Code, which is designed to help asset owners provide greater transparency and accountability in their activities.

AustralianSuper and HESTA were the first funds to sign on to the new code. Hostplus has committed to sign on to it by the end of the year.

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