Ian Silk, the head of AustralianSuper, has upped the ante for industry funds warning that failure to consider ESG risks when investing their members’ retirement savings is a breach of their best-interests duty.

Speaking at ACSI’s annual conference on Wednesday, Silk reiterated that superannuation funds must act in the best interests of their members. “The law is unequivocal in this respect,” he said.

Further, he added, there is ample evidence to show that companies with poor ESG practices and performance don’t do well in the long term.

“Failure to properly manage ESG risks can lead to reputational damage, regulatory scrutiny, civil and criminal litigation, profit downgrades and ultimately poor investment results,” he said.

“Clearly, then, taking steps to improve companies’ ESG performance is in members’ best-interests duty.

Wednesday’s conference saw a record turnout which Silk argued underscores the growing acknowledgement and recognition of the importance of integrating ESG considerations into business and investment decisions.

But he told conference goers as with any major change, it is not occurring without resistance.

“There’s been an uptick in commentary recently, to the effect that ESG integration is a form of social, ideological or political activism – take your pick,” Silk told the audience.

“Supporters of this proposition accuse ACSI and our members of pursuing an agenda, be it cultural, gender-based, environmental,  industrial relations, or some other.

“One of their main contentions is that ACSI members – mostly profit-for-member super funds – are breaching their obligations by considering ESG factors and that we should ‘stay in our lane’.”

The AustalianSuper chief argued these views represent a misunderstanding of how and why ESG factors should be considered.

Silk, who is also ACSI president, conceded that commentary of this ilk comes as no great surprise at a time of great flux in the financial system (like now).

Setting the record straight

“I’d like to set the record straight and say why ESG integration is an important part of mainstream investing, and therefore important to Australia’s retirement system and why our focus on ESG risks and opportunities should grow stronger,” Silk said.

“In other words, why ESG is directly in our lane.”

In his speech, Silk underlined the positive connection between better company performance on ESG issues and better investment outcomes for members.

“And because of this we actively exercise the rights and responsibilities that come with being a large asset owner.

“ESG issues should always be integrated into any investment decisions that we make.”

Silk went on to say that if companies or their investors ignore ESG factors that would be to the long-term detriment of the economic value of those companies, and the millions of Australians invested in them including through their super funds.

The need for change is crystal clear.

“ESG can no longer be considered a ‘nice to have’ … that’s why ACSI and our members plan to continue and grow our focus on ESG integration,” he said.

“We will be more demanding, we will be more vocal, we will call out poor performers and deficiencies in the system.

“So, for all the reasons I’ve mentioned and more ESG integration is our lane and we’re not pulling over, because we’re needed more than ever now to help safeguard the long-term value of investments on behalf of our members.”

Noting that Australia lags behind many developed countries when it comes to regulating ESG integration, Silk argued that advocacy to improve Australia’s regulatory settings is an important part of ACSI’s work.

Separately, at the conference ACSI announced proposals to reform Australia’s framework for investment stewardship.

The peak body for super funds is seeking an update on the importance of ESG issues in APRA guidance and a requirement that trustee boards have capacity and competence on ESG issues.

ACSI also wants a review of the regulatory framework for stewardship, including consideration of a stewardship code that applies to all institutional investors.

Elizabeth Fry is the editor of Investment Magazine's digital platform. Fry has been a financial journalist for more than 25 years and has written for a number of publications, including CFO, The Financial Times and The Australian Financial Review.
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