Should industry funds save the planet?
With Australian industry funds overseeing almost $1 trillion collectively, on par with the world’s biggest pension plans in Japan and Norway, local assets owners are questioning whether they should be required to help save the planet.
A poll of 62 respondents at the recent Investment Magazine’s Fiduciary Investors Symposium showed that 44 per cent had not incorporated the United Nation’s 17 sustainable development goals into their investment strategies. Of those, 42 per cent said they no plans in the next 12 month to do so, with half viewing SDGs as being outside their fiduciary duty.
“It’s an interesting question for industry funds,” said Alexandra West, a portfolio head at Cbus Super at the conference. “At what point or at what size do institutional investors have no choice but to focus on the quality of the market? At Cbus, we are not in the business of saving the world. We have an unrelenting focus on producing strong returns year-on-year.”
Still, Cbus was among six Australian super funds earlier this year to be named world leaders in responsible investing by the Principles of Responsible Investment, joining a list of 47 global asset owners. West said while Cbus would not “trade off return for impact” it had identified seven SDGs “relevant” to its $54 billion portfolio. Fellow industry fund VicSuper disclosed in October it had already met eight.
West said the goals, created by the UN in 2015 as a blueprint for countries to become more sustainable by 2030, were “difficult” to translate into investments because they were not developed with institutional investors in mind.
Recent steps taken by Cbus include buying an 80 per cent stake in a portfolio of solar and wind generation assets in Western Australia with the Dutch Infrastructure Fund, participating in a social responsible bond issuance that focuses on affordable housing and a commitment to achieve net zero carbon omissions on the entire property portfolio by 2030.
Danielle Welsh-Rose, an ESG investment director at Aberdeen Standard Investments, said the problem for asset owners was that the SDGs weren’t developed as an investment framework. As a result, the UK-based fund manager instead uses them to understand what the future problems of the plant will be to then identify risks.
“That then translates to something that is investable,” she told delegates. “We are not looking at where capital flows are already going; we are looking at how to allocate additional capital that would not already be allocated to these problems.”
Edwina Matthew, head of responsible investments at Pendal Group, said the industry was increasingly thinking about how environmental and social governance issues impact investments. “So now you have got the risk and return as well as the impact,” she said. “It’s that third axis that we see increasingly as been an avenue for identifying investment opportunities.”
Cbus’s West said while the fund had taken “a stab” at mapping the impact of the portfolio, the lack of quality data made it difficult to identify which dollars invested contributed to SDGs. She said while the super fund was working with a number of data providers, the work was not yet “robust” enough to disclose publicly.
“For us it’s about utilising SDGs to do what we do better,” she concluded. “It’s inevitable that we are headed in that direction. So if we can invest in a way that supports that, then that is consistent with Cbus being a long term investor and meeting our member’s interests.”
Sam Reynolds, CEO of October Investment in Australia, said they had implemented several SDGs when getting their $450 million solar-farm asset in rural NSW up and running. These include SG 7: affordable and clean energy, SG 8: decent work and economic growth and SG 9: industry, innovation and infrastructure. “When we first got into renewables this wasn’t front of mind,” he said. “We have 250 assets around the world so this stuff is really important and makes a difference to how well the site performs.”