Shadow superannuation minister Stephen Jones wants Australia to use its capital to drive environmental and social change, but the member for a carbon-intensive electorate is emphatic the transition needs to consider the communities that could be left behind.
Speaking at the Responsible Investment Association Australasia conference in Sydney, Jones said he sees the super sector as the solution to a “whole bunch of problems” not the cause.
“If you listen to a whole heap of rhetoric coming out of Canberra over the last four years you could be forgiven for thinking super was the cause for every problem we’ve got,” he said.
“Let’s focus on the right things. There are things that need to be focused on, let’s focus on them instead of super wars and political hits.”
Driver of opportunities
Jones said he wants Australia to create opportunities for investors to use capital to drive social and economic benefits in areas of national interest.
“We know Australians want to see their banks, super funds and other investment vehicles not just talking about these things from an ESG perspective but rolling up their sleeves and driving the changes in these areas.
“We tend to think of ESG driven investment approaches as always having upsides for every investor and every community, and we know in some cases that won’t be the case.”
The member for Whitlam, which covers Wollongong, noted the nuance of the transition away from industries like coal which is a key industry in his electorate and needs to be “managed carefully and transparently”.
“Environmental and social driven investing priorities can have enormous impacts for workforces and communities where those activities are concentrated,” Jones said. “We need to manage that and there is a key role for both government and business to work carefully to get the right outcomes.”
A performance test and nothing else
According to Jones, the latest encumbrance to responsible investing is the performance test because of the prudential regulator’s benchmark not taking into consideration social outcomes for ESG and faith-based sectors.
Jones said he has already announced his intention to address the “alarming anomaly” that could cause the current benchmarks to drive faith-based investing funds out of the market.
“A perverse outcome for a government which purports to champion the role of choice in superannuation and investment.”
However, Jones reiterated his call the performance test would be allowed to run full cycle over two years before committing to any specific changes.
“The YFYS legislation, particularly its benchmarking tests are going to need to be reviewed because we’re quite certain they’re already having some unintended negative consequences,” he said.
“We want to ensure the proper objective of holding funds to account for their investment returns and costs doesn’t interfere with the equally quite proper objective of funds to drive economic and social outcomes.”
Australia ‘completely fell down’ on ESG
In a separate keynote speech earlier that morning, Conexus Financial chief executive Fiona Reynolds said government members who have used super as a partisan-wedge issue have not helped the industry. (Conexus Financial is the publisher of Investment Magazine.)
“Calling out super funds and other investors in the front page of the newspapers when [the funds] are doing things in their members best interests but acting like they aren’t, that’s not been helpful at all,” she said.
Reynolds returned to Australia in March after almost a decade as CEO of the UN Principles of Responsible Investment in London.
She said since being back in Australia the funds she spoke to are struggling to focus on ESG because the performance test had shifted their priorities.
“They know they should be putting more money into renewables and new areas [but instead] they’re going to be scaling back to meet the performance test otherwise they won’t stay alive,” she said.
Reynolds described Australia as being “middle of the pack” when it came to responsible investing, after being an early adopter it is now stagnating in the area.
“There was so much focus in the super industry about staying alive as a fund. Constantly changing regulations and the Global Financial Crisis slowed things down in Australia,” she said.
There’s a lot Australia needs to do to improve, Reynolds said, and she added she was disappointed with the lack of resources allocated to responsible investment in the country.
“You’d be lucky if anyone had ESG people. Now we have a war for talent and there’s not enough people. Why is that? Because we didn’t invest in people way back when we should have. Now we have one investor stealing staff from another investor,” she said.
Reynolds said one of the problems in this area is that nothing gets “ticked off the list”.
“In the whole time I’ve worked in this space, we haven’t solved any complete problems. We just keep adding and adding to the list. In some ways that’s good, but in other ways we’re spreading ourselves thin with the resources that we have.”