The United Nations Principles for Responsible Investment believes the prudential regulator’s finalised investment governance guidance is an endorsement of a portfolio construction approach that better includes sustainable and social impact objectives.
On Thursday, APRA released an updated version of its SPS 530 standard after a two-year consultation process, finalising its investment governance edict that came into force at the start of this year.
The guidance controversially laid out the regulator’s expectation that unlisted asset valuations occur at least quarterly. The guidance follows a report by the Financial Regulator Assessment Authority, which found APRA was not sufficiently planning for systemic risks caused by large unlisted asset allocations and delays in marking the value of those assets to market.
But the PRI, a global lobby group that advocates for the UN’s six principles for responsible investment, said the updated guidance also made clear the watchdog’s expectation that super trustees incorporate ESG principles.
“[The guidance] confirms expectations that super funds consider sustainability-related, market-wide risks and can incorporate environmental and social impact objectives in their investment strategies,” said Mayleah House, the UN PRI’s Australian policy specialist.
“Beneficiaries’ returns are largely dependent on longer term market-wide performance, which in turn is impacted by climate change and increasingly biodiversity loss and rising inequality. APRA’s updated guidance should provide greater confidence to funds looking to mitigate such risks and shape sustainability outcomes through their investment and stewardship decisions in the best interests of their members.”
APRA deputy chair Margaret Cole said many trustees had already begun to incorporate the standard into their investment processes.
“By making these significant changes, APRA seeks to drive more robust governance of fund investments and ensure trustees put the best financial interests of their members at the centre of investment strategies and decisions,” she said in a media release accompanying the guidance for SPS 530.
“The reforms have been broadly welcomed by trustees, many of whom have sharpened their focus on the valuation of unlisted assets, liquidity management and stress testing in recent months.”