Funds move slowly on responsible investment

Sue Simpson
Research Officer

Can money match conscience in a super nest egg?

The four biggest players of First State Super’s top international equity shareholdings are criticised for paying minimal tax

The equivalent of 9.5 per cent of your salary goes into your superannuation fund. What say do you have over where your money is invested? Organisations such as 350.org are campaigning for superannuation funds to divest from coal and weapons manufacture. But super funds are also keen to invest in privatised public assets, and what about investments in companies that violate labour and human rights or use overseas tax havens to avoid paying tax to the government?

Google, Microsoft, Amazon and Apple, which have been cited around the world for paying minimal tax despite record turnovers, and in some cases for exploitative labour practices in Asia, head First State Super’s “Top international equity shareholdings”.

In the past two years there have been growing campaigns to have banks, superannuation funds and institutions such as universities divest from fossil fuels, weapons and tobacco.

Australian superannuation fund investments are now valued at about $1.85 trillion. With the exception of those earning less than $450 per month before tax, all workers now contribute 9.5 per cent of salary to a superannuation fund.

Last year, Federation wrote to the major funds for public education teachers, First State Super and the State Trustee Corporation (STC) that runs SSS and SASS, seeking their response to the growing divestment movement.

First State Super had $46 billion and STC had $40.25bn in assets as at 30 June 2014. Unions NSW nominates member representatives to the boards of both funds. Former Teachers Federation President Bob Lipscombe is one of four member representatives on the board of First State Super. Given the billions under their management, superannuation funds have great financial power.Since 2009, First State Super has offered a Socially Responsible Investment Option that avoids companies “operating within sectors with recognised high negative social impact as well as identifying companies that have strong environmental, social and governance performance”.

In the past two years, both funds have been developing responsible investment policies across all their investments but they acknowledge that more needs to be done.

The trustees of superannuation have a fiduciary responsibility to act in the best interests of members by maximising returns to members. Investment advisers are paid to assess the risk and opportunities of particular investments; with greater awareness of climate change, investment in fossil fuels poses an investment risk while investment in renewable energy is an investment opportunity.

Strategies to influence company behaviour can include:

  • Using Environmental, Social and Governance (ESG) principles in deciding which companies and projects to invest in;
  • voting at company meetings;
  • private discussions with company management either directly or indirectly on strategy, performance, risk and capital structure; and
  • divestment.

STC and First State Super are signatories to the United Nations Principles of Responsible Investing (UNPRI) which calls for Environmental, Social and Governance (ESG) issues to be incorporated into investment decisions. First State Super publishes on its website its voting record at shareholder meetings of all the international and Australian listed companies in which it has invested. The voting is generally limited to governance issues such as the remuneration of senior company executives and the appointment of board members.

In its Annual Report 2013-14, STC states that it “has decided to divest its holdings in tobacco product manufacturers” and “to restrict investments in controversial weapons manufacturers during the year. This includes cluster munitions, chemical and biological weapon manufacturers”.

In his letter to the Teachers Federation, the STC Chairman Michael Carapiet states that “STC do not currently have divestment plans in place in relation to fossil fuels”. Its ESG policy 2013 emphasises “a policy of engagement with companies rather than screening or avoiding stocks.”

STC is a member of the Investor Group on Climate Change Australia/ New Zealand (IGCC) and with First State Super are signatories to the Carbon Disclosure project “which encourages companies to measure and disclose their environmental risks”.

First State Super has joined the Water Disclosure Project, a global initiative to help business and institutional investors understand the issue of water scarcity.

It will also be participating in the Asset Owners Disclosure project initiative which will survey superannuation funds’ management of the risks and opportunities of climate change. First State Super CEO Michael Dwyer has written to the Federation that the fund is researching how companies are pricing climate change risk into the valuations of companies they invest in.

So far, it seems as if the funds are responding, albeit slowly, to community campaigning against investments in tobacco, weapons and fossil fuels. The more vexed area of labour and human rights and tax avoidance is still to be explored.