Nest eggs can be guilt free

Re­tir­ing with a clean con­science about how the money was made is pos­si­ble, writes Claire Galea

The Weekend Australian - Review - - Investments -

RE­TIR­ING in com­fort may be some­thing most of us aim for, but re­tir­ing with a clear con­science may not be an ob­vi­ous pri­or­ity. If you think that multi- bil­lion dol­lar cor­po­ra­tions have a grow­ing re­spon­si­bil­ity to con­sider such is­sues as the en­vi­ron­ment, the wel­fare of em­ploy­ees, the com­mu­nity and hu­man rights in the way they con­duct busi­ness, then you’re not alone — your su­per fund may feel the same way.

In­vest­ing in a re­spon­si­ble man­ner is rapidly be­com­ing an im­por­tant added di­men­sion to re­tire­ment plan­ning — for both the re­tail and in­sti­tu­tional in­vestor.

How­ever, even with the best eth­i­cal in­vest­ment in­ten­tions, the larger su­per funds are re­stricted in the way they in­vest. This is be­cause su­per funds con­trol 21 per cent of the Aus­tralian stock mar­ket. On any given day, they will own be­tween 0.5 per cent to 2.0 per cent of ev­ery sin­gle one of the ASX 200 stocks.

The sheer size of some of the su­per funds and the end­less pur­suit of port­fo­lio di­ver­si­fi­ca­tion means that eth­i­cal or so­cially re­spon­si­ble in­vest­ment, SRI, of an en­tire su­per fund is of­ten out of the ques­tion.

The eth­i­cal in­vest­ment stance of avoid­ing cer­tain types of sec­tors such as al­co­hol, min­ing, gam­bling, to­bacco or ar­ma­ments ren­ders it im­prac­ti­cal for a large su­per fund to adopt this type of approach.

For ex­am­ple, the re­source sec­tor con­sti­tutes such a con­sid­er­able pro­por­tion of the Aus­tralian stock mar­ket, in terms of cap­i­tal­i­sa­tion, that any fund avoid­ing this sec­tor runs a se­ri­ous risk of un­der­per­form­ing the in­dex.

None­the­less, trustees of Aus­tralian su­per funds are com­ing un­der in­creas­ing pres­sure from the pub­lic and their fidu­ciary du­ties to take en­vi­ron­men­tal, so­cial and cor­po­rate gov­er­nance fac­tors into ac­count in their in­vest­ment strate­gies.

This is­sue is be­com­ing per­haps the most im­por­tant fac­ing su­per funds.

In re­sponse, a num­ber of su­per funds have made the de­ci­sion to adopt a sus­tain­able in­vest­ment approach across their en­tire port­fo­lio. A sus­tain­able approach, rather than an eth­i­cal one, en­ables them to em­brace ESG is­sues with­out hav­ing to ex­clude any sec­tor.

There are now 22 su­per funds which have signed up to the UN’s Prin­ci­ples of Re­spon­si­ble In­vest­ment, which en­cour­age in­vest­ment man­agers and as­set own­ers to take ESG fac­tors into con­sid­er­a­tion when mak­ing in­vest­ment de­ci­sions.

Three such sig­na­to­ries in­clude UniSu­per which has $ 24 bil­lion un­der man­age­ment, HESTA Su­per Fund which has $ 13.5 bil­lion and the $ 6.5 bil­lion Lo­cal Gov­ern­ment Su­per­an­nu­a­tion Scheme, LGSS, of NSW. Prop­er­ties owned and man­aged by LGSS are re­quired to use green power, and new or re­new­ing ten­ants are also re­quired in their lease to use green elec­tric­ity.

Un­usu­ally, its share port­fo­lio does ap­ply an SR over­lay which avoids in­vest­ment in to­bacco, ura­nium, old- growth log­ging and ar­ma­ments for ex­am­ple, as well as any com­pany which de­rives more than 10 per cent of earn­ings from th­ese sec­tors. Ad­di­tion­ally, it pos­i­tively in­vests a pro­por­tion of the port­fo­lio in the clean­tech sec­tor.

Chief ex­ec­u­tive of­fi­cer Peter Lam­bert be­lieves sus­tain­abil­ity is the way to go.

Al­though you can’t take out a stock such as BHP, for ex­am­ple, be­cause it con­sti­tutes such a large part of the in­dex, we be­lieve that you can have sus­tain­abil­ity through the whole port­fo­lio. In five to 10 years’ time we will all be do­ing it that way, and we will won­der why there was ever a de­bate about it. It will be­come main­stream and a fun­da­men­tal part of re­search that com­pa­nies do,’’ he said.

While th­ese moves by the su­per­an­nu­a­tion in­dus­try to­wards sus­tain­able in­vest­ment are en­cour­ag­ing, some may not con­sider them to be enough.

The As­so­ci­a­tion of Su­per­an­nu­a­tion Funds of Aus­tralia, ASFA, has more than 400 mem­bers, al­beit not all are su­per funds, while the Aus­tralian Coun­cil of Su­per Fund In­vestors, ACSI, which was launched in 2001 to ad­vise and ed­u­cate com­pa­nies on cor­po­rate gov­er­nance is­sues, has 41 mem­bers.

On the other hand, the fact that only 22 Aus­tralian su­per funds have signed up to the UN PRI seems dis­ap­point­ingly low by com­par­i­son.

ASFA CEO Pauline Va­mos points out that the tran­si­tion of su­per funds to sus­tain­able in­vest­ing has to be done in a mea­sured way.

It is a com­plex area. That is why the in­dus­try may be a bit slow on the up­take be­cause it has to be done in a mea­sured way. There is a real cost for an or­gan­i­sa­tion to be­come green’; there is a 20 per cent ad­di­tional cost on most things. So if you want to buy re­cy­cled pa­per or move into a green build­ing you have to bal­ance the cost to­day with your obli­ga­tion to mem­bers.’’

For those in­vestors for whom sus­tain­abil­ity sim­ply isn’t mov­ing fast enough, some su­per funds do of­fer a less clin­i­cal and more moral’ approach that may be more aligned with your per­sonal pref­er­ences.

Many su­per funds of­fer seg­re­gated SRI op­tions which en­able in­vestors to screen out com­pa­nies or sec­tors in which they don’t want to in­vest. So, if your su­per fund in­vest­ing in Bri­tish Amer­i­can To­bacco Tat­ter­sall makes you feel un­easy, then it may be time to vote with your feet.

The first step is to check if your su­per fund of­fers an SRI op­tion which you can switch into or, if not, switch your su­per fund across to a provider that does.

Aus­tralian Eth­i­cal runs one of the few su­per funds which in­vests its en­tire port­fo­lio, in this case over $ 300 mil­lion, in a so­cially re­spon­si­ble way — Chris­tian Su­per ($ 500 mil­lion) and Hunter Hall In­ter­na­tional ($ 61 mil­lion) also claim to do so.

De­tailed in­for­ma­tion on each of 25 su­per funds of­fer­ing SRI op­tions can be found from the Re­spon­si­ble In­vest­ment As­so­ci­a­tion of Aus­trala­sia’s Su­per Cen­tre on its web­site. ASIC’s FIDO con­sumer web­site also con­tains in­for­ma­tion, and you can also check the UN PRI for the full list of su­per fund sig­na­to­ries.

Cost com­mit­ment: Pauline Va­mos says the tran­si­tion of su­per funds to sus­tain­able in­vest­ing has to be done in a mea­sured way

Newspapers in English

Newspapers from Australia

© PressReader. All rights reserved.