Since the emergence of “Modern Portfolio Theory” and the “Capital Asset Pricing Model” in the late 1960s, institutional investors have taken a quantitatively driven approach to portfolio construction, looking to create portfolio diversification and obtain better risk-adjusted returns by balancing their asset-class exposures. This journey has seen several important advancements in thinking about how to optimally achieve desired results.
Funds that want to take the total portfolio approach first need to get the total portfolio view. To do that they not only need data – and lots of it – but a rock-solid understanding of exactly how they’re going to use it.
ART plots ‘substantial’ sustainable investing build-out
With the board of Australian Retirement Trust (ART) having approved fund-level climate change and sustainable investment strategies at its June meeting, it’s now looking to build out its existing six strong sustainable investment team “substantially” with roles across public and private market ESG integration, data and analytics, impact investing and stewardship.
“It’s not about a capability gap; there’s an ambitious work plan, and the board believes this is a really important part of the investment strategy to deliver the best member outcomes,” ART head of sustainable investments Nicole Bradford tells ISN. “We’re identifying how we can enhance our approach and go broader and deeper in these areas, and we’re seeing an increase in expectations from external stakeholders, including regulators.”
One place where ART is seeing significantly more demand for information is in employers, who are asking the fund how it’s approaching sustainable investing and to report back to them on different metrics, including carbon emissions.
“It’s really come to the fore in the last six to twelve months – and in the last six months there’s been a really significant increase in interest and questions, which I think is fantastic,” Bradford says. “I’d say it’s potentially the organisations themselves looking at their supply chains, or demand from their end consumers and clients. It could also be a demand from their investors and their employees. They’d be getting it from a number of different stakeholders, just like ourselves.”
After joining ART in 2022 from Cbus, where she was global head of responsible investment, Bradford has spent the last year and a half working on the new fund-level strategy and the climate change roadmap; she’ll now be working on implementing that strategy and building the team.
“We’re building out these capabilities to do the research and build the knowledge, the tools and the frameworks to help our broader investment team really bring this into their day-to-day work as well,” Bradford said.
Super funds generally have been under more scrutiny over sustainable investing, with recent ASIC actions against Active Super and Mercer Super Trust highlighting the need for marketing material to match what’s actually in investment options. ART committed to a net zero by 2050 target during the merger of QSuper and Sunsuper that created it last year and has additional targets in the net zero roadmap it intends to publish in a couple of weeks.
