Australia’s superannuation funds have nearly the highest proportion of internal asset management in the world, but there’s plenty of questions hanging over the practice even as funds push into more expensive niche asset classes.
The retirement chief of the $335 billion AustralianSuper, who was “instrumental” in delivering a slew of member experience uplifts across a 17-year stint with the fund, will leave this month to establish a new venture.
A ‘love affair’ with sustainable investing
Rachel Halpern has gone from corporate cop to an adviser to some of the largest super funds in the country, and brings a “forensic approach” to the risks of Australia’s sustainability boom.
“The direction that investors are going in is systems level thinking,” says Rachel Halpern, JANA’s newly appointed head of sustainability. “Methods to ensure that capital markets continue to exist, rather than just looking to extract alpha above the benchmark.”
Originally from Sydney, Halpern began her career in law and worked at Clayton Utz before taking a role as an investigator for the UK’s Financial Conduct Authority. It was in those two roles that she developed a “forensic approach” to analysing company risk profiles – “hours and hours and hours” of combing documentary evidence to determine whether a company’s behaviour was in breach of the FCA’s rules or UK law – and saw those that didn’t manage non-financial risks end up in “terrible, costly litigation”.
“Banks were thinking about financial risk vs non-financial risk, which in my opinion was a false dichotomy,” Halpern says. “Given a long enough time horizon, any non-financial risk will crystallise and cost the company money.”
But it was at State Street Global Advisers (SSGA) that Halpern developed “a love affair” with sustainable investing. Halpern credits that in part to SSGA’s “Fearless Girl” statue, installed on Wall Street in front of the infamous “Charging Bull”, and the gender diversity index ETF (aptly named “SHE”) for which it was commissioned to publicise. After a conversation with the company’s head, who was instrumental in setting up SHE, Halpern was “completely converted”.
“The more I delved into the idea, the more I saw that non-financial risks were aligned with sustainability risks. If you have a clearer picture of a company’s risk profile – in this case it was the diversity of the board – you’re more able to predict long-term returns for investors.”
Ultimately Halpern returned to Australia, working on frameworks to transition institutional clients to the net-zero economy at Westpac, before being appointed as JANA’s head of sustainability – a role created “in recognition of where we are in 2021”. Australia’s booming interest in climate change comes as a direct result of witnessing its material impacts, with the Black Summer bushfires of late 2019 and the storms that came after them creating a green rush for Australian instos – most obviously the large super funds, which have aggressively pursued sustainability goals in recognition of their importance to members.
“There’s huge risks and opportunities that have really crystallised in the past couple of years. The forces behind sustainable investing are continuing to accelerate,” Halpern says.
Looking outside JANA at an industry-wide level, one obstacle to achieving those sustainability goals has been the Morrison Government’s stubborn insistence that they have no role to play in shaping the transition to a low carbon economy. But as regulators make their expectations around climate risk clear, Halpern believes super funds will take a more active approach to sustainability.
“It’s made easier by the fact that APRA has issued guidance requiring consideration of climate risk as a financial risk. It clears up the conversation when you’re thinking about comparing Your Future Your Super obligations to a climate consideration in a portfolio. The two are not at odds, because they’re both regulatory requirements.”
Halpern expects APRA and ASIC to follow the lead of their European counterparts in more tightly regulating climate risk, noting that Australia usually follows the regulatory trends of Europe, with the UK’s Senior Managers Regime – established in 2016 to make the higher echelons of that country’s banks more accountable – a clear antecedent to our own Banking Executive Accountability Regime.
“That’s a direct evolution from thinking that started in London,” Halpern says. “Anti-money laundering as well. We’ve evolved our thinking based on things that have already occurred in the northern hemisphere, and I’d say the same about sustainability.”
“We’re already seeing hints that biodiversity and nature-related risks will become increasingly regulated. Following closely on the heels of the Task Force on Climate-Related Financial Disclosures, we’ve got the Task Force on Nature-Related Disclosures – considering biodiversity risks as financial risks. I think that regulating around nature-related risks will follow in the tracks that climate has already set.”
