The near $100 billion construction industry fund has blundered into an ugly governance and administration debacle, and it’s unlikely that ASIC will let it off easy. Nor should it, with funds increasingly failing to provide their members with key services.
The RBA says that super funds’ long investment horizons are a positive for the stability of the financial system but that widening access to the savings they contain would require more careful liquidity management.
How funds can balance sustainability and survival
The constraints of Your Future, Your Super (YFYS) mean that every move away from the benchmark is potentially a move towards extinction, and there’s less room for active management of Australia’s retirement savings.
That means funds must balance sustainable investing – once a priority – with not just with a host of other active management opportunities, but with the survival imperative.
“When you’ve got this benchmark-hugging tendency that YFYS inspires, you’ve got to think very carefully about when you want to diverge from the benchmark and what your risk appetite or budget is,” Rachel Halpern, head of sustainability at JANA Investment Advisers, told ISN’s Think Forward podcast. “(Sustainability) is just one thematic that is now competing against lots of other active investment thematics for a smaller risk budget, for what a CIO can allocate towards active investing.”
“That’s one side of it. The other ramification of YFYS is that in Australia we haven’t pursued some of the strategies that we’ve seen in Europe; portfolio decarbonisation, and year-on-year divestment in a linear fashion of high emitting entities that don’t fall within the parameters of what’s acceptable for that sector. We haven’t done that in here in Australia.”
That means that YFYS has “counter-intuitively” resulted in an emphasis on stewardship among Australian super funds, though many are still at the beginning of their journey.
“Stewardship has been a concept relevant for asset owners since the idea of maximising returns through influence in companies came about, and that actually predates sustainability coming into vogue,” Halpern said. “So you’ve got lots of programs that have started like that – bottom up programs from portfolio managers.
“And then you see a new wave of stewardship approaches coming in with net zero. They’re typically top-down, dual objective. By that I mean you’ve got the financial returns, and that’s just a different way of looking at risk in a low carbon world. But then there’s the dual objective, which is about ensuring that you’re actually achieving real world outcomes.”
But fossil fuel emissions keep reaching new all-time highs. What will funds do when the real economy isn’t decarbonising? They could divest, Halpern said, which would put them in an uncomfortable position with YFYS, or they could risk not fulfilling their net zero commitments, which would put them in an uncomfortable position with ASIC. If they’re seemingly damned if they do, and damned if they don’t, what’s the way forward?
“The thing to think about is whether we can be doing stewardship better,” Halpern said. “Is it a tool that has value, and have we maximised that value? I don’t think so. Why not? I think that more people in investment management need a deeper skillset, not just using a box-ticking approach of whether companies have fulfilled minimum disclosure requirements, but are they doing things that will actually generate reductions in emissions within the time frames of the targets that have been publicly set by institutional investors.”
And some funds’ attempts to explain their sustainability efforts have also fallen foul of the regulators, which are now “always watching” for greenwashing following a number of high profile court cases.
“Clarity and process is how you avoid greenwashing,” Halpern said. “You have to be really clear about what you’re saying, and that it’s backed up by strong processes internally – that it’s not just one good example that isn’t representative of what you’re doing across the board.
“A lot of people have been caught out by effusive, vague and bold statements – but we’re now aware that it’s not okay to exaggerate on social media about sustainability.”
