Australia takes a lead on responsible investment

Australia has more funds under management committed to the UN Principles for Responsible Investment (UNPRI) as a percentage of total assets than any other country. New signatories in the last months include both Goldman Sachs JBWere’s asset management arm and their corporate super fund as well as AU$18.4bn (US$16.3bn) Challenger Managed Investments. TWU Super, the industry super fund, became the 17th industry superannuation fund to join up, while the first thing that new start-up ArkX did after getting their Australian Financial Services Licence was to endorse the PRI. There are a number of reasons why. Unlike Europe and the US, Australia’s investment industry never had a deep rooted ethical investment industry; that is not to stay that ethical investment funds are not present, just that they represent a small component of the overall industry. For Australian institutional investors the establishment of the PRI provides a pragmatic framework to implement responsible investment practices, which sits well with the overall pragmatism of the industry.For the last couple of years Australians have had the ability to choose their own superannuation fund. This has resulted in a battle for consumer loyalty between not-for-profit industry superannuation funds and retail funds. The battle has mainly focused on the traditional areas of fees, charges and investment performance, but some super funds are realizing that they will need to differentiate themselves in other areas. The impact of climate change in Australia, which is suffering its worst ever drought, has meant that responsible investment issues have come to the fore in the community mind and may in the future influence purchasing decisions.
The Australian Council of Superannuation Investors (ACSI), which represents the interests of industry super funds, has taken a strong leadership role in encouraging its members to endorse the PRI. These include the major funds: Hesta, ARIA, Australian Super and Cbus. ACSI’s leadership has galvanized the rest of the industry with both wholesale institutional investors and retail investment managers responding.

The retail sector has also recognised the importance of being able to demonstrate responsible investment practices to investors. Colonial First State, AMP Capital Investors and BT Financial Group have all signed up to the PRI. The interest of the retail sector in the PRI is both a recognition that they are competing with industry super funds that have signed up to the PRI, and a recognition that Australian consumers expect businesses to be proactive in this area. In recent months institutional fund managers have also begun to realize that building responsible investment capabilities is going to be strategically important for their businesses. Boutique fund managers such as JF Capital Partners and Herschell Asset Management have recently endorsed the PRI. Responsible investment is likely to feature in the discussions that investment managers have with institutional investors over mandates. The best way for an investment manager to demonstrate that it is taking responsible investment issues seriously is by publicly committing to the Principles. ArkX, Australia’s first Carbon Fund – is a good example of a new-start-up that is embracing the PRI as part of its constitution.
Lisa Wade, ArkX managing director, said: ‘Our fund is being set up principally to invest in corporations and projects that directly contribute to the reduction of carbon emissions and facilitate a solution towards alleviating global warming. We have been admirers of the Principles since inception and were keen to lend our support. We have the view that investment in unsound business practices is a major contributor towards such practices being perpetuated globally.By incorporating the UN principles into our investment philosophy we are ensuring that we do not invest in companies that solve one problem yet create another.“Angela Manning, chairperson of Goldman Sachs JBWere’s corporate super fund, said: “Although enhancing the investment performance of the fund is the motivating factor in becoming a PRI signatory, we note that becoming a signatory is also consistent with the firm’s broader commitment to playing a constructive role in helping to address the challenges facing the environment. Particularly for a long term superannuation timeframe, we feel the investment decisions of the GSJBW Superannuation Fund will be improved by considering the impact of ESG issues on our investments”.
While Australia’s investment industry has embraced the PRI, the work is now beginning to implement responsible investment practices across investment portfolios. In the end it will be the work that signatories do, not the number of signatories that sign up, that will determine whether Australia is able to claim it is taking a leading role in the development of responsible investment practices in its investment industry. The signs are positive. Earlier this month, PRI signatories in the Asia-Pacific region met in Melbourne for a half day seminar – the first time that signatories in the region had come together. Over 70 participants attended the event, hosted by the Finacial Services Instititute of Australasia.
Gordon Noble is the Principal of Responsible Investment Consulting, which produces Responsible Investment News, a weekly newsletter for Australian institutional investors.