Australian super fund LGS dumps banks and fossil fuel firms from sustainable shares option

Australia’s Local Government Super, the A$10bn (€6.8bn), 90,000-member superannuation fund for New South Wales government workers, has tightened some of the restrictions for one of its sustainable offerings, in a move that has seen it divest some of its holdings in the country’s top banking groups.

There are three main changes within its A$14m Sustainable Australian Shares (SAS) option, which only invests in Australian firms listed on the ASX. SAS is managed by Melbourne-based specialist Intrinsic Investment Management.

The first change is a broadening of existing screens to exclude investment in companies which provide ‘significant services’ to prohibited industries (armaments, weapons, tobacco, mining 
and gambling). The second is a new screen excluding companies exposed to fossil fuels – meaning no 
investments in any fossil fuel industries. The third screen – believed to be a first for an Australian fund — excludes financial services companies “based on their corporate conduct”.

In a statement, LGS Chief Executive Peter Lambert said: “There is also growing public concern about some corporate marketing and sales practices in the Australian financial services sector.”

The screen uses external research to benchmark the sector on corporate conduct and then restricts investment in those companies with the highest number of serious repeated infringements.“As a result, some financial services companies have been excluded from the SAS portfolio,” LGS said. The Sydney Morning Herald cited LGS as saying the financial services firms included ANZ Bank and Commonwealth Bank.

“Overt focus on short-term profits and excessive levels of bonus-based remuneration”

The report quoted the fund as saying it had exited A$2.8m of the banks’ shares from the SAS option. The paper said ANZ Bank did not comment and that Commonwealth Bank pointed to its corporate responsibility policies.

The LGS statement continued: “Some of the behavioural factors causing this poor corporate conduct, such as overt focus on short-term profits and excessive levels of bonus-based remuneration, may result in the re-emergence of long-term systemic risks to the financial sector and this is not in the interests of long-term shareholders such as LGS and our members.”

The three changes together – which do not apply to LGS’s existing blended investment options — seek to distinguish SAS as the ‘deeper green’ option for members.