Members of Australian workplace superannuation funds will be able to see how their savings have been invested from next year, under regulations unveiled by the government yesterday.
The new disclosure rules will require funds to report information relating to the identity, value and portfolio weightings of their investments from March 2022, with periodic updates due every six months from then.
Australian Treasurer Josh Frydenberg said the new policy would address shortcomings within the current system of portfolio disclosures which was “unduly opaque” and “does not meet global best practice”.
“This information will make it easier for members to compare products and identify the most suitable fund for them,” he explained.
Super funds face strict reporting threshold for listed assets, amounting to line-by-line disclosure for each individual investment. But, in a win for industry stakeholders who had previously warned that disclosing the valuations of unlisted investments would impact funds' ability to negotiate sales and subsequently cut into investment returns, they will be allowed to provide aggregated information for privately-held assets and derivatives.
In a response to a consultation on an earlier draft of the rules, the Australian Institute of Superannuation Trustees said: “Signalling the precise value of unlisted assets will enable other institutional investors — including overseas buyers, sovereign wealth funds and hedge funds — to receive an unfair advantage over Australian super funds.”
Despite the looser disclosure requirements for derivatives, Frydenberg raised concerns about super funds’ increasing exposure to the instruments and announced the commissioning of a report on the topic from the Council of Financial Regulators, a coordinating body drawn from Australia’s four financial regulatory agencies.
“Given Australia’s superannuation funds have now become a systemically important part of our financial system, it is timely to ensure policymakers and regulators have a sound understanding of the extent and nature of the use of derivatives, and any implications for the operation of our financial system that could arise from these exposures,” he said.
The government’s transparency push comes exactly a year after the settlement of a landmark climate lawsuit against retail super fund REST, which saw the fund agree to publicly disclose its portfolio holdings and adopt multiple climate measures. Legal experts have described the case as “likely to act as a precedent globally” on the management and disclosure of both climate change and other ESG risks by pension funds.
It is also in line with regulatory initiatives in other jurisdictions such as newly-introduced governance and disclosure obligations on climate risks for pension schemes in the UK, and disclosure requirements on the integration of ESG and potential harmful effects of investment holdings for EU-registered retirement funds.
The Responsible Investment Association of Australasia (RIAA) welcomed the new rules, stating that “portfolio holdings disclosure is a key tenet of leading practice responsible investment, so this regulation brings us closer to what is expected globally”.
“We know from RIAA’s 2020 consumer research that transparency is important to consumers and allows them to make more informed decisions about their retirement savings, with 86% of Australians expecting their super fund to disclose which companies their money is invested in,” said CEO Simon O’Connor.
Separately, the Australian government is to launch a blended A$1bn ($0.73bn) investment fund to finance the development of “new low emissions technology” by Australian companies. The Low Emissions Technology Commercialisation Fund will combine A$500m of public capital from the Clean Energy Finance Corporation, a state-owned green bank, with remaining funds to be raised from private investors.
Prime Minister Scott Morrison said: “Our Plan to reach net zero by 2050 is an Australian one that’s focused on technology not taxes and this fund backs Australian companies to find new solutions.”
It comes as the government is weighing up proposals to create a mammoth A$250bn lending facility for the coal industry aimed at plugging a financing and underwriting gap caused by banks and insurers cutting ties with the industry.