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35 super funds divested from tobacco

Dan Purves




A more sophisticated understanding of fiduciary duty has contributed to 35 super funds running tobacco-free investment mandates.

The first large fund to quit tobacco was First State Super in 2012, with StatePlus the most recent to make an announcement. QSuper, with $60 billion funds under management, is the largest super fund to divest from tobacco.

There has been a shift towards a greater level of comfort with divestment, indicating super funds believe they can maintain fiduciary obligation and make a decision on more than just investment returns, according to Clare Payne, chief operating officer of Tobacco Free Portfolios, who will be presenting on changes to fiduciary responsibility at the FEAL forum.

“While historically there has been a narrow definition of fiduciary duty, there are a number of lawyers from respected firms who are on the record saying it shouldn’t be interpreted like that,” said Payne who has previously worked as a solicitor.

“The important thing is trustees have to act in the best interests of members. It is not one ‘interest’, it’s plural. That implies there is more than one thing that is of interest, so the actual wording indicates it is more than a narrow financial return.”

She added case law shows it is the process trustees and directors go through that matters, not so much the outcome. What is looked at in court is whether the trustees have gone through the process of gathering information, understanding it and asking the questions to make an informed decision.

It is not just trustees’ actions which can get the courts attention – it is inaction too.

“They’ve really come down and decided inaction can be considered a breach of the due care and diligence of the trustees,” Payne said.

“I had a conversation with a lawyer who made a very interesting point about if funds or firms promote they are responsible investors but don’t actually live up to the frameworks they have, that may be misleading to the market, and to members.”

According to Payne, the best way to test a framework was to run tobacco through it, because if it got through, the framework was not robust enough. One reason for it being the litmus test was the “unique” characteristics of tobacco which makes positive engagement impossible, because there is no safe limit and the scale of harm was enormous (smoking kills an estimated 15,000 Australians a year, 6 million worldwide each year and will kill 1 billion people this century).* Another reason was because of how Australian society viewed the product.

“The health sector is doing something on it, the education sector is working on it, the government sector is working on it; and then we have the finance sector funding it, and the values are not aligned with the rest of the measures.”

She added that while the concept of attaching the human characteristic of a “social conscience” to a non-human entity might seem strange, a lot of qualities had already been attached in corporation law.

“What you need to acknowledge at the end of the day is that the social conscience is made up by people in the organisation, and in this case it’s also people in the funds. So should super funds have a social conscience? In a way they do, they’ve just got to reflect it.”


Clare Payne will be speaking at the FEAL forum Addressing challenges to create opportunities on March 3 in Melbourne. Click here for more information.


*This article was updated on February 10, 2016, to expand on Payne’s reasons of why tobacco provides a good test on whether a super fund’s framework is robust enough.
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