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The concerns of institutional investors

Dan Purves




The Paris agreement in December of last year sent a clear policy signal to investors from policymakers from all around the world, with 193 countries signing to work towards keeping the climate well below a two-degree world.

It’s an ambitious agreement, and Australia has a lot of ground to make up before it catches up with its European counterparts, says Fiona Reynolds, managing director of the Principles for Responsible Investment initiative.

“In the years leading up to Paris investors felt there was a lot of policy uncertainty around where the world was heading, and investors like certainty,” Reynolds says.

“The Paris agreement removes some of that uncertainty and, in some ways, removes excuses from investors not to do things … Now it’s about how do we get on dealing with it and how we start moving money into the low-carbon economy.”

She warns unless money starts moving into sustainable infrastructure and the low-carbon economy, for example, the new targets are not going to be met.

“Australia, I’m sad to say, is behind Europe, so I hope to be able to show [at the Australian Council for Superannuation Investors’ (ACSI) national conference] what some European investors are doing.”

“I’m not saying there aren’t any Australians taking action, but I think in general European investors are ahead of Australian investors and that’s probably because there is more happening in the EU in terms of action and regulation.”

Reynolds says, an illustration of the difference between the two regions was the decision in Australia to get rid of the mining tax and carbon pricing, driven by lobbying from the big mining companies.

This is an example of companies publicly saying all the right things about climate change, but through the back door, or through trade associations they are members of, lobbying against climate regulation and things like the carbon price.

“We did a survey of our signatory base and the key issue that came up that they wanted us to focus on was climate change.

“We’ve written a set of expectations for companies around climate change and what investors expect to see. And investors don’t expect to see companies lobbying against investors’ best long-term interests.”

In Paris, PRI’s signatory base demonstrated their strength of desire to tackle climate change by committing $40 billion to low-carbon investment and $600 billion to portfolio decarbonisation. There has also been $10 trillion committed to portfolio carbon footprinting through the Montreal carbon pledge which the PRI launched.

“We’ve already seen a start in what people are doing and there is a big appetite for further climate action.”

“The PRI is also on the taskforce for the Financial Stability Board (FSB) on climate risk disclosure. By the time we have the ACSI conference their first discussion paper will be out.”

The FSB taskforce is chaired by Michael Bloomberg, founder of Bloomberg LP and former mayor of New York, and is supported by Mark Carney, governor of the Bank of England, as well as other G20 finance ministers and bank governors. It has the mission to develop voluntary, consistent climate-related disclosures for use by companies in providing information to investors, lenders, insurers and other stakeholders.

Back in Australia, HESTA has been addressing the issue of climate change, among a number of other ESG concerns.

Angela Emslie, chair of HESTA and a director of PRI, says the $32 billion super fund has just gone through the process of measuring the carbon in its portfolio.

“One of the things with carbon footprints is it can throw up more questions about measurement systems and member data than it answers, but it does give us a baseline once you say we are going to measure it this way,” Emslie says.

In addition to this the super fund has developed ESG policies, such as quarterly reports, an annual review at the board level, and an escalation process for if issues possess a significant reputation risk to HESTA.

“One of the next things we are going to be looking at in our ESG journey is improved communications with members because we, like other funds, have seen a greater level of interest in ESG issues, so we need to … have a greater focus on aligning our ESG focus on things that our members are concerned about,” Emslie says.

“Clearly climate change is one of those.”

Emslie will be on a panel with other trustees, including Julie Bignell of CareSuper and Michelle Blicavs of Local Government Super, at ACSI’s annual conference, sharing on how to approach different ESG challenges.

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    Louise Davidson, chief executive of ACSI, says the purpose of the national conference is to cover the key issues that are on the minds of super funds, as well as challenging people’s thinking on topics that are starting to be of mainstream interest.

    “An example of that is our opening session of the conference, for which we’ve got two absolutely terrific speakers,” Davidson says. “It is on both corporate culture and human rights and what the implications of those two issues are for investors.”

    The speakers for that session are professor Gillian Triggs, president of the Australian Human Rights Commission, and Sam Mostyn, deputy chair of Diversity Council Australia.

    “We’ve seen ASIC making statements over the past weeks on culture and its importance, and for companies and boards to get that right. For investors it’s a really difficult issue to drill down on until there is a disaster, then with the benefit of hindsight it becomes crushingly obvious.”

    She adds the sessions should provide insights into how investors can make an assessment on whether or not the board of a company is really managing the corporate culture appropriately.

    Another session which had caused controversy in previous years is the corporate directors’ panel.

    “We’ve got a terrific panel of investors this year, a good spread of investors across industries and different issues and we’ve got the journalist Ali Moore moderating that panel.

    “We expect that to be really insightful in terms of providing an opportunity to really understand how directors think about their role and about the way they represent shareholders in the management of the company.

    “It’s always comment worthy, whether people are happy with what they’ve heard or not, and that varies quite a bit; it’s often quite controversial.”