Expanding on the prudential regulator’s guidance is the focus of the Principles for Responsible Investment’s (PRI) newly launched Australia roadmap.
The roadmap makes a series of recommendations – covering both policy and practice – that will allow a fiduciary to fully integrate environmental, social and governance (ESG) risks. The strongest recommendation is for the Australian Prudential Regulation Authority to update its guidance, which the PRI says conflates ethical investing with ESG integration.
“APRA talks about ethical investing and ESG as [if they are] not quantifiable; but we say ESG is quantifiable,” the PRI’s new head of Australasia, Matthew McAdam, said. “Increasingly, we are able to put a financial value on ESG, and that’s the way most of our signatories operate.”
He explained that the PRI wants its signatories and the APRA to adopt a modern interpretation of fiduciary duty that includes long-term drivers of risk and return.
Super funds that are signatories to the PRI, including AustralianSuper, Cbus, HESTA and UniSuper, were major contributors to the creation of the Australia roadmap, which the PRI developed in tandem with the United Nations Environment Programme Finance Initiative and the Generation Foundation.
In determining the recommendations, McAdam said, the super funds stated the best results would come from focusing on clarifying APRA’s guidelines.
“The feedback [was] that if regulatory guidelines were updated, a lot of the other recommendations would be so much easier to implement,” he explained.
In McAdam’s new position, he will further support the signatories. He will manage signatory relationships and work with members to develop responsible investment strategies and implement the roadmap’s recommendations.
“Super funds, in particular, need to focus more on ensuring they are creating long-term value for their members and broader society,” McAdam said. “This includes ensuring that ESG requirements are embedded into mandate design and ongoing monitoring to a larger extent than is the case today. I look forward to working with our local signatories to implement the recommendations outlined in the Australia roadmap and help remove barriers to a sustainable financial system.”
PRI managing director Fiona Reynolds said that by having a full-time representative on the ground in Australia and New Zealand for the first time, the PRI could increase signatory collaboration and engagement on ESG issues.
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