Super funds shirking social issues are breaking law: AusSuper chief

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This was published 4 years ago

Super funds shirking social issues are breaking law: AusSuper chief

By Nick Toscano

Superannuation funds failing to consider environmental, social and corporate governance risks when investing their members' retirement savings are in breach of their duties and therefore the law, says the head of Australia's biggest industry super fund.

AustralianSuper chief Ian Silk, who is also president of the Australian Council of Superannuation Investors (ACSI), says posting strong financial returns is no longer enough. He warns millions of Australians will lose out if companies and investors do not take into account sustainability and responsibility concerns linked to climate change, the roles companies play in communities, where and how they source their products and how they treat their workforces.

AustralianSuper CEO Ian Silk.

AustralianSuper CEO Ian Silk.Credit: Louie Douvis

Mr Silk, in a speech to be delivered at ACSI's annual conference on Wednesday, says the law is "unequivocal" that superannuation funds had to act in the best interests of their members.

"For most people, retirement is a long way off ... 10, 20, even 40 years away for Australia's youngest workers," he says.

"There is ample evidence to show that companies with poor ESG (environmental, social, governance) practices and performance don't do well in the long term."

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Investing based on so-called ESG factors has risen dramatically around the world in recent years, driven in the face of heightened scrutiny from activist and large institutional shareholders alike.

Failure to properly manage ESG risks can lead to "reputation damage, regulatory scrutiny, civil and criminal litigation ... and profit downgrades", Mr Silk says.

"Clearly, then, taking steps to improve companies' ESG performance is in members' best interests.

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"I'd go one step further and say that any superannuation fund that doesn't consider ESG factors is breaching their best-interests duty."

It comes as the Australian Prudential Regulation Authority drives a harder line on climate-related risks, led by its head of insurance, Geoff Summerhayes, who has warned that institutions failing to adequately plan for climate change and a transition to a lower-carbon economy were putting their futures in jeopardy.

We will be more demanding, we will be more vocal, we will call out poor performers and deficiencies in the system.

Ian Silk, AustralianSuper chief

ACSI's annual conference on Wednesday is set for an attendance record, which Mr Silk described as a reflection of the "growing acknowledgement and recognition" of the importance of integrating ESG considerations into business and investment decisions.

But this was "not occurring without resistance", he says, with some in the business community increasingly voicing concern that emphasising responsible investment was a form of social or political activism that could affect investor returns.

"These views represent a misunderstanding of how and why ESG factors should be considered," he says.

Superannuation funds recognised that their core responsibility was to provide the best investment performance for their members, with the key consideration the economic performance of invested companies.

"Not economic performance at any cost, but achieved in the context of the application of appropriate ESG considerations that have an eye to the long term and to community expectations," Mr Silk says, vowing that ACSI will take a greater focus on ESG integration.

"ESG can no longer be considered a 'nice to have' ... that’s why ACSI and our members plan to continue and grow our focus on ESG integration," he says.

"We will be more demanding, we will be more vocal, we will call out poor performers and deficiencies in the system."

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