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Super Fund Responsible Investment Benchmark Report 2018 SUPPORTED BY
Super Fund Responsible Investment Benchmark Report 2018
Contact us
RESPONSIBLE INVESTMENT
ASSOCIATION AUSTRALASIA
Level 9, 387 George Street
Sydney, NSW 2000
Australia
+61 2 8228 8100
info@responsibleinvestment.org
responsibleinvestment.org
Super Fund Responsible Investment Benchmark Report 2018
Executive Summary
CONTEXT AND BACKGROUND If the superannuation industry is to realise This report has undertaken analysis
its potential for fuelling a productive, drawn from examining the practices of
prosperous, and healthy future for funds across a Five Pillar Framework
Responsible investment (RI) continues Australians, it needs to be one that covering Governance and Accountability;
its upward trajectory into the mainstream embeds ESG considerations alongside RI Commitment; RI Implementation;
with just under half of all professionally traditional financial factors, avoids Measurement and Outcomes; as well as
managed assets in Australia now employing contributing to harmful activities and backs Transparency and Responsiveness. These
responsible investment strategies, as detailed the building of tomorrow’s businesses, pillars describe the elements of good
in the Responsible Investment Association industries and communities. governance for RI by super funds and
Australasia's (RIAA) Responsible Investment used well, guide super funds on how to
Benchmark Report 2017. But to get there, Australian super funds comprehensively and effectively implement
need to commit to strong RI governance RI strategies consistent with their investment
We are witnessing a strong take up by super and accountability and invest only in beliefs and informed by their stakeholders.
funds and other large asset owners of a companies and assets that genuinely deliver
responsible approach to managing retirement long-term, risk adjusted, performance
savings largely driven by two factors: outcomes. They also need to be courageous
and skillful stewards, learning when and
• an ever-greater acceptance that
environmental, social and corporate
how to engage with companies and sectors WHERE HAVE WE ARRIVED AT
governance (ESG) factors are critical to
in which they are invested. IN 2018?
consider as part of investment practice
At this point in time, when consumers are
as they are increasingly impacting upon
demonstrating heightened interest in the With the Super Fund Benchmark Report
valuations and investment returns; and
way their super is being invested, and when now in its second iteration, we can see a
• a growing interest by Australians in
super funds are deepening and refining number of leading practice trends emerging:
whether their retirement savings are
their responsible investment strategies, the
being invested in a responsible manner,
second report in this research series begins Leading super funds are vigilant, skillful and
with recent surging consumer interest
to show an evolution of RI for Australia’s courageous stewards
around issues and themes relating to
largest super funds. 81% of the largest super funds now have
social, environmental, sustainability and
embedded a formal commitment to RI (up
ethical issues.
from 70% in 2016), highlighting just how
deeply the move to invest with a responsible
Consumer research conducted for RIAA in approach has become integrated into
2017 revealed that an overwhelming nine in ABOUT THIS REPORT Australian investment markets.
ten Australians expect their super or other
investments to be invested responsibly and Along with this, the concept of universal
ethically. Seven in ten Australians would The Super Fund Responsible Investment ownership has landed in Australian super
rather invest in a responsible super fund Benchmark Report 2018 builds on research funds, and with this comes the ever-
that considers the environmental, social first published in November 2016 to map increasing sophistication of approaches
and governance issues of the companies it and inform asset owners of leading practice to stewardship through activities such as
invests in and maximises financial returns, in responsible investment and to drive corporate engagement and shareholder
rather than a super fund which considers continual improvement in the development activities. This flexing of asset owners’
only maximising financial returns. Notably, and implementation of responsible muscles has been evident over 2017 and
four in five Australians would consider moving investment strategies. 2018 with super funds engaging around
their superannuation or other investments to shareholder resolutions across diverse
another provider if their current fund engages Data in this report is sourced from a survey issues, such as improved climate risk and
in activities not consistent with their values. of the largest 48 superannuation funds in carbon disclosures and minimising the
Australia, as well a handful of significant impact of gaming activities on livelihoods.
These figures, coupled this with the ever- asset owners in our region including the
increasing size ($2.5 trillion) and influence two sovereign wealth funds in Australia
of the Australian superannuation industry, and New Zealand. These 53 funds, in total,
highlight the critical nature of the data comprise an estimated $1.4 trillion in assets
contained in this report. under management.
p1Super Fund Responsible Investment Benchmark Report 2018
Leading super funds can be traditional KEY FINDINGS 3 Internal resourcing to deliver on
and ethical RI doubles
We are seeing an acceptance, and
45% of super funds are employing one or
increasingly, an expectation, that super 1 More boards are becoming
more full-time employees with significant
funds take a strong stance on activities accountable for RI, and formal
responsibility for RI. RI employee
within their portfolio companies that processes to measure and report
numbers have doubled since 2016 adding
are harmful to humans, society and the performance are increasing
the in-house resourcing weight to support
environment – e.g. companies involved
More boards are now accountable for the RI commitments.
in tobacco production or cluster bomb
RI policies
manufacturing – whether those funds are
Accountability for overseeing policies and
self-declared ethical funds or not. 4 Stakeholders continue to be at the
systems for managing ESG risks and
centre of investment beliefs but less
opportunities is becoming more visible
Leading super funds are aggressively than half the funds regularly monitor
with 70% of funds having their full board,
transparent clients’ satisfaction
or board committees, overseeing ESG
Super funds – as the long-term investors 74% of super funds use stakeholder input
risks and opportunities, an increase of
in society and with beneficiaries spanning to inform their investment beliefs, while
14% from 2016.
those in their first job through to those in 32% engage in regular monitoring and
retirement – are increasingly under pressure RI commitments are growing as at least annual surveys of client interests
to not just tell, but show clients how money are the formal processes to support and satisfaction. This is up from 22% in
is being invested on their behalf. This means implementation 2016.
demonstrating financial performance, 81% of super funds have some form of
disclosing full portfolio holdings as well as RI commitment in place, up from 70% in
5 Fund-wide-exclusions are now applied
the positive impact their investments are 2016. Almost all of these funds identify a
to over 60% of super funds
making, such as the fund’s portfolio carbon formal process for reviewing this policy
footprint, contribution to affordable housing, and 74% explicitly state RI commitments Negative/exclusionary screening has
greener buildings or renewable energy. in a standalone policy or in their traditionally been a RI strategy applied to
investment beliefs. specific responsible investment options,
Leading super funds know what’s important particularly ethical investment options;
for their clients and offer choice however, in 2018, this style of RI strategy
2 Climate change is entering the
In 2016 the largest super funds offered is more inclusively applied across whole
boardroom with climate risk making
54 RI options collectively. In 2018, this funds. 60% of super funds have a least
it onto board agendas and some
figure has grown to 75, with 65% of these one negative screen across the whole of
portfolios being stress-tested,
options obtaining RIAA certification. This the fund, up from 34% in 2016.
however commitments for portfolio
certification helps super funds provide
decarbonisation are still in their The most popular fund-wide exclusions
clients with a level of confidence over the
infancy are tobacco and armaments (including
quality of the investment process behind
cluster munitions, nuclear weapons and
their RI strategies and commits funds to Climate risk is making it onto board
other classifications under controversial
high levels of transparency – performance, agendas
weapons). Fossil fuels and human rights
holdings etc. – leading to more informed The trustees of 64% of super funds are
violations are the equal third most cited
consumer choice. actively considering ESG, including an
exclusionary screens.
explicit focus on climate risk. While this
Even for those funds that embed ESG represents a strong proportion of this
across the entire fund and don’t consider year’s research universe, up to a third 6 Super funds seek quality data sources
specific RI options as critical for meeting the of trustee boards are still not actively to enhance RI decision making
RI expectations of their clientele, knowing considering climate risk in the face of
58% of super funds are able to identify
their clients, by way of regular surveys for increasing materiality.
how reliable ESG information is sought
example, is becoming increasing important.
(up from 36% in 2016). External manager
Being in ‘the know’ about clients’ interests Climate weighs into strategic
ESG information is the key source of
and expectations is a common attribute of asset allocation
ensuring robust ESG integration followed
the stronger RI-performing super funds in 10 funds identify climate change risk
by use of accredited company ESG
this report. as a key consideration in strategic
ratings/scorecards or databases, and
asset allocation. This takes the form of
sourcing comprehensive ESG research.
decision-making around asset allocation
and weightings based on emissions
intensity, as well as stress-testing and 7 Most super funds rely on external
scenario planning. managers to implement their RI
responsibilities but very few consider
Portfolio decarbonisation is on the external manager fund certifications
radar, however few have translated this and/or the qualifications of key
into targets personnel
Only a handful of super funds have 70% of super funds, to some measure,
decarbonisation targets relating to their identify external managers’ responsibility
business and investment portfolios, with for RI. 53% consider external investment
the vast majority of funds yet to actively managers as either wholly or largely
respond to climate risks and opportunities responsible for the ESG information
through portfolio decarbonisation targets. provided to the fund.
p2Super Fund Responsible Investment Benchmark Report 2018
The RI expectations on external 10 Stewardship commitments are LEADING RI SUPER FUNDS
managers is stepping up, with 47% of embedded in super funds however
super funds noting that minimum RI disclosure on activities remains low
expectations across listed equities and/or With a view to articulating leading practice in
Company engagement is increasing,
fixed income are discussed with external RI for super funds, the funds are assessed
but nearly half do not disclose
managers. 45% require that external across the Five Pillars of the Assessment
engagement activity or outcomes
managers discuss how ESG factors have Framework and alongside a scale – limited,
43% of super funds indicate involvement
impacted specific investment decisions/ basic, broad and comprehensive – indicating
in direct company engagement, an
portfolio performance, and 40% require the quality and scope of disclosures.
increase from 30% in 2016. 64% engage
them to discuss their role in influencing
in collaborative company engagement, an
investee company behaviour. 13 of the 53 funds articulate and demonstrate
increase from 52% in 2016. While some
comprehensive RI approaches across the
funds keep reliable data on engagements
Five Pillars. These 13 funds disclose RI data
8 Super funds value and seek external in the form of engagement reports, fewer
that scales as ‘comprehensive’ on at least 4
verification of RI options still disclose their engagement activities.
out of 5 of the pillars to gain the final overall
Nearly half of super funds offer a rating of ‘comprehensive’ in 2018.
Nearly all super funds have formal
total of 75 RI options (compared to
voting policies, but funds have
24 funds offering 54 options in 2016). The 13 leading RI super funds are listed
different ambitions for influencing
65% of these RI options have obtained below.
companies through voting
RIAA Certification. This includes
An impressive 94% of super funds have
three super funds that have obtained
a formal voting policy, and all but one of
whole-of-fund certification by RIAA as FUND NAME FUND CATEGORY
these funds make their policy public. This
external verification of their responsible
compares with 58% in 2016.
investment strategies and disclosures. Australian Ethical Retail
Of the 29 funds providing responses to
AustralianSuper Industry
9 The setting of quantifiable how they voted in 2017/18, only three
performance targets to ground the funds voted with the company board
Cbus Industry
implementation of RI policies remains and/or, proxy voting adviser on every
in its infancy but attempts to measure occasion. In contrast, five funds voted Christian Super Industry
RI performance is gaining traction independently of boards and proxy voting
advisers on more than 10% of votes. First State Super Public/non-regulated
25% of super funds have performance
targets for their RI strategy. These targets Future Fund Public Sector
vary from reducing carbon intensity and 11 With the rise in consumer
ensuring voting of a certain percentage of expectations for RI and commitments HESTA Industry
shares, to PRI reporting as a standard for to RI, more super funds are reporting
measuring performance. on their RI activities Local Government Public/non-regulated
Super
Promotion is primarily via the super
fund’s website Mercer Superannuation Retail
49% of super funds integrate RI into (Australia)
overall promotion. 62% of funds report
their website as the primary source for NZ Super Fund Public/non-regulated
stakeholders seeking RI information.
Unisuper Industry
Formal reporting of RI to stakeholders
is increasing VicSuper Public/non-regulated
62% of super funds disclose annually on
Vision Super Public/non-regulated
their RI, up from 44% in 2016. Just over
half of funds provide annual RI reporting
through a standalone RI report, an
integrated report, or as a section within
their annual report.
p3Super Fund Responsible Investment Benchmark Report 2018
Table of Contents
Executive Summary 1
About this report 5
Research Universe and Data Assumptions 7
Findings 9
1 Accountability and Governance 9
2 Responsible Investment Commitment 12
3 Responsible Investment Implementation 19
4 Measurement and Outcomes 25
5 Transparency and Responsiveness 27
Leading RI Super Funds 2018 30
Index of Super Funds in 2018 report 31
Appendices Report 33
p4Table of Contents Super Fund Responsible Investment Benchmark Report 2018
GLOSSARY ABOUT THIS REPORT 48 Australian Prudential Regulation
Authority (APRA) regulated super funds, but
also includes some other large significant
ACSI Australian Council of The Responsible Investment Association asset owners in our region, such as the
Superannuation Investors Australasia (RIAA) is the peak industry body two sovereign wealth funds in Australia and
APRA Australian Prudential Regulation representing responsible, ethical and impact New Zealand, as well as some non-APRA
Authority investors across Australia and New Zealand. regulated public funds. Within these 53 funds
RIAA is an active network of over 220 in total, there is a diverse range of funds that
CFA Chartered Financial Analyst
members managing more than $5 trillion operate quite differently, in part due to their
ESG Environment, Social and in assets, including superannuation funds, different beneficiaries. Despite this, and to
Governance fund managers, consultants, researchers, simplify, in this report all are referred to as
FSC Financial Services Council brokers, impact investors, property super funds.
GRESB Global Real Estate managers, banks, community trusts and
Sustainability Benchmark financial advisers. The Super Fund RI Benchmark research is
designed to help:
GSIA Global Sustainable Investment
RIAA’s goal is to see more capital being
Alliance • super funds better understand the
invested more responsibly. RIAA works to
IGCC Investor Group on Climate practical components of leading practice
shift more capital into sustainable assets
Change in responsible investment; and
and enterprises and shape responsible
• consumers understand the broad
IMA Investment Mandate Agreement financial markets to underpin strong
array of approaches and strategies in
NABERS National Australian Built investment returns and a healthier economy,
place, assisting them to make informed
Environment Rating System society and environment.
decisions regarding their superannuation.
PRI Principles for Responsible
We are witnessing a strong take up by
Investment
super funds and other large asset owners This report builds on research first published
RI Responsible investment of a responsible approach to managing in November 2016 and maps the broad array
RIAA Responsible Investment retirement savings. That is, more and of RI approaches adopted by the Australian
Association Australasia more of our largest institutional investors super fund industry as well as providing
RSE Registrable Superannuation are considering environmental, social, insights to changes in practice between July
Entity governance and ethical issues as a core 2016 and June 2017. This project builds on
part of their investment decision making, longitudinal research aimed at constructively
SAA Strategic Asset Allocation
resulting in a community of asset owners articulating the evolution of RI for Australia’s
SDGs Sustainable Development Goals that is ever more actively engaging, investing largest super funds with the aim of
TCFD Task Force on Climate-related and divesting on the basis of issues that highlighting the leading practices in the
Financial Disclosures have sometimes been viewed as ‘non- market and driving continual improvement.
financial’ issues.
The research methodology and assessment
This shift towards responsible investing (RI) framework is modelled from similar
by super funds and other asset owners has initiatives globally, specifically the Dutch
1 RIAA (2017), Responsible Investment Benchmark Report largely driven by two factors: responsible investment pension fund
Australia and New Zealand > https://responsibleinvestment.org/ survey issued annually since 2006 by the
resources/benchmark-report/australia/2017-report/ • an ever-greater acceptance that
2 Sakis, K., Pinney, C., & Serafeim, G. (2016) Harvard Business
Dutch Sustainable Investment Organisation
environmental, social and corporate
School: ESG Integration in Investment Management: Myths (VBDO).
and Realities, Journal of Applied Corporate Finance 28, no.
governance (ESG) factors are critical
2 (Spring): 10–16 > http://www.hbs.edu/faculty/Pages/item. to consider as part of investment
For consistency across global definitions
aspx?num=51511 practice as they are increasingly
3 Verheyden, T., Eccles, R. G., & Feiner, A. (2016), ESG for of responsible investment practice, the
impacting upon valuations and
All? The Impact of ESG Screening on Return, Risk, and language and assessment approach
Diversification, Journal of Applied Corporate Finance, 28(2), investment returns;1 2 3 4 5 6 7 and
has been reviewed and aligned in parts
47-55 > http://onlinelibrary.wiley.com/doi/10.1111/jacf.12174/ • a growing interest from Australians in
abstract
to other global frameworks including the
whether their retirement savings are
4 Nagy, Z., Kassam, A. & Lee, Linda-Eling. (2016) Can PRI Reporting Framework 2017 Overview
ESG Add Alpha? An Analysis of ESG Tilt and Momentum
being invested in a responsible manner,
and Guidance and the Global Sustainable
Strategies, Journal of Investing, Vol. 25, No. 2, pp. with recent surging consumer interest
Investment Alliance set of responsible
113-124 > http://www.iijournals.com/doi/abs/10.3905/ around issues and themes relating to
joi.2016.25.2.113?journalCode=joi > https://www.msci.com/ investing approach definitions.
social, environmental, sustainability
documents/10199/4a05d4d3-b424-40e5-ab01-adf68e99a169
5 Statman, M., & Glushkov, D. (2016). Classifying and Measuring and ethical issues8.
An assessment framework has then been
the Performance of Socially Responsible Mutual Funds. Journal
of Portfolio Management, 42(2), 140-151 > http://www.cfapubs. further refined in consultation with RIAA
org/doi/full/10.2469/dig.v46.n6.17 As the peak industry body and within this super fund members and through feedback
6 Gunnar, F., Busch, T., & Bassen, A. (2015) ESG and financial context of an explosion of approaches to RI, from those participating in the first version
performance: aggregated evidence from more than 2000
empirical studies. Journal of Sustainable Finance & Investment
RIAA sees the importance of providing more of this report.
5.4: 210–233 > https://www.tandfonline.com/doi/full/10.1080/2 clarity and definition around the constituent
0430795.2015.1118917 parts of a comprehensive responsible The result is RIAA's Framework for
7 NAB, (2017) SRI in Australia, Australian Centre for Financial
investing approach by super funds. Assessing RI Practices of superannuation
Studies, June
8 See for example: RIAA (2017) From Values to Riches: Charting funds and asset owners (the Framework)
consumer attitudes and demand for responsible investing It is important at the outset to note that in which comprises five pillars.
in Australia; November > https://responsibleinvestment.org/ this report, we use the term super fund
wp-content/uploads/2017/11/From-values-to-riches-Charting-
consumer-attitudes-and-demand-for-responsible-investing-in-
to describe 53 asset owner institutional
Australia-2017.pdf investors. This universe of funds includes
p5Table of Contents Super Fund Responsible Investment Benchmark Report 2018
The Framework’s Five Pillars: with their investment beliefs and informed how a super fund implements RI throughout
by their stakeholders. The Framework is a its fund. RIAA was especially keen to ensure
1 Governance and Accountability management system that helps articulate that it collected information relating more to
Board-level buy-in to RI supported by commitment to RI and the process that the quality of implementation of RI, by way
formal accountability processes supports its implementation, through of evidence of how it is integrated across
measurement, reporting and review. the fund, rather than just proxies for this in
2 Responsible Investment Commitment published statements or formal policies.
Extent and breath of RI approach and Noting the many styles of RI – from an
coverage aligned with investment and ethical approach to one more focused on In assessing each of the 53 funds on their
RI beliefs stewardship responsibilities – the Framework RI disclosures against the Framework,
is agnostic to the style of RI undertaken by a a scaling system was adopted and
3 Responsible Investment Implementation super fund and invites funds to describe their applied. The scale (limited, basic, broad,
Widely used quality systems for delivering own way of doing RI, and to demonstrate comprehensive) describes the RI data
RI consistent with commitments and RI how this is consistently put into action along scope and quality in disclosures for which
approaches the Five Pillars of good governance. This is RIAA considered all fund data for each
key to the value of this Framework; it allows aspect of the Five Pillars. The data was then
4 Measurement and Outcomes super funds to reflect the many different categorised into these four points on the
Systems and metrics to track and approaches appropriate to different styles of scale for each fund.
manage RI performance internally and funds with different beneficiaries.
externally; ways for measuring success Funds whose RI data in their disclosures was
The data used in this project is derived scaled as ‘comprehensive’ on at least 4 out
5 Transparency and Responsiveness from a combination of both primary and of the 5 pillars, received an overall scaling
Disclosures that build member secondary research: firstly, desktop research of ‘comprehensive’ in 2018. These funds are
confidence and broader stakeholder trust was undertaken of each of the super funds’ those that can comprehensively describe
in the super fund’s governance public information and then data was elicited their approach to RI and demonstrate the
via an information request to the 53 funds. implementation of this approach within their
The Five Pillars of the Framework describe fund’s operating context.
the elements of good governance for RI by The purpose of seeking additional input
super funds and if used well, guide super from funds was to both verify fund data See the Appendices Report for the
funds on how to comprehensively and sourced by RIAA in the desk top research information requested of participants under
effectively implement RI strategies consistent and to enhance RIAA’s understanding of each of the RI pillars and for a detailed
overview of the project’s methodology.
RIAA believes that by delivering this
GLOBAL SUSTAINABLE INVESTMENT ALLIANCE RI APPROACH CLASSIFICATIONS research, we can play an important role in
furthering the capacity building of the industry
based on highlighting leading practices,
Responsible investing, also known as ethical 5 Sustainability themed investing: across not only super funds, but also the
investing or sustainable investing, describes investment in themes or assets specifically asset managers and asset consultants that
a holistic approach to investing, where social, related to sustainability (for example clean support them. Through working to progress
environmental, corporate governance and energy, green technology or sustainable a deeper commitment and implementation of
ethical issues are considered alongside financial agriculture); RI, we believe this will underpin the delivery
performance, when making an investment. 6 Impact/community investing: targeted of long term value for clients and a more
investments, typically made in private sustainable financial system.
To maintain a global standard of classification,
markets, aimed at solving social or
this report is aligned with the seven strategies
environmental problems, and including
for responsible investment as detailed by the
community investing, where capital
Global Sustainable Investment Alliance (GSIA).
is specifically directed to traditionally
These strategies are:
underserved individuals or communities,
ACKNOWLEDGEMENTS
1 Negative/exclusionary screening: the as well as financing that is provided
exclusion from a fund or portfolio of to businesses with a clear social or
certain sectors, companies or practices environmental purpose; and
RIAA heartily appreciates the support of
based on specific ESG criteria; 7 Corporate engagement and shareholder
Amundi Asset Management which has
2 Positive/best-in-class screening: action: the use of shareholder power to
allowed us to resource this research project.
investment in sectors, companies influence corporate behaviour, including
or projects selected for positive ESG through direct corporate engagement (i.e.
We are very appreciative of the funds who
performance relative to industry peers; communicating with senior management
responded to our request for information,
3 Norms-based screening: screening and/or boards of companies), filing or
contributed data and information and
of investments against minimum co-filing shareholder proposals, and proxy
provided feedback to RIAA that provided the
standards of business practice based on voting that is guided by comprehensive
basis for this research and report.
international norms; ESG guidelines.
4 Integration of ESG factors: the systematic
This report has been researched and
and explicit inclusion by investment
authored by a team at RIAA including
managers of environmental, social Source: Global Sustainable Investment Alliance (2016)
Nicolette Boele and Simon O’Connor as well
and governance factors into traditional Global Sustainable Investment Review
as the research team at CAER: Nithya Iyer,
financial analysis; > http://www.gsi-alliance.org/
Phil Sloane Julia Leske and Erin Levey. The
report was edited by Carly Hammond.
p6Super Fund Responsible Investment Benchmark Report 2018
Research Universe and Data Assumptions
REPORTING BOUNDARY RESEARCH UNIVERSE • A number of mergers were noted (e.g.
State Super Financial Services Australia
Limited with FSS Trustee Corporation
This report covers the 2017 financial year There are three main inputs to the research and Rio Tinto Staff Fund Pty Limited
being from 1 July 2016 to 30 June 20179. universe: with Equipsuper Pty Ltd) but only the
There are some exceptions to this, including ‘acquiring’ RSE was included in the
1 APRA's list of Australia’s largest super
data sourced from participants’ websites that research universe.
funds as regulated and reported
may have occurred outside the period yet
in February 2017 – 50 Registrable
considered in this research. Furthermore, 29 out of 53 funds provided responses and/
Superannuation Entity (RSEs)
data sourced from PRI Transparency or additional information to this research
responsible for the largest total FUM;
Reports published in 2017 primarily cover process, being 55% of the sample, up from
2 select non-APRA regulated but sizable
the financial year period ending on 30 June 40% in 2016. The 2018 research covers a
and significant asset owners in our
2016. A small number of funds provided PRI total estimated $1.4 trillion in funds under
market such as ESS Super and the
Transport Report data for their 2017 data; management. The sample of regulated
Future Fund (with the latter having $117
most is of a qualitative nature. APRA funds included in this research
billion AUM as at 1 July 2016); and
manage 94% of all APRA-regulated super
3 RIAA member super funds that fall
Financial figures are in AUD. fund assets.
outside the two categories above and
that have opted in to this research (this
Guided by the categories used by APRA,
includes New Zealand Super Fund,
RIAA placed research participants into
Australian Ethical and Christian Super).
four categories of funds: industry funds,
SOURCES OF DATA retail funds, corporate funds and public/
Additionally, the following treatments were non-regulated funds. For the purposes of
applied to guide the creation of the universe: most analysis, the two sovereign funds – the
Much of the data included in this research Australian Government's Future Fund and
• If funds appeared in the largest 50
comes from publicly available sources NZ Super Fund – were classified as public/
list, had the same RSE, and RIAA
such as corporate websites (e.g. policies, non-regulated. Figure 1 shows the split
received notice from that RSE that
guidelines and annual reports); Principles for between these across the survey universe.
the overall approach to RI was largely
Responsible Investment (PRI) Transparency
consistent across the separate funds,
Reports; RIAA’s Responsible Investment The Appendices Report includes the full
then RIAA rolled-up these funds and
Certification Assessment Program; and other project methodology.
considered them as one single fund
publicly available information (including news
(e.g. Commonwealth Superannuation
and media). Data was also collected from
Corporation includes the Public Sector
super funds by way of a detailed information
Superannuation Scheme & Accumulation SURVEY PARTICIPATION BY
FIGURE 1
request issued between December 2017 and
Plan and the Military Superannuation & SUPER FUND CATEGORY
April 2018. This data was sought to help RIAA
Benefits Fund No 1);
more deeply understand internal governance
• If a RSE managed multiple funds in
processes related to the implementation, 22
the largest 50 list but under materially
measurement and outcomes of respective
different responsible investment
responsible investment strategies.
strategies, then the funds have been
treated as separate listings as part of 14
In the case, particularly for retail super
this research (e.g. Colonial First State
funds, where the vast majority of investment 11
Investments Limited has two listings; one
services are provided by the investment
each for Colonial First State FirstChoice
nUmbeR of fUnds
management arm of the RSE, RIAA has 6
Superannuation Trust and one for
accepted data directly from the underlying
Commonwealth Essential Super); and
manager. Refer to Index of Funds on page 31.
9 except for a few funds such as NZ Super Fund, Statewide Super, CaTeGoRY Industry Corporate Retail Public/
UniSuper and First State Super that run their data for the 12 of sUPeR non-regulated
fUnd
months to 31 December 2017
p7Research Universe and Data Assumptions Super Fund Responsible Investment Benchmark Report 2018
RECLASSIFICATION OF FUNDS LANGUAGE SURROUNDING KEY
FROM 2016 STAKEHOLDERS
In 2016 VicSuper, Vision Super, and Local RIAA acknowledges that all super funds
Government Super self-classified as have a key stakeholder group – the
industry funds, despite having an APRA beneficiaries. However, different funds have
classification as public/non-regulated funds. different labels for this group. Retail funds
Accordingly, the 2016 data for industry funds tend to have ‘clients’ or ‘customers’, corporate
included these funds’ performance findings. and industry funds have ‘members’ and
For the purposes of being able to provide public funds have ‘members’ or ‘beneficiaries’.
truly comparable data, year on year, RIAA A sovereign wealth fund such as the Future
has reclassified these three funds to be Fund has ‘future generations of Australians’.
consistent with APRA’s classifications for this For simplicity, in this report the term ‘clients’
2018 report. ESS Super is not regulated by describes this key stakeholder group for all
APRA but was also classified as an industry categories.
fund in 2016 and has been classified as a
public/non-regulated fund in 2018.
Worth noting is the two sovereign wealth
funds – New Zealand Super Fund (NZ
Super Fund) and the Future Fund are
classified as public/non-regulated funds and
included in the figures for this fund category,
except where explicitly excluded.
The Appendices Report includes the full list
of funds by fund classification.
p8Super Fund Responsible Investment Benchmark Report 2018
Findings
1
ACCOUNTABILITY AND WHAT IS ACCOUNTABILITY AND GOVERNANCE?
GOVERNANCE
Accountability refers to the demonstration of governance structures in place to enable their
Policy and strategy based on sound
the understanding of the stakeholders to whom RI strategy to be effectively delivered.
understanding of client needs and
the fund is accountable. Governance provides
expectations; and board-level buy-in to
the structures (processes and delegations) KEY ASPECTS USED TO ASSESS
RI supported by formal accountability
necessary for the strategy to be effectively ACCOUNTABILITY AND GOVERNANCE:
processes
implemented. A key aspect of governance • has commitment to RI in the overall fund
is the acknowledgement of the role of key strategy and internal structures in place to
stakeholders into the fund’s RI strategy vision, drive this;
Overall, super funds demonstrate a good
mission or investment beliefs. • has and discloses appropriate
level of accountability to stakeholders
responsibilities and accountabilities for RI;
through both identifying ESG and/or RI Clients tend to be a fund’s key stakeholder
• identifies, engages and considers
as important in their fund’s beliefs, and by group; but a fund may consider others as well
stakeholders in the development and
identifying board-level accountability for RI (e.g. broader society, future generations, the
ongoing review of investment beliefs and RI
performance. Accountability for overseeing environment, government/regulators etc.).
strategy; and
policies and systems for managing ESG risks
• has incentives in place to perform duties
and opportunities has become more visible in RESEARCH GOAL:
consistent with the RI strategies and to the
this second year with more funds (37 out of To assess the maturity of an organisation’s
benefit of key stakeholders.
53; 70%) stating that the full board or board accountability practices (stakeholder inclusivity
committees have oversight for ESG risks and and responsiveness; materiality issues)
opportunities, an increase of 14% from 2016. and whether the organisation has suitable
RI policies and accountability
This year’s research finds that 43 out of
53 funds (81%) have some form of RI disclosing either a standalone policy, or an By fund category, just over one-third of
commitment in place – up 11% from 2016. embedded statement in their investment industry (36%) and corporate funds (33%)
Almost all (42) of these funds identify a beliefs, and the remainder either mentioning disclose having FTE staff with significant
formal process for the review of this policy. RI on their website (2) or not at all (5). This RI responsibilities. This represents a 6%
trend extends to board-level oversight as well. increase for industry funds since 2016, and
For 74% of the universe (39 funds), RI a 16% increase for corporate funds, possibly
commitments are explicitly stated in the suggesting that RI awareness is growing
investment beliefs or in a standalone policy RI resourcing among this cohort. Interestingly, a higher
– up from 70% in 2016. percentage of retail funds, at 43%, have
Acknowledging that the resourcing of RI more FTE staff with RI responsibilities than
There are clearer trends by fund category. knowledge, skills and activities is not a any other fund category. This is perhaps due
For example, a greater proportion of industry direct proxy for capturing the maturity of RI to the increasing focus on retail funds being
funds lean towards explicitly stating RI in certain funds, RIAA sought to improve able to provide a large variety of RI options
commitments in a standalone policy (14 out understanding about how different funds for their diverse clientele. 78% of public/non-
of 22 industry funds or 64%). This is true of incubate, develop and embed RI practices. regulated funds disclose having at least 1.5
half of the corporate funds, with the other FTE staff for RI responsibilities, a significant
half explicitly stating RI commitments in In 2018, 24 out of 53 funds (45%) employ increase from 29% of funds in 2016. This
their overall investment beliefs, rather than a one or more full-time employees with result is partially enhanced by the inclusion
standalone policy. Public/non-regulated funds significant responsibility for RI. Results of the Future Fund – with two FTE RI staff –
also tend towards this form of integrating suggest that approximately 48 RI in the survey as well as the reclassification
RI commitments into investment belief employees are employed by these 24 funds. of Vision Super, VicSuper and Local
statements. Retail funds are the least likely This is as compared with 24 FTE specialist Government Super as public (rather than
to have an explicit commitment to RI stated staff employed across 12 funds in 2016; a industry) funds.
through either of these forms, with 50% 100% increase.
p9 Findings Super Fund Responsible Investment Benchmark Report 2018
RI COMMITMENT AND BOARD-LEVEL
FIGURE 2 SPOTLIGHT ON CLIMATE RISK
ACCOUNTABILITY
To help test the self-declared results was not specifically asked of funds.
100
on RI accountability, in 2018 we asked 29 out of 53 funds (55%) state climate
funds whether their trustees actively risk is considered by the Trustee board
consider ESG and RI issues – including at least annually (22) or on an ad hoc
82 82 83
consideration of climate risk. A positive basis and as matters arise (7).
73 response was provided by 34 out of 53
It is possible that some of the funds
funds (64%), with funds noting varying
64 that did not respond to the request for
methods for doing so.
further information do address climate
57
Two funds (Australian Ethical and risk at a board level.
50 Christian Super) state climate risk is
However, it is of concern that the
discussed at each board meeting as
boards of nearly one-third of Australia's
part of their ethics report; a standing
largest super funds may not consider
item on the board agenda. Some
climate risk at all. This could have both
other funds (Cbus, Maritime Super
financial and regulatory implications,
% of fUnd CaTeGoRY
and First State Super) systematically
particularly in light of the recent explicit
consider climate risk during dedicated
statements from APRA that it considers
Trustee sub-committee meetings (either
climate change to be a foreseeable,
quarterly or half-yearly alongside
and often-times material, financial
reporting on adherence to policy and
risk issue, and one that directors of
implementation of ESG integration
CaTeGoRY Industry Corporate Retail Public/ institutional investors should consider
of sUPeR non-regulated
plans). Cbus reports that its Trustees
with due care and diligence.
fUnd undertake annual training on climate
change and RI. Other funds may also
RI Beliefs stated in RI Accountabilities
undertake training, but the question
key fund statements at Board-level
Four Funds – First State Super, Despite the trend to insourcing specialist industry than most others. We explored each
Macquarie, Mercer and BT Financial RI staff, many funds also note that RI fund’s data for this, as well as the means to
Group (for BT Funds Management and is outsourced to asset consultants and engage stakeholders on the formation of RI
Westpac Securities combined) – indicate investment managers which, in many strategy on an on-going basis.
they employ more than four FTE staff cases, have dedicated RI teams. This is not
who spend over 50% of their time on RI represented in these statistics. 39 out of 53 funds (74%) report that
(note all but First State Super are from the stakeholder input informs investment
investment arm of the super funds for which Each of the 15 funds included above, as well beliefs – an increase of 6% from 2016.
they manage funds and would likely be well as an additional seven funds (22 out of 53 The preference across all fund categories
resourced with RI staff). A further 11 funds funds or 42%) indicate employing specialist was to have trustees as representatives of
– Australian Ethical, AustralianSuper, RI staff with a focus on ESG integration, up stakeholders, with nearly 50% across all
Cbus, Christian Super, Commonwealth from 24% in 2016. fund category selecting this preference.
Superannuation Corporation, HESTA,
Future Fund, Local Government In most cases, the role of specialist RI staff – Interestingly, corporate funds demonstrate
Super, NZ Super Fund, UniSuper and as opposed to a staff member with some RI a lower propensity to rely on stakeholder
BT Financial Group funds – Westpac responsibility – is to participate in manager input to inform beliefs, perhaps reflecting
Securities and BT Funds Management – selection and review meetings, to influence the assumption that corporate fund clients
have two or more staff members with more manager decision and to coordinate are more homogenous and so additional
than 50% of their focus on RI. company engagement and proxy voting. In engagement is not required to fully
some cases, these roles are also tasked understand needs and expectations.
Some funds indicate that responsibility for with ensuring adherence to the fund’s ethical
RI is integrated into each of the specialist charter or RI policy. For funds with direct 17 out of 53 funds (32%) disclose that
asset class roles i.e. each asset class investments, specialists are also tasked with regular monitoring and annual (or more
specialist is expected to know the RI issues finding appropriate thematic research and regular) surveys of client interests and
for that asset class. Funds also indicate that controversies research to complement the satisfaction takes place. This is up from 11
they have RI committees for issue-specific RI processes. out of 50 funds (22%) in 2016. Annual (or
investment decision-making, such as climate more regular) monitoring, particularly via
risk committees. These are consolidated at surveys is most popular among retail funds
a board-level and across sub-committees, Stakeholders identified and engaged (29%), although industry and public/non-
with key RI staff embedded into the process. regulated funds follow closely, both at 27%.
For some funds, responsibility for RI Central to good governance is the explicit
management is now integrated across many acknowledgement of key stakeholders
people's roles so these figures may not fully and the issues that matter to them. Given
capture the staff capacity for RI in the largest the fiduciary duty of super funds, this
Australian super funds. engagement is even more critical for this
p10 Findings Super Fund Responsible Investment Benchmark Report 2018
CASE STUDY 1 STAKEHOLDER INPUT
FIGURE 3
BY SUPER FUND TYPE
HESTA: GOVERNANCE AND ACCOUNTABILITY IN ACTION
HESTA’s governance and accountability HESTA’s Responsible Investment Policy 79
processes are developed around a conveys that the incorporation of ESG
sound and proactive understanding of issues into investment processes and 72 72
member interests and a macro view decision making ultimately delivers 67
of the role it plays as a long-term and against their members’ interests.
universal investor. This understanding
‘Incorporating ESG risks and
feeds through to the fund’s core
opportunities contributes to a stronger
investment beliefs.
economy, which is a prerequisite 17 29
‘HESTA is committed to creating better for delivering the best risk-adjusted
futures for our members. One of the returns for members; and it improves 27 27
ways we do this is through being a the overall retirement outcome for 50 50
responsible investor. It is one of the members, as their retirement outcome 45 45
Core Investment Beliefs that underpins will not only be affected by the financial
how we look after members’ assets… returns received, but by the state of the
HESTA will be a responsible investor and environment and the society into which
recognises that members’ best interests they retire.’
are served by supporting a healthy
% of fUnd CaTeGoRY
economy, environment and society.’
In seeking to understand member
interests, HESTA regularly monitors
issues raised at its call centres, as well
as gauging member satisfaction levels
and interests via a survey conducted CaTeGoRY Industry Corporate Retail Public/
of sUPeR non-regulated
at least annually. HESTA explores fUnd
members attitudes to ESG issues in
via Trustees as representatives of stakeholders
the annual satisfaction survey and, if
required, also seeks feedback through via systematic and frequent direct engagement
its insight community. (e.g. call centre issues review, member survey, other)
p11 Findings Super Fund Responsible Investment Benchmark Report 2018
2
RESPONSIBLE INVESTMENT WHAT IS RI COMMITMENT?
COMMITMENT
RI Commitment relates to the fund’s RESEARCH GOAL:
Extent and breath of RI approach and
statements and activities around the To identify the nature and coverage of fund’s
coverage aligned with investment and
promulgation of responsible investing both RI commitments (e.g. RI beliefs as captured in
RI beliefs
within the fund and within its relevant market. policies, and through collaborations) aligned to
investment beliefs, and the governance aspects
Statements and activities include the making
supporting the fund’s approaches to delivering
The universal owner of public statements (by way of a policy and
on these commitments.
underlying guidelines) to formalise a fund’s
The concept of the Universal Owner is RI beliefs and informing stakeholders to what
KEY ASPECTS USED TO ASSESS RI
gaining traction with the largest super funds. they are committed. RI beliefs ordinarily
COMMITMENT:
A number of funds (e.g. First State Super, contained in policies include ESG themes,
• has publicly stated commitment to
Local Government Super, NZ Super key approaches for implementation (e.g. ESG
responsible investment endorsed at the
Fund and Future Fund) explicitly discuss integration, positive/best-in-sector screening
highest level of the organisation (policy
their respective roles in making investment etc.) as well as a statement about its coverage
and/or guidelines). Elements of the
decisions that deliver whole-of-economy, (over certain asset classes, or the whole of the
policy that ensure that it can be put into
long-term outcomes for clients, broader fund). Policies are formal documents endorsed
action include ambitious but specific and
society and the environment. by executives at the highest level of the fund.
achievable targets and KPIs;
RI Commitment also includes activities such • has full coverage of RI policy over the total
For many, the Universal Owner concept
as engaging and communicating with staff portfolio and asset classes;
informs their preference of RI approach/es.
and clients on issues related to RI as well as • has defined commitments to RI approaches,
BT Financial Group (for RSEs BT Funds
industry activities such investor initiatives, e.g. for active ownership and stewardship
Management and Westpac Securities),
memberships and involvement in industry practices, a process for corporate
when considering ESG factors in the
associations. engagement and voting are in place;
investment process, is not seeking to
• has expressions of RI commitment such
take a moral or ethical stance on ESG
as through memberships of collaborative
issues. Instead, its approach is motivated
investor initiative/s; and
by financial goals, aiming to create long-
• if applicable, the fund offers consumers
term sustainable value and/or manage
choice with the addition of responsible,
risk. As a Universal Owner, BT Financial
sustainable or ethical investment options.
Group applies stewardship principles
and practices, (i.e. proxy voting and
engagement) with the companies in which
it invests, as fundamental in driving positive
portfolio outcomes.
Funds that view themselves as Universal
CASE STUDY 2 Owners also have strong stewardship
commitments related to direct or
FUTURE FUND: IMPLICATIONS OF BEING A LONG-TERM INVESTOR
collaborative company engagements,
participating in collaborative industry-
building and advocacy initiatives as well as
The Future Fund Act 2006 states that the Board iii. the ability to be counter-cyclical, patient and
commitments to vote on as many company
must seek to maximise the return earned by opportunistic. The investor can use its long-
resolutions as practicably possible.
the Fund over the long term. term nature to reduce risk when prospective
returns are unattractive and wait for more
‘There are three main comparative advantages For example, Local Government Super
compelling opportunities to buy (or sell). At
to being a long term investor: states its commitment to incorporating
times of market stress when other investors
ESG issues into investment analysis and
are selling, the long- term investor is able to
i. the ability to take on greater levels of decision-making processes, being an active
step in and provide liquidity to the markets
market risk, on the assumption that a owner and voting on shareholder issues
in return for outsized forward looking
long-term investor is able to tolerate the and participating in collective engagement,
expected returns. This is often referred to
shorter-term losses that come with the seeking disclosure on ESG issues by
as maintaining ‘dry powder’.’
greater market risk exposure. The greater investment managers, promoting the
market risk ought to (albeit in practice it acceptance and implementation of the PRI
need not necessarily) be rewarded with Six Principles in the investment industry
higher long-term returns; and collaborating with other organisations to
ii. the ability to accept capital being locked up enhance effectiveness.
in assets or structures that are impossible
and/or costly to sell out of within a short
period of time. Such investments ought to
(albeit in practice they need not necessarily)
attract a premium return to compensate for
this loss of liquidity; and
p12 Findings Super Fund Responsible Investment Benchmark Report 2018
FIGURE 4 RI APPROACHES ADOPTED BY SUPER FUNDS EXAMPLES OF FUND FOSSIL FUEL
EXCLUSIONS WITH REVENUE THRESHOLDS
Corporate engagement and
14 4 5 7 30 Christian Super’s fossil fuel screen covers the
shareholder action
following excluded fossil fuel activities (15%
Integration of ESG factors revenue tolerance):
14 4 6 7 30
into financial analysis
• Mining thermal coal;
Negative / exclusionary screening 9 1 6 3 19 • Exploration and development of oil sands;
• Liquefaction of coal;
• Exploration and development of oil shale (not to
Sustainability Themed investing 5 2 1 8
be confused with shale oil or shale gas); and
• Brown coal (or lignite) fired power generation.
Impact / community investing 2 11 4
HESTA implements the following restrictions on
Screening based on international norms 2 2
new investments:
• Any unlisted company that derives more
Positive / best-in class screening 2 1 3 than 15% of revenue or net asset value from
exploration, new or expanded production, or
transportation of thermal coal;
Other 2 2
• Any newly listed company, from listing onwards,
that derives more than 15% of revenue or
nUmbeR of fUnds
net asset value from exploration, or new or
expanded production of thermal coal; and
CaTeGoRY of Industry Corporate • The provision of direct funding to any listed
sUPeR fUnd company, via rights issues or share placements,
Retail Public/non-regulated for any of these activities.
RI approaches and coverage in relation to equities (Australian and fund, up from 17 out of 50 funds (34%) in
international), fixed income (all), private 2016 – a significant increase of 26%. 82% of
Funds’ RI approaches, the assets covered equity, property and infrastructure. public/non-regulated funds, 73% of industry
by RI approaches, and other forms of funds and 67% of corporate funds are
committed action towards RI objectives Negative/exclusionary screening and committed to a whole-of-fund screen. Retail
were reviewed to identify the styles and sustainability-themed investing are the funds are clearly demarcated from this group
gauge the extent of funds’ commitment third and fourth most popular choices at only 21%.
to RI. respectively. 17 out of 53 funds (32%) are
implementing negative screening as a Tobacco and armaments (including cluster
Typically, funds link the RI approaches strategy across at least one asset class – munitions, nuclear weapons and other
they implement to their RI beliefs and most frequently for equities (Australian and classifications under controversial weapons)
commitments e.g. a fund whose beliefs international), however also with regards to are the most frequently cited whole-of-fund
are around an ethical approach to fixed income, private debt and private equity. exclusion, implemented across 28 and
investing would most likely include negative/ 14 funds respectively (see Figure 5). The
exclusionary screening in its RI approach, Sustainability-themed investing is most trend to divest from tobacco-producing
whereas a fund whose primary beliefs are cited as a strategy across property (8 companies can be credited to the recent
around taking a stewardship approach funds), with a few funds also noting its use successes of the activist group Tobacco-
would most likely employ ESG integration, in infrastructure, international equities and free Portfolios. It is likely that the KiwiSaver
corporate engagement and voting as key private equity. scandal of August 2016 has also had a
RI approaches. bearing on Australian super funds explicitly
Positive/Best-in-class screening is the least divesting their portfolios from exposure to
43 out of 53 funds (81%) adopt a RI cited strategy, however is mentioned at controversial weapons.
approach across at least one asset class, least once across most asset classes as a
with 17 out of these 43 funds implementing secondary strategy. Fossil fuels and human rights violations
RI strategies across five or more asset are the equal third most cited exclusions,
classes. Negative/exclusionary screening implemented across six funds each,
Negative/exclusionary screening has however definitions and thresholds for these
traditionally been an RI strategy applied to exclusions vary.
Most popular RI approaches responsible investment options, particularly
ethical investment options; however, in 2018, In the case of fossil fuels, for example,
ESG integration, as well as corporate this style of RI strategy is more inclusively some funds cite that companies that derive
engagement and shareholder action, are applied across whole funds. a certain percentage of revenue from high
the most popular RI approaches adopted carbon intensive activities are excluded (e.g.
by funds and are noted by more than ten 32 of 53 funds (60%) have a least one Christian Super, HESTA).
funds as a primary or secondary strategy negative screen across the whole of the
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