SUPER FUND RESPONSIBLE INVESTMENT BENCHMARK REPORT 2018 RIAA MEMBER - - PowerPoint PPT Presentation
SUPER FUND RESPONSIBLE INVESTMENT BENCHMARK REPORT 2018 RIAA MEMBER ONLY WEBINAR 21 June 2018 Presenters: Simon OConnor - RIAA Katie Beith - NZ Super Fund Liza McDonald - First State Super Responsible Investment Association Australasia
Presenters: Simon O’Connor - RIAA Katie Beith - NZ Super Fund Liza McDonald - First State Super
Responsible Investment Association Australasia Responsible Investment Association Australasia
Why does RIAA publish this Super Fund RI Report?
1. To build on RIAA’s annual RI Benchmark Report 2. Highlight leading practices and share strong case studies 3. Provide a framework that clearly articulates the constituent parts of a management system for RI by superfunds; as well as expectations for leading performance 4. Note any changes on last year and implications for these
Framework’s Five Pillars
The research universe
1. APRA's list of Australia’s largest super funds 2. Select non-APRA regulated but sizable and significant asset owners in our market 3. RIAA member super funds that fall
that have opted in
29/53 funds (55%) responded up from 40% in 2016
70% of super funds have their full board, or board committees,
(An increase of 14%, from 56% in 2016)
HOWEVER … Up to a third of trustee boards are still not actively considering climate risk, The trustees of 64% of super funds are actively considering climate risk
60% have a least one negative screen across the whole fund (up from 34% in 2016)
Responsible investment employee numbers have doubled since 2016
45% are employing one or more full-time employees with significant responsibility for RI
Nearly half of the super funds offer a total of 75 responsible investment options
(compared to the similar proportion offering 54 options in 2016)
managers’ responsibility for RI
wholly or largely responsible for the ESG information provided to the fund
The expertise, knowledge and RI performance of external investment managers is fundamental to the success of the Australian super fund industry
Management of external managers is done comprehensively by leaders but to a basic standard by a majority of funds
Approximately half (or less) of funds:
income are discussed with external managers
impacted specific investment decisions/portfolio performance
company behaviour
Company engagement
30% in 2016)
2016)
form of engagement reports, and fewer still disclose their engagement activities (9 out of 53)
94% of super funds have a formal voting policy (all but one are made public) – up from 58% in 2016 Of the 29 funds providing responses to how they voted in 2017/18
adviser on every occasion
Voting
25% of super funds have performance targets for their RI strategy including:
Stewardship practices – measurement and reporting
Of the 23 funds that undertake direct engagement, all report monitoring company actions taken after the engagement, either
16 out of these 23 funds (30% of all funds) keep reliable data on engagements in the form of company engagement reports.
Annual reporting on RI: 60% up from 44% in 2016 External fund manager: 81% up from 60% in 2016 Voting: 80% up from 60% in 2016 Engagement: 23% up from 20% in 2016 Full holdings disclosure: unchanged
Leading RI Super Funds
Fund name Australian Ethical AustralianSuper Cbus Christian Super First State Super Future Fund HESTA Local Government Super Mercer Superannuation (Australia) NZ Super Fund Unisuper VicSuper Vision Super
Leading RI Super Funds 2018
Leading RI Super Funds scored Comprehensive for quality and scope of their disclosures across at least 4 of the 5 pillars:
1. Governance and accountability 2. RI commitment 3. RI implementation 4. Measurement and outcomes 5. Transparency and responsiveness Limited Basic Broad Comprehensive
Assessment scale of quality and scope of disclosures
Responsible Investment Association Australasia Responsible Investment Association Australasia
TITLE: AUTHOR: EVENT | PRESENTATION:
RIAA webinar: Super Fund RI Benchmark Report, 21 June 2018
Senior Investment Strategist, Responsible Investment
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n Active owner responsibilities (including Principle 2 of the UNPRI) n Good for returns* n Supports peer collaboration n Manages reputational risk n Support key global initiatives relating to long term capital and stewardship
* See next slide for evidence of the financial impact of engagement
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“Engagement can preserve and enhance long-term value creation which benefits shareholders and beneficiaries”
UNPRI Guide on Active Ownership (October 2017)
STUDY SUMMARY OF FINDINGS Dimson, E., Karakas, O. and Li, X. (2015). Active
The study found that companies targeted in corporate governance - and climate change-related engagements by an investment manager between 1999 and 2009 showed significant financial outperformance of the market in the period following
1.8%, growing to 4.4% for successful engagements, and no market reaction for unsuccessful ones. Junkin, A., CFA, CAIA (2015) , Managing Director, Update to The “CalPERS Effect” on Targeted Company Share Prices Wilshire. This review found that companies targeted by CalPERS for engagement and performance improvement delivered an excess cumulative return of 13.72% above the Russell 1000 Index, and 12.11% above their respective Russell 1000 sector indices following engagement. This includes both those on the public Focus List and those identified for confidential engagement. Becht, M., Franks, J., Mayer, C. and Rossi, S. (2010). Returns to Shareholder Activism: Evidence from a Clinical Study of the Hermes UK Focus Fund. The Review of Financial Studies, 23(3), pp. 3093-3129. The study found that Hermes Focus Fund “substantially outperforms benchmarks” with an abnormal return net of fees of 4.9% a year against the FTSE all-shares index. The research estimates that abnormal returns are largely associated with engagements rather than stock picking.
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n Monitor, identify and engage with companies which breach international
standards of good practice, in particular the UN Global Compact.
n Our engagement seeks to encourage companies to address poor ESG
practices and improve ESG disclosure.
Corporate engagement programme – GLOBAL
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Four priority areas for engagement:
n Human rights (child labour; worker safety; operations in weak states) n Business ethics (bribery & corruption) n Severe environmental damage n Climate change
Companies in breach of standards are brought to our attention by MSCI through ‘red flag’ alerts. If the breach aligns with our priorities, it is added to the CFI Global Focus List (CFI GFL).
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n Engagement service provider (BMO) n Direct (GNZS) n Collaborations n Managers n NZ Active Equities Team
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Identify Decide Plan Engage Monitor
If GNZS undertaking engagement: Prepare engagement plan:
Monitor and evaluate progress:
Close
Issue has been resolved or further engagement unlikely to be effective
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Engagement success can be defined in a number of ways:
n Upgrade in ESG service provider rating n The company meets our pre-defined performance measures n There is public evidence that the company is managing the issue appropriately
Once we are of the view that an issue has been RESOLVED, monitoring of the company takes place to ensure there is no recurrence. Once satisfied of this (c. 2 year period), the engagement can be CLOSED. Engagement can take years. Outcomes range from improving policies or disclosures to ‘moving a tanker’
What does engagement success look like for GNZS?
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Progress indicator signal Not yet contacted Contact made but no response Dialogue established Milestones recorded Escalation Closed
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Monitor Close Identify Decide Plan Engage
Dialogue established Contact made but no response Milestones recorded Closed Not yet contacted Progress indicator signal Not yet contacted Contact made but no response Dialogue established Milestones recorded Escalation Closed
2 years +
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1 year 2 years Response x ü Dialogue x ü Milestones x x
Vote against director responsible Divestment Collaborate with other investors
Progress indicator signal Not yet contacted Contact made but no response Dialogue established Milestones recorded Escalation Closed
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June 2018
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Longer Horizons Strategic investing & greater focus on long- term sustainability Wider Assessment … of impacts on markets, community and the environment (& associated risks)
A Wider Lens to Investing
ESG Integration Internal & external mandates & direct Engagement … with corporate boards and executives
ESG & Engagement
Product Design Proactive Deal Sourcing …
investment ideas relevant to members
Relevant Investments
Universal ownership is more applicable to large investors operating in smaller markets – we often describe it as being mindful of the “investment footprint” we leave in our investment wake and seeking to ensure this has a positive socio-economic impact, on balance, over time A key motivation for adopting the philosophy of Universal Ownership is that it reconciles our desire to be a responsible investor with our fiduciary duty to members, by drawing a stronger link between responsible investing and longer-term risks and return The three core components of Universal ownership as applied by First State Super are illustrated below.
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Impact investing means different things to different people – for First State Super, the aim is to have a dedicated allocation of capital to a ensure a stronger, proactive manifestation of all three components of Universal Ownership.
The impact portfolio adopts long-term investing principles, including to target strategic assets where we can leverage
All impact investments seek to deliver specific, positive socio-economic externalities, e.g. lower GHG emissions, job creation, etc Impact investments will typically be direct
direct engagement with management The impact portfolio will seek to collaborate with key stakeholders and target opportunities in the most relevant areas and sectors, e.g. GO NSW, social bonds. The Impact Investing platform is a large portion of Diversified SRI Option and is a key point of product differentiation The impact portfolio fully integrates FTC’s ESG policy, including through key partnerships, eg. ROC Partners
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The provision of equity or debt capital to compelling new or existing renewable energy projects that displaces fossil fuel based energy generation and contributes to the reduction in greenhouse gas emissions per capita as the global population grows Providing growth capital to small and medium-sized businesses that are embarking on a significant expansion phase expected to create jobs and generate other socio-economic benefits (and which might otherwise struggle to access debt or equity capital markets) – this may include partnerships with state and local government authorities and other groups to deliver key land use projects with social objectives and community-oriented initiatives The (prospective) development of the social bond market and partnerships with specialist operators to deliver against agreed measurable social KPIs – prospective areas include aged care and disability, homelessness, youth unemployment, indigenous employment, early childhood services, and mental health Partnerships with innovative builders/developers/architects to develop and manage social and affordable housing and related social infrastructure
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GO AUSTRALIA / GO NSW
(i) An allocation to GO NSW, established in partnership with Jobs for NSW (ii) A further allocation to support co-investment in larger and/or compelling growth projects
an internal goal to create 500-1000 new jobs
Australian Oyster Coast (expansion of Sydney Rock Oyster production along NSW coastline) DARBY-SERVTEC RENEWABLE ENERGY PLATFORM (DSEF)
energy developer/operator Servtec
development site and is in final diligence on a wind farm and hydro plant
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Purpose
Philosophy & approach
(i) managing risks associated with negative environmental, social and governance related impacts; and (ii) capturing opportunities that leverage our size and other competitive strengths to add value
Option by broadening the opportunity set and by strengthening FTC’s brand and reputation as a responsible industry leader Objective § To generate returns of CPI+X% p.a. net of all fees over rolling 7 year periods Allocation § [specific allocation to investment options]
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An important focus for the Impact/ESG teams over the next 3 years will be the development of a consistent framework for assessing, measuring and reporting social impact along financial performance of the Impact Portfolio. A key part of this will be to align this assessment with the UN Sustainable Development Goals (SDGs)