Super funds push for sustainability

Australian superannuation funds could shift their investments away from carbon-intensive industries under a push towards more socially responsible investment.

Image: Super fund managers in the $1.3 trillion sector will be expected to consider environmental, social and governance (ESG) principles when designing their investment strategy.

Under new guidelines released by the industry today, fund managers in the $1.3 trillion sector will be expected to consider environmental, social and governance (ESG) principles when designing their investment strategies.

The guidelines are based on the United Nations Principles for Responsible Investment.

Chief executive of VicSuper Michael Dundon, who has been instrumental in designing the local guidelines, said his $8.5 billion fund would focus on investing in the renewable energy sector.

``We are avoiding funds or stocks where substantial exposure to carbon,'' he said.

``For example, you'd have to think carefully about understanding the impact on economic returns on brown coal producers with carbon pricing.

``We see opportunities in wind and solar and other forms of technology that will deliver long-term returns.''

Fund managers have become increasingly focused on ensuring their money is put to a responsible use since the global financial crisis.

Australian super funds lost more than 20 per cent of their value during the course of 2008 and have been scrambling to claw back returns since, according to data from professional services firm Towers Watson.

``It makes long-term commercial good sense to do it as we're offering and creating an investment strategy that gives good long-term returns,'' Mr Dundon said.

Financial Services Institute of Australasia chief executive Russell Thomas said the ESG principles would help fund managers improve their returns, the transparency and performance of their investments.

``Super trustees are at the enviable position of being able to significantly influence the quality of information made available in Australia and overseas and driving long-term change,'' he said.

``We know this is important and we know it has significant material impacts on financial performance.''

The principles of responsible investment was a UN initiative set up in 2006 based on issues such as climate change and human rights having a significant impact on the value of financial portfolios.

The initiative gained more traction during the global financial crisis, and more than 850 organisations have signed up o the principles.

Mr Thomas said the guidelines, which had been designed by industry leaders over the past seven years, would provide a practical methodology for fund managers to looking to improve the sustainability of their investments.

Managers are likely to focus initially on developing a benchmark system for understanding the Australian funds management market.

``It's very important that at every stage in the value chain that there is a sense of the importance of the questions the manager needs to ask,'' he said.

``We haven't even begun to fully explore and exploit the information available in our local market.''

Caroline Henshaw AAP

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