What is ESG?
ESG refers to environmental, social and governance (ESG) investing — a style of investing that considers how companies care for the planet, support people and communities, and are managed responsibly.
Environmental
The way industries and companies manage their environmental impact. This may include natural resource use and degradation, waste, pollution, greenhouse gas emissions, climate change, clean technology products and services, and environmental management practices.
Social
The way companies manage their impact on society. This may include human rights, labour relations and standards, workplace health and safety, demographic changes, supply-chain and community impact.
Governance
A company’s business practices. This may include incentive plans, corporate accountability structures, compliance, bribery and corruption, conflicts of interest and related-party transactions, shareholder rights, and accounting and audit.
There are different ways ESG factors can be incorporated into an investment approach, each of which may influence a fund’s performance and risk profile. Below is a summary of some common methods.
ESG investment approaches
Exclusionary
The exclusion of companies based on activity that may conflict with certain ESG values, e.g. fossil fuel, controversial weapons and tobacco.
Inclusionary
The inclusion of companies or industries that show positive management of ESG risks.
Integration
The integration of important ESG information in investment risk analysis and decision making.
Active ownership
The use of investor rights, e.g. voting and engaging with companies, to encourage better ESG practices.
The growth in ESG investing
A growing number of people want investments that reflects their values and what matters to them. ESG investing aligns with this by focusing on how companies care for the environment, their people and communities, and how responsibly they are managed.
Growing interest in ESG investing is driving ongoing change in the sector, supported by improved regulation, more reliable data, and emerging focus areas such as the energy transition, water and health.
Our approach to investing
Our duty is to always act in our members’ best financial interests. Our focus is to grow our members’ superannuation balances over the long-term, building wealth for their retirement, while managing risk responsibly.
We believe that incorporating responsible investment considerations in investment analysis and decision making has a positive impact on long-term investment performance. This includes consideration of Sustainability factors.
The Fund considers exclusions in its approach to ESG investing to avoid investing in certain companies involved in the production of:
- Tobacco products where it accounts for more than 10% of total revenue in any company;
- Controversial weapons¹ where it accounts for more than 10% of total revenue in any one company; and
- Thermal coal where it accounts for more than 10% of total revenue in any one company.
The exclusions only apply to directly held share portfolios where the Trustee has the ability to set specific exclusions within investment manager mandates.
For pooled investment vehicles, the Trustee can’t ask managers to exclude specific stocks or sectors. This is because the Trustee is one of many investors in such vehicles and does not have authority to direct the fund’s investment strategy. The Trustee relies on careful selection and ongoing monitoring of its’ investment managers to ensure alignment with our responsible investment expectations, rather than applying fund specific exclusions.
Implementation
ESG and responsible investing are factors that the Trustee takes into account in the selection of investment managers and investment opportunities. Investment opportunities mean a potential asset or financial arrangement which is assessed, among other things, against its alignment with ESG and responsible investment considerations.
Investment manager oversight
Our investment managers help manage ESG risks and opportunities on our behalf. We assess how they consider ESG factors as part of our formal manager selection and ongoing review process.
Advocate for change
We are a member of the Australian Council of Superannuation Investors (ACSI), which engages with ASX 200 listed companies on behalf of its members. Through ACSI, we support efforts to improve ESG practices across areas such as board diversity, corporate governance, climate change, workforce issues, and corporate culture.
Member preferences
Through our investment manager oversight process and the Balanced Socially Responsible option we provide members with investment choice that may align with their personal preferences.
¹ Includes landmines, biological weapons, blinding laser weapons, chemical weapons, cluster munitions, depleted uranium weapons, incendiary weapons, non-detectable fragments, nuclear weapons and white phosphorus weapons.