Environmental, social and governance (ESG)

Responsible investment is an important part of our investment decision-making. It plays a role in delivering long-term sustainable returns on your super.  

Most investments embody ESG-related risks. The assessment and management of ESG risk is an important component of our investment strategy.

We take ESG issues, including climate change, into account in the selection, retention or realisation of our investments. We do this for all of our investment options through our approach to responsible investment.

We believe proactive management and engagement with ESG-related risks and opportunities improves the robustness of our decision-making and helps us to achieve our long-term investment objectives. For more detail, see our ESG policy.

ESG approach

Our primary goal is to deliver strong, long-term returns in accordance with our investment philosophy.

One of our investment philosophies is to be an active asset owner and to play a leadership role where we can.

Responsible ownership means large investors should assess the broader environmental and social impacts of capital allocation decisions and recognise:

  • these decisions may affect markets, the environment, the management of the assets we own and the local communities in which they operate (our ESG footprint)
  • the ultimate asset owners are fund members, a large and diverse group who will inevitably experience these impacts in some way in their lives in the future and
  • the blind pursuit of short-term gains by large investors acting without consideration of longer-term consequences can undermine longer-term returns. 

Given our size and presence in the market, we recognise the need to consider our ESG footprint both in terms of risk management (ESG integration) and our investment opportunities producing positive and measurable environmental and social outcomes (ESG impact).

ESG priorities

We’re realistic about the extent to which we can influence global outcomes. Our focus is on managing risks specific to our portfolio and targeting new opportunities that play to our strengths in the following two priority areas: 

1. Supporting the transition to a low-carbon economy

We agree with the consensus scientific opinion that the global climate is warming. Our specific actions and approach to climate change are detailed in our Climate Change Position Statement. The Intergovernmental Panel on Climate Change (IPCC) concludes that global warming is driven by emissions from human activities and that the climate has warmed at an unprecedented rate in the last 200 years. In 2015, a legally binding international treaty on climate change, ‘the Paris Agreement’ was adopted, to encourage nations to undertake efforts to reduce carbon emissions to limit global temperature increase to well below 2 degrees Celsius. 

We support this global action and believe we have an important role to play as a large asset owner and capital allocator adapting to the increasing financial risks (and opportunities) associated with climate change. We support the transition to a lower carbon economy, and will continue to invest in low carbon modes of production, renewable energy generation and new technologies where there is a strong investment case.

For more details on what we’re doing, read our Climate Change Position Statement.

2. Supporting Australian small and medium businesses and strengthening communities

As a mid-sized fund, we’re well-placed to take advantage of niche opportunities that many of our competitors can’t. We see an opportunity to partner with small and medium-sized enterprises that have compelling growth aspirations and/or new technologies, but that can’t yet access traditional debt or private equity risk capital.

We’re actively seeking to invest in new assets in regional areas that meet our investment due diligence criteria. These kinds of investments typically present strong socio-economic impacts. They may contribute to increasing Australia’s global competitiveness and innovation, create skilled jobs, strengthen regional communities, or rebuild local manufacturing centres, logistics and supply chains.

ESG targets

We know how vital your super is to your future. We believe responsible investing plays a role in delivering long-term sustainable returns on your super. We also believe proactive management and engagement with ESG-related risks and opportunities improves the robustness of our decision-making and helps us to achieve our long-term investment objectives.

To support our ESG priorities, we have set three ESG targets:

Target 1: Allocate more than 15% of our total investment portfolio to impact investments by 2030.

We define impact investments as those that provide positive social and environmental outcomes while also generating compelling financial returns. To be classified as an impact investment, each opportunity must meet specific criteria set out by our Investment Team and align with our ESG priorities.

Positive social and environmental outcomes include carbon emission reduction, increasing recycling or reducing waste, and increasing access to healthcare and education, such as through the financing of facilities or increasing employment in essential services. Themes include supporting the transition to a lower carbon economy, investing in regionally located businesses or supporting priority sectors like affordable healthcare, education and housing. 

Target 2: Reduce our total investment portfolio’s attributable carbon footprint by 2030.

We aim to reduce our total investment portfolio's attributable carbon footprint (i.e. financed emissions) by 50% by 2030, compared to a baseline as at 30 June 2022.

This means a:

  • 50% reduction in our attributable (financed) CO2 emissions and
  • 50% reduction in our attributable fossil fuel reserves.

Target 3: Invest $1.5 billion or more in Australian small and medium-sized businesses by 2030.

For investment purposes, we define small and medium-sized businesses as having an enterprise valued at less than A$700 million.

While we aim to achieve positive ESG impacts using measurable ESG targets within certain time frames, this isn't guaranteed. 

ESG integration

ESG integration involves considering a broad range of ESG risks and processes within our investment risk management framework. ESG analysis is undertaken prior to making investments and throughout ownership of the investments, taking into consideration materiality and risk impacts on the portfolio. ESG risks are integrated in our investment due diligence process for new and existing managers and assets. 

Our approach to ESG integration includes: 

  • Evaluating ESG risk factors alongside other investment-related risks within due diligence processes when selecting new investments to determine materialty of the risk and whether it is acceptable
  • ongoing review of ESG risks across the portfolio
  • periodic review of our investment managers’ ESG policies and practices 
  • engaging with our investment managers and asset operators with the aim of improving their ESG credentials and outcomes where possible
  • voting on listed company resolutions where we’re entitled to vote, for our Australian and global shares holdings
  • excluding listed securities or other investments, and/or instructing external managers to divest assets, that we believe have intolerable ESG risks, including where efforts at engagement have failed.

A broad range of ESG-related risks that we may consider include: 

    Environmental 

    Social 

    Governance 

    Climate change 

    Emissions, effluence and waste

    Biodiversity 

    Water quality 

    Site remediation 

    Land use change 

    Resource use

    Single use plastics 

    Forest conservation 

    Regulatory compliance 

    Worker's rights

    Stakeholder relations

    Worker health and safety

    First nations relations

    Modern slavery 

    Consumer production 

    Animal welfare 

    Privacy 

    Data security 

    Supply chain 

    Conflicts of interest 

    Shareholder rights 

    Diversity 

    Corporate culture

    Executive remuneration 

    Enterprise risk 

    Cybersecurity 

    Bribery and corruption 

    Resilience 

    Whistle blower 

    Which ESG risks we consider and how we consider them varies depending on the nature of the investment, the asset class, the materiality of the ESG-related risks and other matters. For example, worker health and safety is considered on a case-by-case basis where the relevant health and safety risks are deemed material to the investment case.   

    Modern slavery

    We acknowledge that modern slavery is a growing and complex problem. It’s best addressed by a collective commitment by businesses to end all forms of modern slavery. As a participant in the Australian business community, we're committed to contributing to this common goal.

    ESG impact

    We proactively seek strong investment opportunities that either directly create positive environmental and/or social outcomes or take advantage of changing consumer patterns, technologies, or regulations in response to ESG-related trends and developments.

    Examples of positive social and environmental outcomes include carbon emission abatement, increasing recycling or reducing waste, and increasing access to healthcare and education, such as through the financing of facilities or increasing employment in essential services. 

    We use out internal impact criteria to assess the contribution of the investment opportunity to the environmental or social criteria targeted and score the investment based on its contribution to this criteria. 

    Examples of ESG impact investment opportunities that we consider from time to time include sustainable farming, renewable energy generation, waste management, social infrastructure including education, healthcare, water, and affordable housing. 

    Active ownership

    Active ownership involves exerting influence to improve ESG practices, outcomes, and disclosure through tools such as voting and engagement.  

    Voting

    As a large investor, we actively exercise our share ownership rights including voting on important shareholder resolutions, for our Australian and global shares portfolio. Resolutions are voted upon in a manner that is consistent with our ESG Integration and Impact Strategy. 

    While we retain autonomy over how we vote,we recognise the significant resources needed to research ESG-related issues and therefore take voting advice from our expert proxy advisers prior to making voting decisions.

    Find our voting disclosures here.
    July - September 2023 Voting Activity​

    Engagement 

    Spirit Super believes in active ownership and therefore prioritises engagement over divestment as a strategy. Engagement involves actively participating in discussions with companies to encourage positive changes in environmental, social and governance practices. Examples include climate change, corporate governance, board diversity, workforce issues and corporate culture. Divestment, on the other hand, removes any scope to influence outcomes. 

     

    Exclusions

    We exclude tobacco manufacturing companies, controversial weapons manufacturers and companies primarily involved in the exploration and/or production of thermal coal from our equities portfolio (with one exception).1

    The following exclusions are implementedeither through customised MSCI benchmarks or through exclusion clauses within Investment Management agreements within Australian and international shares managers.2

    • Tobacco: Any company whose primary business is the manufacture of tobacco, as defined by the MSCI GICS sub-industry "Tobacco".
    • Thermal coal: Any company primarily involved in the production and mining of coal in the GICS sub-industry "Coal and Consumable Fuels". 
    • Controversial Weapons: Any company which has any ties to cluster munitions, landmines, biological / chemical weapons, depleted uranium weapons, blinding laser weapons, incendiary weapons, and/or non-detectable fragments. 

    As noted above, we reserve the right to exclude other securities and/or to instruct managers to divest assets that we believe have intolerable ESG-related risks, and where efforts at direct engagement with management have failed. 

    With respect to direct holdings in infrastructure, property, and private equity, we prohibit any new investments in companies primarily involved in the production, combustion or transmission of fossil fuels and proactively engage with managers of any existing direct fossil fuel related assets in relation to decarbonisation plans. 

    UNPRI

    We’re a signatory to the United Nations Principles for Responsible Investment (UNPRI) and we’re committed to meeting our obligations as a signatory to the UNPRI and its six aspirational principles, including incorporating ESG issues into decision-making processes, being owners and seeking to report on progress in implementing principles. 

    Member choice: the Sustainable option

    Our Sustainable investment option has a similar strategic asset allocation to growth and defensive assets as the Balanced option. The main point of difference is the Sustainable option is the selection of Australian and global shares investment managers that we consider to be ESG leaders, for example by robust ESG risk consideration during investment decision making and strong stewardship capabilities, or through managers that commit to delivering lower carbon emissions exposure relative to their relevant benchmark (MSCI ACWI). 

    For details on the asset allocation, go to investment options

    For more details, read Our Sustainable investment option fact sheet.

     

    1. We are unable to exclude thermal coal from one legal pooled fund investment at this time. 

    2. Investment Management Agreements are for mandates and not for pooled funds. 

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