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 ethical considerations and labour standards, 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. 

ESG approach

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

One of our investment philosophy beliefs is to be an active asset owner and to play a leadership role where we have the capability and conviction.

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: 

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 CO2e 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 low-carbon society, and will continue to invest in low carbon modes of production, renewable energy generation and new technologies where there is a compelling investment case.

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

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 can increase Australia’s global competitiveness and innovation, create skilled jobs, strengthen regional communities and 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, from time to time.

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 by 50% by 2030, compared to a baseline as at 30 June 2022.

This means a:

  1. 50% reduction in our attributable CO2 emissions and
  2. 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.

Strong emphasis will be given to originating opportunities in regional Australia and/or that support the creation of new jobs, training and employment opportunities for vulnerable people. 

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

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 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. 

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

Environmental 

Social 

Governance 

Climate change 

Emissions, effluence and waste

Biodiversity 

Water quality 

Waste management 

Site remediation 

Land use change 

Resource use

Single use plastics 

Forest conservation 

Regulatory compliance 

Worker health and safety 

Stakeholder relations

Indigenous relations 

Human rights 

Modern slavery 

Consumer production 

Animal welfare 

Privacy 

Data security 

Supply chain 

Human capital

Conflicts of interest 

Shareholders rights 

Diversity 

Corporate culture

Executive remuneration 

Enterprise risk 

Cybersecurity 

Bribery and corruption 

Resilience 

Whistle blower 

Accounting standards 

Which ESG issues 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, labour standards are considered on a case-by-case basis where the relevant labour rights are deemed material to the investment case.  

Our approach to ESG integration includes: 

  • assessing ESG factors when selecting new investments and managers across all asset classes, where possible
  • 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 portfolio across all investment options)
  • 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 direct engagement with the underlying business’s management have failed.

 

ESG impact: investments with positive ESG outcomes

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

Examples of ESG impact investment opportunities that we may consider from time to time include sustainable farming, renewable energy generation, waste management, social infrastructure including education, healthcare and water and (potentially) affordable housing. It may also include capital expenditure initiatives to improve the environmental ratings of buildings and other assets.

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, where practicable (for our Australian and global shares portfolios). 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 often work collaboratively with ACSI — an expert advisor on ESG matters — and vote in line with their recommendations. This approach allows us to pool our voting power with like-minded investors and gives us greater influence over how companies manage ESG risks and outcomes.  

Find our voting disclosures here.

Below is a summary of our previous voting record in the Australian equity market: 

Engagement 

We engage with listed companies through the Australian Council of Superannuation Investors (ACSI) on material ESG issues. These issues include climate change, human and labour rights, indigenous relations and remuneration. There may be other issues that are taken into account during our engagement with listed companies, as we determine appropriate from time to time. 

Where possible, we also directly engage with unlisted companies associated with unlisted assets held as part of our private market portfolios, on ESG issues we determine appropriate from time to time

 

Exclusions and divestment

We explicitly exclude companies involved primarily in the production of tobacco and controversial weapons from all external investment mandates where possible. 

We’re also transitioning to customised (MSCI) benchmarks for our external managers in the Australian and global shares asset classes that exclude companies primarily involved in the exploration and production of thermal coal.

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 private markets (infrastructure, property and private equity), we prohibit any new investments in fossil fuel related companies and assets.

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.

Member choice: the Sustainable option

Our Sustainable investment option puts additional emphasis on ESG considerations (to the approaches that generally apply to all our investment options) when making investment decisions and setting target asset allocations.

This is achieved by measures such as investing in investment managers that we consider strongly integrate ESG into their security selection and investment processes, and managers that are expected to deliver lower carbon emissions exposure than their relevant benchmark (these generally relate to the option’s Australian and global shares asset classes).

The Sustainable option has a similar allocation to growth and defensive assets as the Balanced option. For details on the asset allocation, go to investment options

In addition to the ESG considerations that generally apply to all our investment options (as described above), two additional constraints are imposed:

  1. In the Australian and global shares asset classes, the Sustainable option only invests in external equity managers that we believe have strong ESG performance, manage to our customised MSCI benchmarks and which are generally expected to deliver lower carbon emissions relative to the benchmark.
  2. The Sustainable option excludes assets in the infrastructure asset class that are primarily involved in the production, combustion or transmission of fossil fuels.

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

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