Actions we take today should not compromise the outcomes received by investors tomorrow.

We recognise that we must be increasingly mindful of the footprint our investments make in markets, communities and on the environment.We believe that poor management of long term environmental, social and governance (ESG) related risks by a company not only impact our investments but can potentially harm the broader community and environment as well.We require management to be focused on long-term and sustainable value creation.
 

Our approach to responsible investing

As stewards of our members’ retirement savings, we have a duty to act in their best interests and to protect and grow the real value of their assets  in a sustainable way. 

A critical part of this is a responsibility to monitor and engage with companies in which we invest, directly and through the fund managers we appoint. We also use our ownership rights to vote at company annual general meetings (AGMs). 

Perhaps most importantly, we have an obligation to ensure that the companies we invest in on behalf of members are governed in a way which will enhance their performance over the longer term. 

We believe that good governance is essential to being able to generate the best financial outcome for members. We generally support boards that have a majority of independent directors and that contain a diverse set of experience and skills appropriate to the business.

Additionally, we take an interest in the environmental and social practices of the listed companies in which we invest.  We believe companies that take a sustainable approach to the environment and to the community, including their own workforce, will perform better over the long term.

Aware Super is a signatory to the Australian Asset Owner Stewardship Code (the Code).

The Code consists of six Principles and, as a signatory to the Code, we have developed this Stewardship Statement to provide an overview of how we apply these principles.

An interview with our Head of Responsible Investing (Liza McDonald)  and CFA Societies Australia:

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How we're investing in Australia's future

Climate change portfolio transition plan

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Responsible Investment describes an investment process that incorporates an active consideration of environmental, social and corporate governance (ESG) factors (also referred to as sustainability considerations) within investment decision making and ownership practices.

It's driven by the growing recognition among investors that responsible corporate behaviour can have a positive influence on the financial performance of companies, particularly over the long term.

It follows that investors who are aware of ESG-related factors that affect investment performance are better placed to manage risk and generate value.

ESG/sustainability refers to a range of factors associated with the long-term financial performance of companies, including:

  • Corporate structures that reduce agency risk (corporate governance); and
  • Appropriate oversight and management of risks that may result in costs or constraints on the company’s operations, and opportunities associated with superior management of these risks (environmental and social)

ESG/sustainability factors range from board skills and independence to vulnerability with respect to carbon costs or regulatory constraints, human capital management practices and stakeholder relations.

We have committed to the Principles for Responsible Investment (PRI), a universal framework to help investors learn from each other and be a collective voice on ESG issues. 

The Principles include incorporating ESG issues into investment analysis, decision-making, policies and practices.

The Principles are set out below:

  1. Incorporate ESG issues into investment analysis and decision-making processes.
  2. Be active owners and incorporate ESG issues into our ownership policies and practices.
  3. Seek appropriate disclosure on ESG issues by the entities in which we invest.
  4. Promote acceptance and implementation of the Principles within the investment industry.
  5. Work together to enhance our effectiveness in implementing the Principles.
  6. Report on our activities and progress towards implementing the Principles.

First State Super is required to report annually on our ESG activities to the PRI.  For the period ending 31 December 2017, reported in 2018, we achieved an A+ rating for the majority of indicators and above the median across most areas. 

PRI Assessment Methodology
2018 First State Super Assessment Report
2018 First StateSuper Transparency Report

We’ve also joined some initiatives that we believe can deliver on our ESG promise:

  • Carbon Disclosure Project - a global initiative aimed at requiring the largest companies to disclose information on their greenhouse gas emissions.
  • Water Disclosure Project – helping businesses and investors understand the risks and opportunities associated with water-related issues around the world.
  • ESG Research Australia – encouraging better investment decisions through investment research.
  • Investor Group on Climate Change (IGCC) – Australian and New Zealand collaboration on the impact of climate change on the financial value of investments.
  • Responsible Investment Association Australasia (RIAA) is the peak industry body representing responsible, ethical and impact investors across Australia and New Zealand. RIAA’s goal is to see more capital being invested more responsibly, shifting more capital into sustainable assets and enterprises, shaping responsible financial markets to underpin strong investment returns and deliver a healthier economy, society and environment. Our Australian Equities Socially Responsible Investment Option has been certified by RIAA.

 

Climate change and environmental issues pose both risks and opportunities for the long-term performance of our members’ investments.

We are working with our external fund managers, and with the listed companies in which we invest, to address these impacts.  Our Climate Change Adaptation Plan outlines how we will do this by:

  • weather-proofing our investment portfolio by assessing asset specific climate change risks and looking at options to build resilience;
  • engaging with corporate boards and senior executives to proactively assess and manage climate change risk; and
  • finally, by seeking new investment in renewable energy assets and other sectors that benefit from climate change adaptation.

Our approach to climate change has received international recognition via the Asset Owners Disclosure Project (AODP) which has ranked First State Super 13th globally with a BBB rating and the highest ranked asset owner in Asia Pacific.

In addition to being a signatory to the United Nations Principles of Responsible Investment, we are signatories to the recent Climate Action 100+, which was launched in 2017 at the One Planet Summit in Paris.  This program seeks to engage the world’s largest green-house gas emitting companies on climate action.

If you want to know more, you can read our full Climate Change Position Statement as well as a report we published in May 2016 setting out our Climate Change Adaptation Plan. 

The Fund invests in a diverse range of companies on behalf of our members. These investments, or shares, entitle us and other shareholders to vote on various issues at the company’s annual general meeting or at a special meeting. Examples of resolutions that might be voted on include the election of the board of directors, executive remuneration plans, new capital raisings and risk management disclosure.

As First State Super is committed to being an active owner, we use our voting rights to vote on company proposals and support resolutions that seek to enhance value, ensure appropriate board composition, and encourage performance-based remuneration practices. 

More information on our approach and our proxy voting summary for Australian shares and International shares is available here.

An important part of investing responsibly is engaging with the companies we invest in so that they understand who we are and what is in our members’ best interests.

As part of this engagement, we communicate with companies to achieve improvements in corporate governance or address under-performance in areas like environmental or social outcomes.

Engagement also includes communication with government regulators to improve the standards that apply to all companies – for instance in taxation law, and the law affecting directors’ duties and financial reporting.

Our engagement program works on several levels. We:

  • engage directly with the companies and with fund managers
  • participate in collaborative initiatives with other institutional investors, and
  • work in conjunction with a specialist corporate engagement firms. 
    ACSI - Australian Council of Superannuation Investors.  ACSI engages with major listed Australian companies on ESG issues; provides research, policy and voting advice and interacts with the regulators to ensure markets are focused on the long-term benefits of investors. 
    Refer to ACSI's website for more information.

    Hermes EOS helps long-term institutional investors around the world to meet their fiduciary responsibilities and become active owners of international public companies. Their team of engagement and voting specialists monitors the investments of our clients in global companies and intervenes where necessary with the aim of improving performance and sustainability.

With our members first approach and considering our fiduciary duty and investment belief that there are substantial longer-term risks in the tobacco sector, from 1 July 2012, Aware Super decided not to invest in companies involved in the manufacture of tobacco or cigarettes.

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