By considering environmental, social and governance (ESG) issues, we can provide strong investment returns alongside positive outcomes for the community, economy and environment.
ESG and why it’s important
Integrating ESG considerations requires a long-term, sustainable approach. When making investment decisions across all asset classes, we look at:
- Environmental issues like climate change, waste, pollution, and biodiversity.
- Social issues like diversity & inclusion; labour relations including supply chain management, workplace health & safety, conduct & culture and adherence to international conventions.
- Governance issues like board structure, director remuneration, and transparency & reporting.
By integrating ESG issues in our portfolios we behave as a responsible owner, not just an investor.
As an owner, it’s our responsibility to ensure that fund managers, boards or company executives act in our interests to provide strong long-term investment returns and good outcomes for our members.
Integrating ESG – investing responsibly across our portfolio
By effectively managing ESG issues, we can help the companies we invest in find new opportunities, steer capital towards more attractive areas, and manage long-term investment risks.
We consider ESG issues at many stages – from selecting investments and conducting due diligence on investment managers, to ownership activities like voting shares, company engagement, exclusion, and advocacy.
Investment selection and climate change considerations
When selecting investment managers, it’s important to determine how well they integrate ESG issues into their portfolios because this supports better long-term returns for our members. We focus on managers’ policies, alignment, transparency, process, and active ownership approach.
Climate change is a key part of our ESG assessment. As a long-term investor, we see climate change as one of the most significant financial risks to our portfolio, and our members’ retirement savings, over the long-term.
We have therefore set ambitious and transparent targets for how we as a fund respond to the risks and opportunities of climate change. These include our recent announcement that we have divested from companies that derive more than 10 per cent of their revenue from thermal coal. We therefore engage our fund managers on how they factor climate change into their investment decisions and work with them to set ambitious targets across the portfolio.
We have been recognised by the UN-backed Principles of Responsible Investment as leaders for our approach to manager selection, appointment and monitoring and our approach to climate change.
Our responsibility as an asset owner is to make sure companies we invest in are governed and managed to enhance their long-term performance. We do this through:
- Voting shares – exercising our voting rights is an effective way to express our views on good governance. We use our voting rights to support resolutions that seek to enhance value for our members across a range of areas such as board composition, executive remuneration, diversity and culture – and importantly, climate-related disclosure and action.
- Engagement – when engaging on ESG matters directly with companies or indirectly via fund managers, we pay close attention to risks and opportunities that can impact the long-term sustainability of our investments (e.g. climate change, worker health & safety, diversity, conduct & culture, social licence to operate, supply chain management ).
- Exclusions – while we typically engage with a company or seek to influence its ESG-related practices, sometimes we exclude certain companies or sectors (e.g. if the investment causes damage to our fund’s reputation or contravenes international treaties).
- Advocacy – we collaborate formally and informally with other super funds, institutions and global initiatives to support sustainability for the industry and economy.
Collaboration & Advocacy
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 , which include incorporating ESG issues into investment analysis, decision-making, policies and practices, 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.
Aware Super is required to report annually on our ESG activities to the PRI. For the period ending 31 December 2019, reported in 2020, we achieved an A+ or A rating for most indicators and above the median across most areas.
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) - 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 long-term investment returns and deliver a healthier economy, society and environment. Our Australian Equities Socially Responsible Investment Option has been certified by RIAA.
• Climate League 2030 – Climate League 2030 is a ten-year, private sector-focused initiative to pledge support for Paris-aligned emissions reductions and commit action towards this goal. Working together investors, businesses, insurers and banks can make a significant contribution towards Paris-aligned emissions reductions for Australia
• Global Investors for Sustainable Development: The GISD Alliance is made up of 30 CEOs, recognised leaders of major financial institutions and corporations spanning all the regions of the world. Aware Super is the only Australia member of the Alliance. The objective of the Alliance is to address incentives for long-term investment for sustainable development. This will be achieved through leveraging the unique insights of the Alliance members in identifying policy, institutional, market, and other impediments to financing sustainable development, as well as advancing viable solutions.
• Investors against Slavery & Trafficking Asia-Pacific (IAST APAC) is an investor-led initiative that has been convened to engage with companies in the APAC region in which we collectively invest, and promote effective action among them to find, fix and prevent modern slavery, labour exploitation and human trafficking. With over 40 million victims, there are more people enslaved today than at any other time in history. Aware Super is on the Steering Committee of this initiative. Read more about IAST APAC
• 40:40 Vision - 40:40 Vision is an investor-led initiative to achieve gender balance in executive leadership across all ASX200 companies by 2030 and seeks to move beyond tokenism to achieve this through business-oriented structural transformation, encouraging companies to set and publicly report on progress against composition targets for executive leadership.
40:40 stands for: 40% women / 40% men / 20% any gender. Read more about 40:40 Vision