should it be the norm?
Responsible Investment Association Australia (RIAA) commissioned a report into Responsible Investment (RI) by Lonergan Research. Primarily the report was exploring the effect of social issues on how Australian invest their funds.
The outcome of this survey is further evidence that the tide is turning for Responsible Investment. Every day I see RI in action, and having quantifiable evidence is crucial to ensuring that the products and services of Investment Managers is meeting the need of the underlying investor. The survey found that 92 percent of Australians expect their superannuation and other investments to be invested responsibly and ethically. That is a clear statement that there is an expectation of investment professionals to take into account environmental, social and governance (ESG) factors when reviewing companies they invest in.
As a previous Client Service Manager to institutional investors I was happy to see the drive from super funds such as HESTA, Aust Super and REST pushing their Investment Managers, to adopt their respective ESG Policies Now we are seeing the drive from individuals. A key finding of the report is that 7 in 10 Australians would rather invest in a responsible super fund and that millennials are the most likely to prefer to invest. No doubt an important signal to the Australian Super industry, Fund Managers and Financial Planners that Millennials would consider switching their investments to another provider if their current fund engaged in activates inconsistent with their values.
There is evidence everywhere of the push to consider RI alongside the financial outcome. I exit at Wynard train station (Sydney) and the CommBank Cops a serve from Green Peace and the Dutch fund PFZW is to divest from high carbon companies and the divestments represent about 1.7 billion euros.
Citing the need to invest in a way that protects the environment, the fund said it would divest completely from coal-related companies by 2020, while investments in fossil fuel companies will be reduced by 30 percent.
“This will take place in four annual steps and result in investments being withdrawn from approximately 250 companies” focused in the energy, utilities and materials sectors, the fund said in a statement. Most importantly they believe the investment change will be “neutral to slightly positive” for medium-term investment returns. Do I hear anyone thinking stranded assets yet?
If that is not enough to scare a miner closer to home the Responsible Investment survey came the day before Commonwealth Bank chairman Catherine Livingstone told shareholders that Australia’s largest bank is winding down its funding of coal projects. “We expect that trend to continue over time as we help finance the transition to a low carbon economy.”
Wynyard Train Station NSW
We are now seeing internationally recognised economic and financial organisations debate ‘stranded asset’ exposures and asset divestitures and warn of the significant economic consequences of climate change in the financial press. We are also witnessing a surge in political and regulatory interventions in response to climate change, reflecting community concerns.
Many of these risks derive from evolving societal, governmental and market perceptions rather than directly from the potential physical impacts of climate change. However, irrespective of their source, they have the potential to quickly and significantly affect the value of investments and, therefore, represent both material financial risks (and opportunities).
These issues cannot be ignored by trustees and their directors as part of the investment governance of their funds, notwithstanding their personal, moral or ideological views on the reality of climate change.
For those that don’t consider RI ESG as a key theme for investing please consider this.
A key requirement contained in the act is that trustees perform their duties and exercise their power in the best interests of beneficiaries. – Section 52 of the Superannuation Industry (Supervision) Act 1993
The above doesn’t say anything to the effect of best financial interest. If you have interpreted that as what it is saying consider that is really saying that you need to operate in beneficially best interest as opposed to yours. The best interest will consider all potential risks.
Considering that’s what Australians (yes primarily Millennials, and we have a paper to follow on their importance to our economy) Glennon Capital is creating a fund to allow their investment desires to be realised alongside their values. To register an interest, please email me as I would love to discuss how your values can be represented in our fund.
|Tarren Summers is the Co Portfolio Manager of the GC RI Future Leaders Fund.|
He has over 20 years experience working in equities markets and boutique Fund Managers. Tarren is responsible for implementing, and contributing to the determination of, the business’s operational and strategic objectives and distribution of the investment capabilities. An important part of Tarren’s role is to ensure that the investment team have all the resources required to perform their function without distraction, while also ensuring that investors are well informed about their investments.
Tarren began his career at Mercantile Mutual in Client Service’s before moving to London and working in transition management for Merrill Lynch. Recent roles include working at PM Capital Ltd (Paul Moore) for over eight years as the Portfolio Analyst with responsibility for ESG analysis and investment analytics. Tarren worked with Investors Mutual (Anton Tagliaferro) where he was the Senior Analyst responsible for research data and communication. He joined Paradice Investment Management (David Paradice) as the Head of Client Services. He holds Bachelor of Science from the University of New England, Graduate Diploma Applied Investment Management and a Diploma of Financial Planning.
Tarren on ESG. Whilst many believe the jury is still out on whether ESG factors influence the bottom line there is no doubts on his views and the influences it can have. ESG factors are critical to managing a business and must form part of an analysts research to be worthy of representing a complete analysis prior to presenting the stock at the stock selection meeting. ESG is becoming crucial to carrying out one’s fiduciary duty via mandate execution but one that morally I have always considered when reviewing a stock within the portfolios.
Tarren has completed the PRI Academy training in environmental, social and corporate governance (ESG) issues for the investment and finance community.