Local Government Super on the rise of responsible investing

The Head of Sustainability at one of Australia’s largest certified responsible super funds talks to Canstar about the increasing consumer demand for responsible investments and how climate change could impact investors.

Canstar Q&A with Bill Hartnett – Head of Sustainability at Local Government SuperBill Hartnett

Q: When it comes to investing, what does Local Government Super (LGS) define as responsible?

At LGS, responsible investment means taking a range of environmental, social and governance (ESG) considerations into account when making any investment decision. We bring this to life by investing in companies that have a positive impact on the community and the environment, using investment restrictions, and being an active owner of the companies in which we invest.

Q: Why has there been a rise in consumer demand for responsible investments? When did this begin and what the reasons behind it?

There has been a steady increase in consumer demand for responsible investments over the last five to ten years and this has been for a number of reasons:

  • Increased access to information – 92% of Australians expect their super to be invested responsibly and ethically (RIAA, 2017) and with increased information about how their money is invested, people are able to challenge funds to make sure this is happening.
  • Rise of Non-Government Organisations (NGOs) – there are now many more activist NGOs, such as GetUp! and Market Forces, highlighting key environmental and social issues, and initiating campaigns to address these issues.
  • Ageing population – more people are reaching retirement age and they’re asking questions about how and where their money is invested.
  • Generational change – younger generations are increasingly driven to make sure they are having a positive impact on society, which extends to what they buy, where they shop and how they invest.

Q: Has this rise coincided with more people joining responsible super funds such as LGS?

More people are certainly becoming interested in joining responsible super funds. This growth is supported by recent research from the Responsible Investment Association Australasia (RIAA, 2017) which suggests that 69% of Australians would rather invest in a responsible super fund than one that only focuses on maximising financial returns.

The research also found 78% of Australians would consider switching their super to another provider if their current fund engaged in activities not consistent with their values.

At LGS, we’ve experienced an increase in members joining from outside local government. We’re also finding a high percentage of members who leave local government employment are keeping their super with us.

Q: How does the performance of responsible investment portfolios compare to standard balanced portfolios?

Research (RIAA, 2017) shows the average responsible investment funds across Australian and international share funds generally outperform their conventional counterparts over a 3, 5 and 10 year time period.

The table below displays a snapshot of certified responsible super funds on Canstar’s database. This table has been sorted by three-year performance (highest to lowest).

Please note that the performance information shown in the table is for the investment option used by Canstar in rating of the superannuation product.

Performance is based on the investment option considered in the 2018 Superannuation Star Ratings, which is the option with 60-80% in growth assets; where multiple options satisfy this criteria, the option with 60-80% in growth assets with the greatest funds under management is selected.

Q: How does LGS look to be conscious and proactive in its investments?

We are very aware of Environmental, Social and Governance (ESG) risks and what impact they can have on the operations of a business. As a shareholder in hundreds of Australian and international companies, we take our responsibility seriously, and work actively with the companies in which we invest to improve their environmental, social and governance performance.

LGS is committed to ensuring our investments are sustainable and that a proportion of our investments actively address long-term environmental and social risks. Examples of these include investments in renewable energy generation such as solar and wind farms, hospitals, schools and companies that clearly display sustainable business practices.

Q: What risks does climate change pose to investors?

We consider climate change to be one of the most significant risks to our members’ long term retirement savings, however it does also present some opportunities as well.

We’re also very conscious of managing the risks and opportunities that come with new policies and regulations, technology changes, new markets, and reputation pressures. There are also the physical risks such as increased frequency and severity of major weather events as well as rising sea levels and changing temperatures.

LGS has around $1 billion invested in low carbon opportunities including renewable energy technology and generation, energy and water efficiency, waste and recycling, and sustainable agriculture.

Q: What are your thoughts on the regulatory progress towards improving company transparency around climate change risks?

We see transparency and disclosure as fundamental to responsible investing. In turn, we expect the same of the companies in which we invest. Significant momentum has been building on climate risk disclosure since the release of the FSB’s Taskforce for Climate-related Financial Disclosures (TCFD) recommendations.

These recommendations provide a framework for companies and investors alike to assess and disclose how they are integrating climate change risks and opportunities into their operations and their investments. This type of disclosure is very helpful for us as investors in assessing the ‘climate-readiness’ of companies. This also helps to highlight what, if any, changes we need to encourage at these companies, or what adjustments we may need to make to our investment portfolio.

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