What are super funds doing with our $2.7 trillion?

Do you know how your fund invests your money? Do you care?

What are super funds doing with our $2.7 trillion?

Our super funds hold about $2.7 trillion in their coffers – that’s $2.7 trillion of our money. Many fund members do not know in which category their funds are invested, let alone where the fund managers invest those millions.

Richard Denniss, chief economist at The Australia Institute, recently wrote in The Monthly: “Everyone knows that money talks, but most Australians have no idea who talks on behalf of their money. Superannuation is, for most of us, our biggest or second biggest investment. But while few of us would let strangers make all of the decisions about our house, our car or our bank accounts, the average Australian has no idea who the trustees of their superannuation fund are, no idea which companies their life savings are invested in, and no idea how their trustees are wielding the enormous power that comes with casting votes on their behalf at company meetings.”

But is there a newfound transparency emerging at some funds? A willingness not just to share such information but also to broadcast it from the rooftops?

ESG – environmental, social and governance – has become a ‘thing’.

More and more super funds are demonstrating they have a conscience on such matters as global warming, renewable resources, logging – and that’s proving popular in attracting members.

A new(ish) breed of websites offers guidance on how to find a fund that matches your philosophy, asking you about the issues that are most important to you and the investment areas issues you want to avoid.

First State Super, which is set for a name change to Aware Super, is one of the fresh wave of funds putting sustainability up there with investment returns. It recently announced that it was divesting from thermal coal as part of its Climate Change Portfolio Transition Plan.

Liza McDonald, head of responsible investments, told YourLifeChoices that the decision was based on concern about the environment and returns for members.

“Our research, and our view, is that it (thermal coal) is likely to be a stranded asset risk for the fund,” she said. “Our decision to exit thermal coal and not invest in any new thermal coal was on the basis of long-term financial risk.

We’re invested in infrastructure, we’re invested in property, we’re invested in listed equities. All parts of the portfolio in all geographies can be exposed to the longer-term risks of climate change, around sea level rise, severe weather impacts and then transitioning to a low carbon economy, having to reduce emissions.”

It’s about supporting and steering public policy and about the investment case, she said.

“We certainly support policy that also supports a low carbon economy.

“[But] first and foremost, we are here to deliver returns to our members.

“We also think, though, that how we invest and where we invest will deliver those returns but can also impact … both the environment and society.

“So, being aware of what we invest in, how we allocate money into investments, we want to ensure we can deliver sustainable long-term returns.”

The $4.05 billion wealth manager Australian Ethical Super reported record inflows of $660 million for the 2019–20 financial year, telling the Financial Standard that its balanced MySuper offering returned 6.9 per cent net of fees for the quarter. For the 2019–20 financial year, when many funds were struggling to post a positive return, Australian Ethical’s balanced option returned 2.3 per cent net of fees.

Australian Ethical chief financial officer Mark Simons said the results proved that ethical, sustainable investments can generate market-leading results.

“At the moment, ESG funds are outperforming their peers, and I hope that continues,” he said.

“Ethical investments are very much in the mainstream; they create sustainable returns, which are equal if not better [to their not-so-ethical counterparts].”

Morningstar’s latest Global Sustainable Fund Flows report, which examined 3432 sustainable open-end funds and exchange-traded funds (ETFs) across the globe in the second quarter of 2020, found that sustainable funds had outperformed following the March market sell-off.

The $52 billion industry super fund Hesta is firmly on the bandwagon. It has announced it will reduce absolute carbon emissions from its investment portfolios by 33 per cent by 2030, and will transition to zero carbon emissions by 2050.

The Principles for Responsible Investment (PRI) shows the clout of super funds – and their members.

Retirement plans are at the top of the food chain in our financial and economic system, it says. “Almost $50 trillion are held in workplace and personal pension plans, leaving workers and savers with significant, mostly untapped, influence to affect real world outcomes through a range of financial intermediaries.”

In its latest report, PRI compared private retirement systems in Australia, the US and UK and their inclusion of ESG.

It said Australia was taking meaningful steps towards developing strategies. While industry funds had largely set the ball rolling, for-profit funds had taken over the running. Eighty-one per cent of for-profit super funds, it said, now had some form of responsible investment commitment.

“APRA [Australian Prudential Regulation Authority] has applied sustained pressure on super funds to improve their operational and investment efficiency and to make choices simpler for members, but has only recently started to address environmental, social and governance issues,” it said.

Does ethical investing attract members?

Ms McDonald says First State Super has a very active membership based in the health and education areas. It is third on the list of biggest funds, according to a SuperGuide report that ranked funds according to the value of assets under management at 30 June 2019, behind AustralianSuper and QSuper.

“They’re wanting to know how we’re looking at a number of issues and how we think about those when we’re investing,” Ms McDonald said.

“We get a lot of engagement from our members in that respect. And I do see it as a competitive advantage …

“We have a role to engage our members and to educate the community in how we can invest, in how we can deliver returns but also do good.”

Do you choose a super fund according to their investment principles? Are you encouraged by their potential influence?

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    COMMENTS

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    Horace Cope
    2nd Sep 2020
    12:22pm
    Ask anybody what they think of renewable energy, mining or climate change and invariably the answer is based on what the questioner wants to hear and those answers as a percentage are used to try and convince us that the majority has spoken. The truth is that the average person wants their super fund to achieve the highest return and couldn't give a fig as to where those investments are made. The majority of people tell us that we should all buy Australian but the statistics from retailers tell a different story as imported goods that are cheaper outsell Australian made products.

    This country is being held to ransom by a vocal minority who want coal mining to cease, power stations to close, the national herd to be reduced by 2/3rds and we read today that farmers have to conduct a koala census before carrying out any land clearing. The truth is that we need a base load to enable electricity to be reliable, coal mining to enable power stations to produce that base load as well as provide jobs and a balance of trade. We need the national herd to remain stable to keep meat prices at a level that is affordable and farmers, who by the way are our most keen conservationists, need land to grow the crops that feed us.

    Super funds can make political statements about "doing the right thing" but it's a safe bet that if First State Super drops their return percentages and investors leave for a more suitable fund that invests wisely, not ecologically, that the Board will have a rethink. Australians don't generally yell and shout about things, they choose what they believe is the best way for themselves and time will tell if super funds will maintain their stand on this or if they will cave in when people choose higher returns over "feeling good".
    ChannelingOrwell
    2nd Sep 2020
    1:21pm
    I look forward to seeing how these "ethical" funds respond to imminent global cooling with it's associated ramp up in weather extremes, crop failures, and mass starvation.

    Will they revert to coal investments? Should be interesting ...

    Popcorn is on standby for the coming spectacle.
    john
    2nd Sep 2020
    5:27pm
    Crops are good , earth and climate change have been together for millions and millions of years, mass starvation will not occur, there is no coming spectacle!
    Only if Yellowstone explodes, I mean the whole of YELLOWSTONE THERE'D BE A SPECTACLE , BUT THAT MIGHT HAPPEN TOMORROW, OR IN 20,000 YEARS?

    And clean coal investment should continue until we gat nuclear power, and before we let the fools of the left send us into third world conditions with no affordable power.
    That uis the biggest worry, COVID 19 pales into insignificance when you look at no electricity no jobs, just street wars , not like the BLM nonsense in America but the actual type of thing that happens when every one is loose, and murderous to survive.
    There a scenario for you all, we need to regain common sense on this planet, and a reckoning for the idiots is coming. and thats about all, thats coming.
    floss
    2nd Sep 2020
    3:26pm
    Most family owned farms are run with conservation in mind but they are now being taken over by large foreign owned Corporate farmers that rip the guts out of the land all in the the name of profit aided and approved by the Morrison Government.
    Horace Cope
    2nd Sep 2020
    3:35pm
    Well, floss, I won't go through book and chapter on all foreign owned land purchases but I'd like to challenge your assertion as to who was responsible for the sale of Cubbie Station, one of the most contentious sales to date. On 31 August 2012 the Australian Government approved the sale of Cubbie Group, to a consortium comprising Shandong RuYi Scientific & Technological Group Co Ltd, a clothing and textile company owned by Chinese and Japanese investors, and Lempriere Group, an Australian family-owned company involved in wool trading and agricultural property management. The approval provided RuYi with an 80% initial ownership interest on condition that this interest be reduced to 51% within three years. Do you need reminding when Abbott flogged Rudd? Wasn't it 2013?
    john
    2nd Sep 2020
    5:35pm
    Yes Cubbie station, the greatest disaster of water thievery, and those responsible are not blamed, I see how someone can change their politics in an instant, but Rudd was a gold plated ego, with tickets on himself from head to toe. Cubbie should give back its inland sea, and how to Chinese and Japanese investors ban Australians from going in to look.

    Why did they need a pipel;ine foer water from the Murray to Broken Hill because the flood plains were drying up?? Is that right, but some flooding and rain and covers up the reality until the next drought turns up as they have done for millions of years, but.... will nothing about Cubbie be done again. We're in strife here, we need to open up our eyes before we are like those who are hoodwinked but don't know it. The Liberal government needs to move in a direction to fix this and foreign investemnt needs to be controlled, the greedy business' that will do anything for more more more , are going to kill us. Then someone will kill them
    Start today government. And NSW gOVERNMENT ALSO HAS SOME WATER QUESTIONS TO ANSWER TOO!
    john
    2nd Sep 2020
    5:18pm
    I know one place they go those Suoper funds to donations into the Union Movement.
    For what I wonder? The unions are multi million dollar operations these days, employing dills to state secretaries and forgetting about the rank and file, the weak weak as water Royal Commission went no where the gang is still there doing nothing , fighting to get into the ALP and then a cushy job in parliament in a safe seat, I knopw the national secretary of my union in years past , will be in parliament forever with a massive massive swing against him to get him out. A career politician who never worked only in the ladder climbing of union and ALP operations.
    Do you know a tiny percentage of membership monies for their unions, now make up the millions these large union business have in their accounts. In othwer words unions don't need the rankl and file, but by law that is the only thing that should run them, the membershiop money, so where the hell do the people in union leadershi[ get money from, political donations super funds , donations what else where else, they combine into a super union 3 of them and are wottyh a fortune millions in business and in property thay buy , where on earth is the worker in that. NO WHERE, only a few sticking to the corrupt new notion of waht unions are. How does a hard line union boss have so much influence over the politics of a certain party, well they control them obviously and have steel control, or they couldn't do it. They may not be as blatant as the Teamsters in Jimmy Hoffa's day, but gee wiz they are getting close. And if you've been close to them you know!
    old frt
    3rd Sep 2020
    12:24pm
    If you don't agree with the direction your fund is going CHANGE funds . The majority of members are more than happy with the ethics and direction of their funds .


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