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Published 28 March 2013 07:06, Updated 28 March 2013 10:45
Investigator: ACSI chief executive Ann Byrne. Photo: Glenn Hunt
The members of the Australian Council of Superannuation Investors (ACSI) manage $350 billion in funds between them so when chief executive Ann Byrne speaks, the market does well to listen.
With the power of most industry superannuation funds (and quite a few big public sector super funds) behind it, ACSI has won many of its battles, from executive pay to shareholder rights.
Byrne says the issues commanding her attention now are the need for better disclosure of environmental and social risk, the lack of women on boards of listed companies and the bribery and corruption gauntlet sometimes run by companies doing business overseas.
Byrne is clear that ACSI is not advocating for socially responsible investment - that is an issue for individual funds and their members. But her organisation plays a role in improving the management of environmental, social and governance (ESG) risk.
“One of the main things we’re trying to do is have that ESG risk integrated into mainstream investment models,” Byrne says. “Generally some investment models historically have really only accounted for financial risk.
“If you think about someone who is in a superannuation fund – they’re joining that fund when they’re 25 and they’re going to be in that fund until they’re 65 and these long-term risks are going to affect what they retire with.”
For example, Byrne says there are quite a few companies within the S&P/ASX 200 that will be affected by climate change and the question for ACSI is whether they have the proper management systems to manage climate change effectively. She also raises the issue of labour standards for companies sourcing products from overseas and particularly the spectre of child labour, which can cause significant bad publicity and damage corporate reputations.
Byrne is concerned that many mid-size to smaller businesses – generally companies outside the S&P/ASX’s top 50 – are failing to properly disclose their environmental and social risks, making it difficult for investment managers to price it in.
“Disclosure of environmental and social risk is a big one for everybody because you can’t manage these risks unless you know about them,” Byrne says. “Currently some of them are not disclosing their risks and that’s a concern for investors because a sign that you’re managing it is that you’re disclosing it. I can’t make a judgement about whether they know about it.”
The Australian Financial Review recently reported that the Construction, Forestry, Mining and Energy Union was considering dumping Cbus as its default super fund and had established a panel to look at the alternatives.
According to sources, the panel had drawn up a list of questions to put to potential super providers, including about the funds’ adherence to the United Nations Principles of Responsible Investment (UNPRI).
Byrne says the UNPRI principles, which include an undertaking to incorporate ESG principles into investment decisions, are a good framework for funds, but ultimately provide only guidance and people need to develop their own approach.
In other recent news, the Future Fund, which provides superannuation for Commonwealth public servants, announced it was dumping tobacco investment from its portfolio in February this year.
Byrne says this is just one of a number of ways for funds to approach the issue of investments that members might consider socially unacceptable.
“They can exclude an investment from their portfolio, such as the Future Fund has done,” she says. “Many funds have a socially responsible investment option that excludes certain things from their portfolio, so there is that negative screening. Or alternatively funds can engage with companies and have discussions with customers about improving their practices in this particular area. “What we aim to do is integrate ESG risk into the mainstream and it’s up to individual funds what they do about the reputational risk,” she says.
“The advantage of negative screening is that you are no longer invested in the stock and the disadvantage is that you can not change the way that company deals with the issue.”
Byrne does not mention the third alternative, which is to invest actively in funds that investors may perceive as socially irresponsible. In the US, investors can opt for the Vice Fund, which derives a significant portion of its revenue from tobacco, gambling, weaponry and alcohol.
However, a study in the Journal Of Investing in 2005 found that a so-called vice portfolio did not provide an excess return and in fact socially responsible funds did better over five to 10 years.
Meanwhile, ACSI has taken an active position on the issue of diversity in boards for listed companies. Byrne says every company in the S&P/ASX 200 should aim to have a minimum of two women on their boards, if not three.
“We’ve decided to concentrate on gender because women are more than 50 per cent of the population and current findings show that the ASX 200 boards have about 15.5 per cent women,” she says.
On the bribery and corruption front – issues that generally arise when Australian companies are dealing overseas – Byrne says there is confusion about where to draw the line. She notes that the UK and US have stronger, clearer laws governing their national companies operating abroad.
“The Australian laws are unclear. There is such a thing as a facilitation payment and the definition of that is unclear and then there is a wider debate going on about whether facilitation payments should be allowed at all,” Byrne says. “Many people wouldn’t say it was a bribe, it has to be minor and it could be for making a routine government transaction proceed more quickly. There are stronger laws in the US and the UK.”
One of the perennial issues for ACSI is shareholder rights. Some years ago the organisation successfully took on News Corp over its “poison pill” clauses that limited the ability of shareholders to change the management of the company. More recently, ACSI lobbied News Corp to appoint more independent directors to the board.
More broadly, Byrne says ACSI is disturbed by a growing trend for public companies to seek funds through private capital raisings rather than offering the opportunity to the current shareholder base.
Last year the organisation argued in a submission to the ASX that existing investors should be protected and not have their equity diluted without express agreement and compensation. Byrne says it’s an example of how she was “very satisfied with what occurred” as a result of ACSI’s campaigning
A related topic to shareholder rights is shareholder value and ACSI has campaigned successfully on the issue of executive pay.
“We’ve been very active on remuneration and the appropriate payment of remuneration,” Byrne says. “We’ve noticed over the last year a movement for companies to pay people on a much more long-term basis so people don’t actually collect their pay for two or three years and that’s linked to shareholder value.”
Byrne is an avid reader of detective novels and concedes that there is a whodunnit element to her work.
“I suppose it’s the same as trying to find the basis of the story – what is in fact the issue, who’s responsible and how you want to fix that,” she says.