Activists' super weapon

Where is your money being invested? The Wilderness Society plan has a variety of high-emitting industries in its sights.

Where is your money being invested? The Wilderness Society plan has a variety of high-emitting industries in its sights.

ACTIVISTS are about to turn Australia's $1.3trillion superannuation pool into the next big weapon. Fresh after its big win helping to convince ANZ not to fund timber giant Gunns' controversial $2billion pulp mill , the Wilderness Society is about to put more pressure on Gunns by going for the biggest chunk of money around.

Next month, it plans to launch its online Super Activism campaign. Gunns is the first target, but with Australia moving to a cap and trade scheme, activists have other high-emitting industries in mind. "It will have an impact on this issue in the short term but it's going to be increasingly part of other investment decisions," the Wilderness Society's pulp mill campaigner, Paul Oosting, said.

"There's money being invested not only in the pulp mill but in other issues across the country. The nuclear industry might be one.

"And individuals might not want to be investing in industries that are highly exposed to impacts on climate change, such as coal companies. People will make choices as to how they want their money invested in what they see as sustainable industries."

The Wilderness Society campaign, which also involved online activist network GetUp, is modelled in part around its online campaign that targeted ANZ. In that campaign, people were urged to sign an online petition identifying whether they were an ANZ customer, shareholder, employee or just a member of the public, and that triggered a standard letter.

The Wilderness Society claims that resulted in ANZ getting 40,000 letters. Similar tactics, which will also involve GetUp, are about to be unleashed on super funds.

More pressure from other directions is coming on funds to show how their environmental credentials stack up. SuperRatings, for example, has launched an assessment scheme that measures the environmental, ethical and sustainable credentials of funds.

Legally and logistically, it is a grey and complicated area. The Superannuation Industry Supervision Act requires funds to maximise returns and sections of the Corporations Act have broad definitions of "relevant interests" and "associate", which could stop funds acting collectively.

Furthermore, superannuation funds in total have some sort of involvement with every company in Australia, which makes engagement costly and time consuming. Many still prefer non-engagement as it is less distracting.

Also, while there are many superannuation funds here, there is a resource issue. Most are not that big or set up to engage directly with companies. And in a down market, there is more focus on the short-term.

Still, the Australian Prudential Regulation Authority needs to clarify the issue in light of the SIS Act. Two years ago, the parliamentary committee looking into corporate responsibility asked APRA to clarify the law. So far, APRA has done nothing.

In its report handed down last month, the parliamentary joint committee on corporations and financial services noted that APRA had sat on its hands.

It identified environmental, social and governance issues as emerging issues, and strongly urged companies to incorporate them in their reports. But they had to do it in a manner acceptable to shareholders, and they had do it in the next two years. Otherwise, they could have it forced on them.

"If companies cannot, by the end of the current decade, show that they have done this in a manner acceptable to shareholders then it is the view of the committee that the Government should consider regulating in this area," the report said.

The problem is around materiality. Everyone knows, for example, that climate change will have an impact. But when is that going to happen? A few days? Months? How many years? How will that influence the daily share price?

Institutions are continuing to embrace sustainability, but today's common law framework for investment decision-making will have to evolve.

Trustees will have to expand their criteria for evaluating investments to include environmental and social factors, and become responsible, even active, owners.

This applies equally to public companies' shares and to interests in private equity and hedge funds. And they will also have to extend their time limits for investments. What is good for today's portfolio may be toxic tomorrow and they will need to factor intangibles that cannot be quantified into decisions.

Pressure is also coming from the Government. Minister for Superannuation Nick Sherry said that while the Government had no intention, at least at this stage, of directing funds to invest in environmental or similar projects, the funds needed to focus on the issue.

"I understand that perceptions about the legal environment have made trustees hesitant to expressly incorporate environmental, social and governance (ESG) factors for investment strategies for which they have been responsible.

"However, the consideration of ESG factors is so critical to the long-term financial success of super assets, that in my view it is an important part of the fiduciary responsibilities and as such, should be incorporated into the investment decisions-making process of superannuation trustees."

In its submission to the joint parliamentary committee, the Australian Institute of Company Directors said sustainability reporting was still evolving, implying it was still imprecise and did not provide certainty.

But financial reporting is also imprecise and the AICD's submission does not take that into account. Far from being a rock-solid indicator of companies' health, financial analysis also struggles with certainty. That is why we have an industry of analysts. It also explains why accounting standards have continued to evolve.

The investment world needs to accept that the same logic applies to sustainability.

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