A Case for Ethical Investment in Australia's Superannuation Industry

 

The backstory:

In 2018, Industry Super Fund REST (Retail Employees Superannuation Trust) was sued by its member, Mark McVeigh, for not having an understanding of, and a plan to mitigate, Climate Change Business Risks. The case has been viewed as a much-needed one in the investment industry, given that many Superannuation Funds in an AUD 1.7 trillion industry are heavily investing in coal, oil and gas, and companies in highly polluting industries.

The Pandemic, among many things, has taught us how environmental disasters can impact the whole world. Considering that a large chunk of the current workforce will be retiring in the next 20-30 years, protecting retirement funds is a priority for many Australians. The world has collectively learned, that the environmental risk cannot be ignored any more than it already has.

It is alarming, therefore, that in a recent ruling, The Federal Court ruled that the Environment Minister does NOT have to consider the environmental impacts of emissions while approving gas projects. The Environmental Council of Central Queensland has expressed their concern, that this could lead to many coal and gas projects being approved, exacerbating the climate crisis.

What can Superfunds do?

Superannuation is literally a trillion-dollar industry by funds under management, and has a potential to change the direction of funds being invested, for the better. Organisations like Australian Conservation Foundation are already calling for Australians to demand their Superfunds to invest ethically, away from fossil fuels and in renewable energy.

ESG (Environmental, Social and Governance) Factors play a notable role in ethical investing. Some funds have their own charter used as a tool to outline positive and negative traits while considering an investment option. Several ESG leader funds are publicly declaring their ESG principles, disclosing what they invest in and how they engage with the companies in which they invest, publishing ESG reports, disclosing investment processes and reporting on performance. While superannuation is heavily regulated, regulations in terms of ethical investments can actually go a long way in creating a greener industry and, in the long run, economy.

What happened to the case?

In case you are wondering what happened to the case, REST entered into a settlement with Mr McVeigh in 2020, before the case went to trial, where REST agreed to put a more robust system in place to mitigate and manage risks of climate change, ensure their actions are aligned with TCFD (Task Force on Climate-Related Financial Disclosures) recommendations, and encourage investee companies to do the same. Given that REST has been named as one of ESG leaders in of 2023 by Rainmaker Information, they are definitely doing a good job.