How Green Is Your Super?
may feel a warm inner glow as they hear yet another executive talking
about how the superannuation industry is backing protection of the environment.
But just how green are our superannuation funds and particularly the investment
options they offer to contributors?
is clearly nowhere near as green as many might believe.
As with ethical
investment funds, which we examined in the last issue of Eco Investor,
the key issue is that super funds primarily achieve “green” exposure by
investing in sustainability and socially responsible investing (SRI) funds.
Sustainability funds operate negative screening processes to eliminate
potential investments regarded as non-sustainable but that is, of course,
a long shot from selecting environmentally positive investments.
SRI funds have
evolved from the funds which used to be known as “ethical funds”. SRI
funds primarily focus on investing in businesses which follow good social
principles. This rules out investing in companies which cause serious
environmental damage but environmental considerations generally rank behind
social considerations in their investment decision making.
turned up only two super fund which offer a clearly labeled green investing
option: Health Employees Superannuation Trust Australia (HESTA) and Non
Government Schools Super (NGS).
the Eco Pool option. The Australian equities component of this option
is invested in a fund managed by BT Funds Management with the ecological
ratings determined by Monash Sustainability Enterprises.
the Green Shares option which is managed by AMP, Ausbil Dexia and Sustainable
Asset Management (SAM).
the funds in general rather than the options offered, the most heavily
weighted toward environmentally positive investments appeared to be the
Australian Ethical Superannuation Funds. As a manager, Australian Ethical
Investment makes specifically environmentally positive as well as sustainable
investments. These funds currently invest exclusively via the four associated
Australian Ethical Investment funds. The trustees do, however, have authority
to make direct investments.
Many more super
funds offer socially responsible or sustainable investing options and
the number offering sustainable investing options has increased over recent
Of those that
offer socially responsible investing (SRI) or sustainability options,
however, only a small number include specific references to environmentally
positive investing and many of those actually invest through SRI funds.
funds generally have a stronger emphasis on protecting the environment
than SRI funds but essentially only to the extent of screening out investment
in industries which are considered nonsustainable.
investment in sustainability funds and the growth of sustainability rather
than environmental investing options probably reflects the fact that the
economic benefits of these funds are more readily apparent than investments
which have a more specific environmental focus.
matters are seen to be more closely linked to profitability these funds
are, however, likely to widen their environmental criteria.
of superannuation funds, the trustee offices, recognise growing member
interest in ecological issues but generally regard this as part of a much
wider trend: a desire to see that their superannuation funds are invested
responsibly as well as profitably. That includes paying due regard to
corporate governance and social responsibility as well as ecological matters
when investing. Consequently it seems unlikely, at least in the short
term, that environmental investing will be offered as a separate investment
option by many more funds.
expressing interest in the concept, super fund members clearly have not
got behind the concept of environmental or even sustainability investing
where it counts, in selection of their super fund investment options.
The proportions of members opting to make selections remains relatively
example, has made a commitment to sustainable investing in all its investing
as well as offering members an Equity Growth Sustainability option. This
option, however, still had the lowest take up rate at 0.8 per cent on
the latest figures available, 2004-05; however this was an increase over
a rate of 0.6 per cent the previous year.
Super Fund (ASF) - recently formed by the merger of ARF and STA - offers
three options based wholly or partly on socially responsible investment
analyst with Australian Super, Richard Lawrence, said the Sustainable
Balanced Investment Option was introduced in October 2001 and the Australian
Sustainable Shares and International Sustainable Shares options introduced
in January 2002.
He says the
trustees decided to offer these products as a result of requests from
members but the level of interest so far had not been great. Investments
in the Sustainable Balanced Investment Option amounted to $16 million,
the Australian Sustainable Shares Investment Option $11 million and the
International Sustainable Shares Option $3 million - not a substantial
part of a $20 billion fund, he added.
the majority of super fund members do not make choices but simply accept
default options. This could be the result of members not understanding
their options but this seems an unlikely explanation considering the easy
to understand investment information super funds send to their members
and post on their websites.
A more likely
explanation is that super fund members’ primary concerns remain ensuring
that they get the best returns from their contributions. They are, therefore,
reluctant to risk moving from “standard” choices. Clearly “green” investment
options, or other options beyond the standard range based on time to retirement,
would be likely to be seen as increasing risk.
introduction of choice of funds and portability in the super regime may,
however, have the effect of encouraging contributors who place high priority
on environmental factors to select their super funds accordingly.
of Australian Ethical maintains this is happening with that manager’s
He says the
funds have grown to $200 million in eight years. Since the introduction
of super choice the inflow of new members has increased and many have
stated environmental concerns as a reason for their choice.
green investment options appear unlikely to be more widely adopted in
the superannuation industry, this does not mean that the funds themselves
will not become more green. This, it seems, is most likely to occur as
a result of superannuation funds progressively changing their overall
investment criteria as the advantages of environmental investing become
In fact a number
of super funds are already among the leaders in the greening of the Australian
and industry funds in particular, are well placed to put into practice
social values as well as economic values and many are doing so. This can
be expected to increase where it can be shown that adoption of social
values, including environmental values, can produce better long term economic
performance. This should then flow on to the funds managers they use and
to other institutional investors.
Most of the
current environmental investing by super funds is in equities - Australian
and international - invested through managed funds but a number of super
funds have substantial direct investments in infrastructure and these
include a number of investments in environmentally positive projects.
For example, super funds have been significant investors in major recycling
schemes and plantation forestry as well as backing early stage ventures
in alternative technologies.
and green investing principles are also being applied by super funds to
property investing and could influence practices in this industry.
example, invests in the Colonial First State Property Direct Property
Investment Fund. The fund says it “has engaged with CFSP on the inclusion
of sustainability measures in the management and operating of properties”.
In the private
equity area, VicSuper has committed 10 per cent of its sector allocation
“to early stage and expansion stage companies whose products or services
contribute towards and/ or assist in using resources more efficiently
and reducing the ecological impact of economic development”.
while the investment options offered to super fund members may provide
only limited opportunities for members to ensure their super contributions
promote green initiatives, many of the funds themselves are going through
a more significant overall greening process.
One of the
first, if not the first, environmental option by an Australian superannuation
fund was offered by Health Employees Superannuation Trust Australia (HESTA)
in February 2000. Investments and Governance manager for HESTA, Rob Fowler,
said the option was offered in response to the findings of a survey of
showed that members were less concerned about industries such as alcohol,
gambling, and tobacco, which are often filtered out by ethical funds,
than environmental issues such as nuclear power. Supporting or not supporting
industries such as alcohol, gambling, and tobacco were matters over which
they could exercise personal choice but they felt that as individuals
they were much less able to influence issues such as nuclear power. Therefore
they wanted to through their super fund investments.
Mr Fowler said
HESTA has aspirations to extend the principles of socially responsible
investing to a substantial proportion of its total funds through allocating
more funds to managers which specialise in this sector.
“We think it
is important to include the wider area of corporate social responsibility
(CSR) rather than just ecological investment ,” he added.
He said the
importance HESTA placed on ecologically sound investing was, however,
illustrated by the fact that the super fund is a member of the Investor
Group on Climate Change (initially sponsored by VicSuper) through which
it supported the promotion of the UK-initiated Carbon Disclosure Project
HESTA had also
recently made a small initial “incubator allocation” to the emerging fund
manager Generation Investment Management of which environmental campaigner
and former US Vice President Al Gore is chairman. Generation Investment
Management was established in 2004 by former chief executive of asset
management at Goldman Sachs, David Blood. It has analysis of CSR issues
as a core compoent of its investment process.
exercises an ethical screening process “to incorporate Christian values”
across all its investments. This includes a specific reference to meeting
environmental standards. All five of Christian Super’s investment options
have to meet its ethical standards.
So, how green
is your super?
are profiles of major super funds involved in environmental investing.
We don’t claim this to be an complete list and Eco Investor would be pleased
to report on the environmental credentials of other funds in a future
* Health Employees
Superannuation Trust Australia (HESTA) offers the Eco Pool investment
option. The Eco Pool option is invested 50 per cent in Australian shares,
40 per cent in international shares and 10 per cent in cash investments.
shares component is determined through a negative screening process with
remaining companies then selected on a best of breed basis across all
sectors to which allocations are to be made. This, for example, does not
exclude mining but does exclude companies such as BHP Billiton and Rio
Tinto because of their involvement in uranium mining.
shares component is screened according to economic, environmental and
social criteria. Companies are categorised into industry sectors; they
are then evaluated and rated for environmental management and sustainability
factors within their sector. After being assessed on their financial performance,
investments are made in the best rated companies in each sector.
component of the Eco Pool is managed by BT Funds Management with the ecological
ratings determined by Monash Sustainability Enterprises. The international
component is managed by Dexia Asset Management which includes ecological
rating within awider socially responsible investing assessment process.
Super Fund offers three options that are “based wholly or partly on socially
responsible investment principles: Sustainable Balanced, Australian Sustainable
Shares, International Sustainable Shares”.
Australian Super, “socially responsible investing provides the opportunity
to build an environmentally and socially sustainable future while aiming
to provide steady investment returns in the process”.
Balanced Investment Option includes investments in shares, property, fixed
interest and cash. At present, however, only the Australian and international
share components of this option are screened for ethical, green or sustainable
policies and practices.
in the Australian Sustainable Shares Investment Option and the International
Sustainable Shares Option are screened.
Sustainable Shares option is managed by Perpetual Investment Management
and Bankers Trust and the International Sustainable Shares Option by DEXIA
first began to introduce sustainability concepts about five years and
now applies sustainability criteria to the management business as well
as its investments. This has involved integrating economic, social and
environmental considerations into all of its decision making processes.
an Equity Growth Sustainability Option in 2001-02. The option has a 6
per cent return objective and obtains advice on asset allocations from
Frontier Investment Consulting Pty Ltd .
manager sustainability investments, Peter Lunt, said “To date we have
selected direct property and listed equity managers who incorporate sustainability
analysis as part of their asset management.”
The fund is
also looking for investment opportunities that rate well on financial
and non financial criteria. The non-financial criteria include corporate
governance, human resource management and environmental performance.
Under the sustainability
option the fund invests in a selection of large Australian and international
companies that are rated by SAM Sustainable Asset Management as sustainability
leaders in their industry sector. In its property portfolio, Vic Super
invests in the Colonial First State Property Direct Investment Fund. During
2005-06 the fund committed to invest in ecosystem service industries such
development of the Investor Group on Climate Change Australia/New Zealand
in order to provide a forum for institutional investors to consider climate
change risk and develop appropriate responses. Other members of the group
include Catholic Super, BT Financial Group and AMP Capital Investors.
The IGCC is
supporting the adoption in Australia of the International Group for Climate
Change’s global Carbon Disclosure Project. Launched in 2000, the CDP provides
a London-based secretariat for international institutional investors on
the investment related risks of climate change. The CDP seeks information
on management of carbon emissions from major companies world wide. Australia
& New Zealand Bank, Rio Tinto, Telstra, Westpac and BHP Billiton are among
Australian companies that have provided reports to the CDP.
* Non Government
Schools Super (NGS) has provided aGreen Shares option since November 2001.
Since inception, the option has returned an average of 5.44 per cent.
The Green Shares portfolio is managed by AMP Henderson, Ausbil Dexia and
Sustainable Asset Management (SAM).
includes international and Australian shares selected on the basis of
social and environmental criteria. The option is divided into four investment
vehicles: AMP Sustainable Future Australia Share Fund, AMP Sustainable
Future International Share Fund, Ausbil Dexia Sustainable Global Equity
Fund and SAM Sustainability Leaders Australia Fund.
Superannuation Trust of South Australia offers a Socially Responsive option.
This is similar to the fund’s Growth option except that the management
of the listed equity components focuses on managers who construct portfolios
on socially responsive grounds. The option includes 27.5 per cent Australian
shares, 25 per cent international shares and 42.5 per cent from the fund’s
Target Return Portfolio.
Return Portfolio is 34 per cent infrastructure, 34 per cent property,
11 per cent private and development equity, 11 per cent Absolute Return
strategy funds, 5 per cent timberland investments and 5 per cent debt
managers include Sustainable Asset Management. The return target of the
Socially Responsive option is the CPI plus 2.5 per cent.
Ethical Investments invests through its managed funds. Investments in
the funds are made using a screening process which includes environmental
considerations. Investments are also selected on positive environmental
grounds. Options are: Balanced, Equities, Income and Large Companies Shares.
* JUST Super
offers Sustainable Australian Shares and Sustainable International Shares
options. It says these options offer the opportunity for members to invest
their super in companies that lead the integration of economic, social
and environmental factors into their business strategies. Investments
are made via a best of sector approach which suggests that companies that
manage risk well in certain areas will perform in the future. JUST’s Sustainability
portfolio is managed by Sustainable Asset Management.
Super uses an ethical screening process to incorporate Christian values
in its decision making process across all investment options. This involves
screening out negative potential investments and investing more heavily
in investments regarded as ethically positive. Investments must meet trustees’
environmental, corporate governance and social standards. Strategic investments
are also made into community projects.
Ethical Shares, Ethical Growth, Ethical Balanced, Ethical Cash and Ethical
Stable. Returns on the first three options in the year to June 2005 were
12.4 per cent, 11.2 per cent and 9.6 per cent. Fund managers used include
Ausbil Dexia, Portfolio Partners, Merrill Lynch, AXA Rosenberg, Mercer
* Care Super
offers a Sustainable Balanced option. The criteria of this option include
that funds are not invested in companies involved in production of tobacco,
alcohol, nuclear power, fur harvesting or animal testing or which have
been identified as environmental offenders.
* Sun Super
offers a Balanced option which invests in AMP Capital’s Responsible Investment
Leaders Balanced Fund.
Super offers an Ethical Balanced option.
* Uni Super
offers a Socially Responsible Shares option.
Superannuation Fund includes a Screened Investment option.