Invest for the long term
United Nation's PRI
Large investors like super funds which invest in a broad selection of securities around the world are now looking past short-term returns to see a link between investment markets that are profitable for the long term and sustainability considerations. The United Nation's Principles for Responsible Investment (the UN PRI) provide a framework for investors to follow a sustainability approach.
VicSuper signed the UN PRI in June 2006. To view the principles, visit vicsuper.com.au/pri. Integrating these principles into our investment policy did not require significant changes as they closely align with sustainability, which has been VicSuper's central operating principle since 2001.
Sustainability investing
VicSuper invests in companies and other securities that lead the way in environmental, social and governance performance. Our research indicates that these investments are best positioned to increase profitability and long-term shareholder value in response to risks and opportunities presented by sustainability challenges such as climate change and the rising global cost of food and energy.
All companies face sustainability challenges, and the way in which companies respond will determine their ability to remain competitive, sustain earnings and increase shareholder value. Sustainability investing does not have the same objective as ethical investing, which employs a morals basis for decision making and usually involves excluding particular investments on the basis of ethical values; our policy does not exclude particular investments on the basis of ethical considerations.
To select, retain and realise a sustainability investment, our fund managers may look at a combination of environmental, social, financial and governance performance - and the likely effect this performance will have on long-term profitability. Investment research and analysis may relate to areas including environmental restoration and protection, social inclusion, innovation and corporate governance.
Equities
VicSuper's allocation to sustainability investments include 10% of listed Australian equities and private equity, and 20% of international equities and private equity. As part of this allocation, we invest in Australian and international companies that are:
- rated by SAM Sustainable Asset Management as sustainability leaders in their industry sector (the portfolios are managed by Vanguard).
- selected by Generation Investment Management in a concentrated portfolio of 30 to 50 companies which integrate sustainability into their business model.
- selected as leading performers on carbon emission efficiency in each sector of the MSCI World ex-Australia Index. These international companies form the Carbon Aware International Shares Fund, which aims to achieve the same investment return as the MSCI World ex-Australia Index with just half the carbon footprint.
VicSuper also invests in private equity companies in the early or expansion stage of commercialising products and services for sustainable development. This sub-asset class includes three cleantech funds which invest in companies that are developing products for renewable energy, water efficiency and green materials.
Our focus on sustainability investing extends to company engagement. Using dedicated company engagement firms, VicSuper has engaged most major listed companies on the Australian Stock Exchange in which we invest on sustainability issues and have commenced engagement with listed international companies.
Property
Commercial property
To continually improve the sustainability performance of VicSuper's commercial property investments, we engage with fund managers of unlisted property trusts - Colonial First State Global Asset Management, Investa Property Group, Eureka Funds Management and Diversified Management Limited.
Areas of focus include energy efficiency and waste reduction. Improving performance in areas such as these is particularly important for VicSuper as it can help to retain better tenants and keep costs low, as well as being good for the environment.
Infrastructure
VicSuper is currently engaging with fund managers of unlisted infrastructure trusts in which we invest to integrate sustainability principles into this sub-asset class of property. Sustainability performance of airports, toll roads, pipelines and other infrastructure assets can be improved in various ways. These include using renewable energy, as well as other resources more efficiently, to lower the carbon footprint of an infrastructure asset.
Ecosystem services
As part of this sub-asset class, VicSuper has invested in a rural land project in northern Victoria which is called Future Farming Landscapes.
Our aim is to redesign farming land for best practice agriculture. Land has been reconfigured for high value, water efficient irrigated agriculture, while flood plains and other areas high in biodiversity value are being restored and protected. This investment also includes the purchase of water entitlements. Planning began in the 2002/03 financial year, with land and water purchases first made in 2006.
Future Farming Landscapes is managed by fund manager Kilter Pty Ltd.
Shareholder rights
As a shareholder controlling billions of dollars, VicSuper has certain rights and responsibilities, and can influence change on behalf of members:
Company engagement
A powerful way in which institutional investors can influence change is to directly engage company management on issues and opportunities which may affect long-term shareholder value. VicSuper has addressed the areas of environment (eg climate change), society (eg workplace health and safety) and governance (eg executive remuneration).
Due to their long-term nature, these issues and opportunities don't usually receive the same attention from company management and financial analysts as those of a short-term nature such as interest rate movements and inflation. VicSuper has successfully undertaken company engagement for a number of years. For listed Australian companies, we subscribe to Regnan Governance Research and Engagement Pty Ltd, in conjunction with Monash Sustainability Enterprises. VicSuper is a founding shareholder of Regnan.
For listed international companies, VicSuper uses Hermes Equity Ownership Services, based in the UK. Regnan and Hermes both work with companies to achieve a better outcome for VicSuper members - for example, by improving a company's transparency or disclosure on a particular issue, or helping to embed more sustainable practices into a company's strategic plan and operations.
Proxy voting
To act or vote on issues surrounding the management of a particular company at shareholder meetings, VicSuper is advised by CGI Glass Lewis Pty Ltd and the Australian Council of Superannuation Investors for VicSuper's Australian equities portfolio. Hermes Equity Ownership Services undertakes proxy voting for international listed equities on VicSuper's behalf.