“There is ample evidence to show that companies with poor ESG (environmental, social, governance) practices and performance don’t do well in the long term.”
Investing based on so-called ESG factors has risen dramatically around the world in recent years, driven in the face of heightened scrutiny from activist and large institutional shareholders alike.
Failure to properly manage ESG risks can lead to “reputation damage, regulatory scrutiny, civil and criminal litigation … and profit downgrades”, Mr Silk says.
“Clearly, then, taking steps to improve companies’ ESG performance is in members’ best interests.
“I’d go one step further and say that any superannuation fund that doesn’t consider ESG factors is breaching their best-interests duty.”
It comes as the Australian Prudential Regulation Authority drives a harder line on climate-related risks, led by its head of insurance, Geoff Summerhayes, who has warned that institutions failing to adequately plan for climate change and a transition to a lower-carbon economy were putting their futures in jeopardy.
We will be more demanding, we will be more vocal, we will call out poor performers and deficiencies in the system.
Ian Silk, AustralianSuper chief
ACSI’s annual conference on Wednesday is set for an attendance record, which Mr Silks described as a reflection of the “growing acknowledgement and recognition” of the importance of integrating ESG considerations into business and investment decisions.
But this was “not occurring without resistance”, he says, with some in the business community increasingly voicing concern that emphasising responsible investment was a form of social or political activism that could affect investor returns.
“These views represent a misunderstanding of how and why ESG factors should be considered,” he says.
Superannuation funds recognised that their core responsibility was to provide the best investment performance for their members, with the key consideration the economic performance of invested companies.
“Not economic performance at any cost, but achieved in the context of the application of appropriate ESG considerations that have an eye to the long term and to community expectations,” Mr Silk says, vowing that ACSI will take a greater focus on ESG integration.
“ESG can no longer be considered a ‘nice to have’ … that’s why ACSI and our members plan to continue and grow our focus on ESG integration,” he says.
“We will be more demanding, we will be more vocal, we will call out poor performers and deficiencies in the system.”
Business reporter for The Age and Sydney Morning Herald.