Socially responsible investing
In this episode, Sunsuper's Dream Team is joined by special guest Stuart Wilson, Sunsuper's Manager for Environmental Social and Governance (ESG) Investments to talk about socially responsible investing and Sunsuper's approach on behalf of its members.
Voice-over: Welcome to The New School of Super. A fresh look at money matters, your Super, and the things that could affect your financial dreams now and in future, with Sunsuper's Chief Economist Brian Parker, and Head of Advice and Retirement, Anne Fuchs.
Anne Fuchs: Hello and thanks for listening. Welcome to The New School of Super. Sunsuper's Podcast Series covering investment markets, money matters, your Superannuation, and most importantly, helping you reach your retirement dreams. With me is Brian Parker, Sunsuper's Chief Economist, the rock star of economics in my mind, and what this man doesn't know about investing is not worth knowing. And we have a special guest today which is very exciting. His name is Stuart Wilson, and Stuart is the Manager of Environmental, Social, and Governance Investments here at Sunsuper. Now this is an area of investing which is getting a lot of interest out there. It's very topical. Socially responsible investing is something you might have heard about before, and Stuart is here today to talk to us about how we approach this at Sunsuper.
Anne: Now before we kick off, I'll just introduce myself in case you haven't heard the previous podcast series. My name's Anne Fuchs, and I head up Advice and Retirement here at Sunsuper. I'm passionate about helping our members get the right financial advice, so that they can live a happy and fulfilling retirement. So, Brian ...
Brian Parker: Thanks, Anne. Today, we're joined by Stuart as you said, and he's gonna explain a lot about socially responsible investing, and our approach to socially responsible investing. I think it's fair to say that people in general and super fund members in particular are probably more concerned than ever about how and where their savings are invested. Now, we take this area of investing extremely seriously at Sunsuper. Now, before I start though, there's the usual disclaimer. I need to let you know that anything we're gonna talk about today is just general information only. Any advice does not take into account your particular circumstances. You should consider those circumstances and think about getting personal advice before you act on anything we talk about today. You can also get a copy of our PDS, our Product Disclosure Statement, from our website, or by calling us on 13 11 84. Anne, over to you.
Anne: Okay, Stuart, let's start with socially responsible investing. This acronym, ESG, it was in your title before. Environmental Social Governance. It sounds like a bit of investment jargon for the ordinary person. What does this mean to Sunsuper and why is this really important that members understand this?
Stuart Wilson: Thanks, Ann and it's great to be here. Okay, so ESG is one of the many acronyms that is in my world. Environmental Social and Governance. So all things non-financial risk fall under my purview. And it's important when you're doing investments for the long term, that you're not simple looking at the next six months' earnings, and things like that, that you actually take a broader world view of trends that are happening, underlying risks that some investors not always pick up. And that's my job, to integrate these sorts of risk management processes into our investment decision making and thinking.
Anne: But what does that really mean, Stuart? So when you're talking risk and I think about investing, I think about the stock market going backwards and losing money, and I'm sure to most members, that's what they're thinking about. ESG and risk, where is the risk? What should we be looking out for and what are you looking out for in your job, in protecting our members' money?
Stuart: Okay, so when you're looking in my world, there is a whole range of issues that get thrown out. It could really come from any direction. It could be something in relation to the environment such as climate change. It could be within social issues around stolen wages, or a lack of good safety processes within a company. And within governance, all things around the Board of Directors and how good they are, through to how you remunerate or pay the CEO, and what are you motivating that CEO to do. So all of those sorts of things get thrown into my bucket.
Anne: So, what I'm hearing there is that the superannuation fund in Sunsuper, with very close to 60 billion dollars of assets under management is using that money for good societal community outcomes. Is that what I'm hearing you say?
Stuart: So we have a broad range of investments, and all things being equal, we prefer to invest in things that make a positive impact on the world. But we invest in a whole range of industries and companies.
Anne: So, let's get it into the technical just a little bit for our listeners, so that they can educate themselves about this area of investing. There's a bit of jargon that I know is used, terms such as exclusions, activism, engagement. What do these words mean when it comes to ESG investing?
Stuart: Okay, so as I mentioned, we have a whole range of things that get thrown at us from a risk perspective. They might come from media, they might come from members. They might come from the companies themselves. And we have to take all of these issues, and consider them both in terms of materiality, but also how they might impact the investment portfolio. This means that we have to put them in separate buckets, depending on how severe they may be. Exclusion for instance is something that we prefer not to do, but we will do in extreme circumstances. It means simply getting out of that industry or sector, or things relating to that issue altogether. Activism means taking a really strong view, public view of a particular issue. Engagement talks about behind closed doors meetings with companies and their management, and their boards, to try and get an improvement or resolution. And watching is simply building up our knowledge base on a particular issue, with a view to determining what to do about it.
Anne: So, what are some examples that can bring this to life? What are we not investing in, and what are some of the companies where we've decided that we're going to sell our investment, for example?
Stuart: Sure. Okay, so the main exclusion that we have is tobacco. And we got out of tobacco manufacturers around about five years ago. So, it's been a long standing exclusion. And it's something where we were actually quite early to exclude. Smoking kills almost six million people a year, and it's a unique thing in that taken as directed, it's probably going to kill you. From a customer perspective, it's not great. From an investment perspective, smoking rates globally are falling. Regulation to curb smoking is on the increase. There are E-cigarettes that are in competition. There's a whole range of head winds for that industry, and therefore it makes sense not to be invested.
Anne: So, Stuart, how is that done over a five year period?
Stuart: So, in the five years that we've been out of tobacco, that sector has actually underperformed the market. So, we've actually, it's actually been a positive for members.
Anne: So, smoking's an obvious one, we all know that tobacco is terrible for you, and everyone pretty well agrees with that probably, except the tobacco companies. So, let's think about something that's a bit more contentious and there are different views across certainly the political divide, scientific, and community around climate change. How does a fund like ours approach climate change with an ESG lens?
Stuart: So, we believe in the science of climate change, that the world is gradually getting warmer, and that is to do with human intervention. However, the energy sector is a huge part of financial markets and simply getting out removes the chance that you have for engaging with companies. We look at climate risk through a range of different factors. It's not just how quickly fossil fuels are going to be replaced by renewable energy. It's also a consideration in the physical impact, so the impact of say, the water level rising, or the frequency and intensity of storms on our assets. All of those things are being taken into account.
Anne: So do we then go and invest in renewable energy sources. Are we? Is that an extension of our approach to climate change in ESG, Stuart?
Stuart: So we've increasingly started looking at renewable energy and we've made some investments in that space. They are very, very popular at the moment, and the costs are still coming down. So, we still have a very, very disciplined investment approach, a hard headed investment approach, to make sure that we're not buying things that are just too expensive.
Anne: Okay, and I'm very mindful about time, but I think it's really important to think about, if you're an investor and this is an asset class or a belief system that you hold very deeply and you want your Superannuation to be doing good for the community, how would you invest in Sunsuper? What do you need to be looking out for in our investment menu?
Stuart: Okay, so we have over 20 different options that people can choose from. One of them is our socially conscious balanced option. It's similar to our other balanced option, which is our default fund, but it is ESG on steroids. So, it has a lot more exclusions. It moves into best of sector in relation to ESG for companies, so we try and pick the best of the best. And it's expected to perform inline with our general balanced option. So, it's something for consideration if you were of that mind.
Anne: So Stuart, are you leading a big team, and how involved is the broader Sunsuper business, you know from the top down with the Board and our Chief Executive. Do you feel like you're a very popular person, with a big team of people helping you?
Stuart: The Board is very engaged. We have a diverse Board with different backgrounds, different perspectives. One thing that they have on top of, doing everything in members' best interest is having a very keen interest in ESG and responsible investing. So, they are continually encouraging me to increase the amount of integration within the investment process. The team itself is only relatively small, but I like to think that our ESG activities extend through the investment team, where everyone is a champion.
Anne: Thank you very much, Stuart, for that explanation of ESG. In a prior episode, Brian and I were talking about investing more generally, different asset classes, and the investment menu. If this is something of interest, have a listen to that prior episode and also, you can go to our website and have a look at our investment menu, and find more information. As I said, it's an area growing of interest. I know particularly with the younger demographic of members that are very passionate about doing good with their retirement savings. So, it's been wonderful talking to you today, Stuart. Thanks for coming along, and Brian I have to say, it's a bit unnerving, you being quiet over there. We're not really used to it.
Brian: I know, it's certainly out of character, but I think it's really good to hear from experts internally like Stuart, and the main message I take out from this is that investing with an ESG lens can be done quite comfortably without compromising your return outcomes. That we believe that investing sensibly from an environmental perspective, investing with companies that actually are aware and want to benefit positively the communities they operate in, and companies with good governance ultimately make good long term investments for our members.
Anne: That's exactly right. I think the point that Stuart made about tobacco was really bringing that what you've just said to life.
Anne: All right, well thanks everyone. We'll look forward to talking with you on our next podcast episode.
Voice-over: This has been The New School of Super. For information and inspiration to help you plan your future, manage your Super, and enjoy your retirement, visit sunsuper.com.au/thedreamproject. Or, if you've got a superannuation or investment question you'd like Brian and Anne to discuss, then get in touch at newschoolofsuper.com for it to feature in one of our future New School of Super Podcasts.
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