Responsible investing
Responsible investing forms part of our investment approach.
Responsible investing is an approach to investing which considers financially material ESG factors in investment decision-making, and involves stewardship of assets through company engagement, voting and policy advocacy.
At CareSuper, we believe that incorporating financially material Environmental, Social and Governance (ESG) considerations into investment decision-making can help better manage risk and contribute to stronger investment returns in certain circumstances for our members. Furthermore, we believe that stewardship can assist with the careful and responsible management of our members' capital.
Our approach to responsible investing is set out in our Responsible Investing Policy and involves two key elements: ESG integration and stewardship. These are explained below.
Please note that CareSuper’s responsible investing approach cannot and does not apply to the Direct Investment Option (DIO), because the DIO allows members to select their own shares, ETFs, listed investment companies and term deposits. As the DIO investments are selected by the member rather than by CareSuper and/or external investment managers, ESG integration and stewardship cannot be and is not undertaken for investments within the DIO.
ESG INTEGRATION
ESG integration refers to the consideration of financially material ESG factors (comprising both ESG risks and ESG opportunities) in investment analysis and decision-making. ESG risks can contribute to increased business costs (for example, a business may face increased emissions-related business costs if an emissions price is introduced1). ESG opportunities can contribute to improved financial performance (for example, improved corporate governance may help businesses achieve greater returns for shareholders over the long-term).
Here are some examples of ESG themes that may be financially material to some investment decisions:
| Theme | Example risk or opportunity | |
|---|---|---|
| Environment | Climate change, circular economy (waste and resource use), nature and biodiversity, environmental regulatory changes | Climate-related extreme weather events, such as flooding, may damage a business’s assets and increase insurance costs. A property construction business may be able to reduce building costs by using circular economy principles, such as reusing existing building components in new development. Soil degradation may reduce agricultural productivity, potentially reducing the market value of an agricultural company. Tightened environmental regulation may mean that companies engaged in polluting business activities may face increased fines or operational disruptions due to regulatory action. |
| Social | Human rights (including modern slavery), diversity and inclusion, health and safety, ‘just transition’ for workers as the economy responds to climate change | If a business fails to pay its workers appropriately, this may lead to industrial action and loss of license to operate. Companies with more diverse workforces may experience improved employee satisfaction and talent retention, potentially contributing to improved financial performance. Serious safety incidents not only impact employees personally but may also lead to loss of productivity and reduced operational performance for companies. Companies that fail to support workers appropriately as part of their climate transition plans may face the loss of their social license to operate. |
| Governance | Board composition and accountability, executive remuneration, financial integrity, bribery and corruption, shareholder rights | Elements of board composition (including board independence and size) can impact a company’s operating performance. Poorly designed remuneration plans can incentivise executive behaviour that is not in the long-term interests of shareholders, potentially leading to both an indirect and direct impact on the profitability of an investment. Companies that engage in bribery or corrupt practices may fall foul of antibribery or anticorruption laws, exposing them to fines and business interruptions. Companies with stronger shareholder rights (for example the right to vote for directors) may benefit from improved operating performance relative to companies with weaker shareholder rights. |
Which ESG matters are considered and how we or our external investment managers consider them varies depending on the nature of the investment, the asset class, the financial materiality of the ESG risks and opportunities relevant to the investment case and other matters.
1 Reserve Bank of Australia, Climate Change and Financial Risk (June 2023) p 8.
At CareSuper, our external investment managers integrate ESG factors into their decision-making processes where they view these considerations as financially material and relevant to their investment strategy. They do so using their own specific processes, investment strategies and objectives. ESG integration approaches may vary between investment managers, asset classes and types of ESG consideration, and may include the following methods:
- Risk management: Identifying and seeking to manage ESG risks (such as the examples provided above) that could impact investment performance.
- ESG data analysis: Using ESG data (such as carbon emissions data) from specialised providers or in-house frameworks to assess the ESG performance of potential investments.
- Integration into financial models: Incorporating ESG factors into financial analysis and valuation models to assess the risks and opportunities associated with these factors (potentially over various timeframes).
- Thematic investing: investing in certain holdings that in the external investment manager's view can benefit financially from environmental and social themes, such as a listed shares investment manager or fixed interest manager seeking out companies that are involved in renewable energy projects, energy efficiency initiatives or healthcare.
Individual investment manager oversight
Our internal investment team oversees ESG integration by our external investment managers in these ways:
- Investment manager selection: We review how, and the extent to which, they consider material ESG risks and opportunities in their investment decision-making processes. We do this by reviewing the managers’ ESG policies, investment strategies, processes, and ESG-related reporting.
- Ongoing review: We periodically review our external investment managers' ESG programs per our ongoing monitoring processes. We review our external investment managers’ areas of ESG focus, examples of how the managers have considered material ESG risks and/or opportunities in relation to investments, and examples of the managers’ engagement with companies or assets. This may involve discussions with the investment managers on these topics, with the aim of increasing our understanding of any enhancements or changes that may have occurred to their ESG programs. It may also involve asking our managers to provide responses to in-depth surveys on their ESG-related investment practices. These surveys help to provide us with up-to-date information including policy, process and team updates, as well as examples practical examples of ESG integration.
Oversight of the total investment portfolio
Our dedicated ESG team evaluates certain potentially material ESG risks at the overarching investment portfolio level (excluding the Direct Investment Option, where members choose their own investments). We do this by analysing, where sufficient data is available, how these ESG risks or opportunities may arise across asset classes. Oversight at the total investment portfolio level provides insight into how these ESG risks may impact the whole fund (and not just individual investments or investment managers). From time to time, we may use various external data sources, such as carbon emissions data and data relating to contribution to the UN Sustainable Development Goals, to assist with this analysis.
For example, to seek to obtain an investment portfolio-level understanding of exposure to climate-related transition risk, we measure the carbon footprint of asset classes for which reliable data is available. This helps us identify companies or assets that are likely to be exposed to higher levels of climate-related transition risk. We also use tools to monitor the fund’s exposure to potential climate-related opportunities, like renewables or energy efficient technologies.
We also regularly review our Responsible Investing Policy, having regard to relevant research, stakeholder feedback, and industry best practices, and update the policy with the aim of reflecting these matters, as we consider appropriate.
STEWARDSHIP
At CareSuper, our stewardship approach involves company engagement, voting, and policy advocacy designed to support responsible investment practices and assist with the careful and responsible management of our members' capital. We undertake some of our stewardship activities in collaboration with relevant organisations. Each of these activities is explained below.
Much of our stewardship work focuses on the Australian and overseas listed shares asset classes, however stewardship is also relevant to other asset classes, including some unlisted asset classes like infrastructure and property.
Company engagement involves discussion between investors and the board or senior management of an investee company on issues such as a company’s performance or strategy, its leadership, and the quality of reporting. Engagement can occur in a number of forms, such as meetings and written communication, and will generally have a clear objective. For example, investors may be seeking to gain a better understanding of a company’s strategy, seeking to influence company behaviour, or seeking to obtain information to support their voting activity.
For listed share companies we invest in, engagement may occur via our external investment managers and/or through our membership with the Australian Council of Superannuation Investors (ACSI, which provides an ongoing program of engagement with Australian companies).
For more information on ACSI’s engagement with companies, see: https://acsi.org.au/
For unlisted companies, CareSuper, or our external investment managers, may engage directly with management and boards of unlisted investee companies.
Voting involves relevant investors exercising their right to vote on matters presented at an investee company’s meetings. Investors can use voting at company meetings to provide views on issues such as a company’s strategy, leadership, remuneration, mergers and acquisitions activity, and ESG practices and disclosure.
CareSuper exercises share ownership rights to vote for our Australian and overseas listed share holdings. In doing this, we may consider the views of expert proxy advisers and our external investment managers before making voting decisions. CareSuper retains the right to make the final voting decisions.
For more information see our:
Investors may encourage policy makers to align regulatory policy with the long-term interests of investors. For example, investors may advocate for public policy settings that enhance investee companies’ approaches to managing their long-term financial risks. This represents pursuit of change at the systemic level as a means of enhancing financial outcomes for investors.
CareSuper will consider advocating for government policy change where we consider that doing so is in members’ best financial interests. We may choose to support appropriate policy positions through submissions to government and regulators via collaborative initiatives, and by contributing to relevant industry research.
Collaboration with like-minded investors and organisations can amplify stewardship influence, while also lowering workload and costs, which can be in the best financial interests of members. By partnering with or participating in various initiatives and organisations, we aim to share knowledge, raise awareness, and support broader ESG efforts of the superannuation industry. CareSuper is involved with the following organisations.
Through these stewardship efforts, CareSuper seeks to advocate for investee company decisions and practices that can contribute positively to certain ESG outcomes, where we consider this is in members’ best financial interests.
Exclusions
CareSuper aims to exclude investments in companies that are classified by the Global Industry Classification Standard (GICS) as belonging to the “tobacco” sub-industry – defined as manufacturers of cigarettes and other tobacco products2 – from our Australian and overseas listed shares asset classes, for our pre-mixed and asset class investment options. This tobacco screen is applied by our external investment managers within the Australian and overseas listed shares asset classes. However, CareSuper's tobacco screen is not applied to the Direct Investment Option or to investments in a pooled fund or derivatives.
We require our external investment managers within the Australian and overseas listed shares asset classes to notify us if they become aware that their portfolio holds investments in listed companies that do not meet our tobacco screen (where the portfolio holds shares in a company classified by GICS as belonging to the "tobacco" sub-industry). CareSuper will then seek to require that the external investment manager sells the shares in the company, where those shares can be traded at such time and CareSuper considers that sale of the shares would be in members’ best financial interests.
In addition, CareSuper’s Sustainable Balanced option applies further negative screening criteria regarding a range of business activities (where the listed company's involvement in, or revenue from, certain business activities meets specific thresholds for exclusion), to investments within its Australian and overseas listed shares asset classes. More information about this investment option, including descriptions of exclusions, is available on our Sustainable Balanced option page.
2 Our external investment managers use data from GICS to identify companies falling within the GICS tobacco sub-industry 30203010 (manufacturers of cigarettes and other tobacco products). More information about the GICS system can be found here.
Reporting and communicating our progress on responsible investing
We participate in the Principles for Responsible Investing (PRI) reporting framework and measure our responsible investing activities against the results of this report. Read the latest report.
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