ESG integration is the inclusion of Material1 environmental, social and governance (ESG) risks and opportunities into investment analysis as one input into investment decision-making. Material ESG risks and opportunities can affect business activities, sectors, and asset types in different ways. Our integration approach is iterative and underpinned by continuous improvement.
We support integration through investment manager and asset selection and monitoring, ESG ratings and investment monitoring with third-party data support.
We also continue to enhance our approach to ESG integration across our internal strategies for relevant asset classes.
Application of Investment Exclusions
While integration is preferred, there are circumstances where we may consider the exclusion of a sector, specific asset type or company from the Fund’s investment portfolio having regard to members’ best financial interests.
The investment exclusions described below (the Investment Exclusions) only apply to our direct investment in Australian or international listed shares (where our investment in those shares is managed internally or by external investment managers).
Direct investment refers to our investment in listed shares where we, or our custodian on our behalf, directly own the relevant shares and we can direct or control what shares are and are not held. It does not include shares which we have received as collateral or security in connection with derivatives, securities lending and any similar financing arrangement.
There are also other asset classes and investment strategies to which our Responsible Investment Policy or our Investment Exclusions do not apply. This means that, from time to time, we may still have an indirect exposure to a company that an exclusion would capture if we held its shares directly.
See our Responsible Investment Policy (PDF) for more information about the parts of our investment portfolio to which our Responsible Investment Policy does not apply.
Investment Exclusions
The Investment Exclusions are:
(Controversial weapons)2
Exclusion of companies which have direct involvement in:
- The manufacturing of controversial weapons (specifically, cluster munitions, biological and chemical weapons, anti-personnel mines, depleted uranium, and white phosphorus weapons); or
- The manufacturing of components or services of the above core weapon systems where those components or services are considered essential for the lethal use of the weapon.
(Tobacco manufacturing)3
Exclusion of companies deriving 5% or more of their revenue from involvement in manufacturing and production of traditional tobacco products including cigars, blunts, cigarettes, beedi, kretek, smokeless tobacco, snuff, snus, chewing tobacco, as well as e-cigarettes. E-cigarettes include devices designed to resemble a cigarette containing a nicotine-based liquid that is vaporised and inhaled, and used to stimulate tobacco smoking (also called vapes, e-hookahs, vape pens, tank systems, mods, and electric nicotine delivery systems or ENDs).
Exceptions and Limitations of the Investment Exclusions
We use and rely on third-party providers which are currently, Morningstar Inc. Sustainalytics® (Morningstar) and Institutional Shareholder Services Inc (ISS) to identify companies that meet our Investment Exclusions criteria. The application of Investment Exclusions may be affected by the availability, accuracy and timeliness of the information provided by Morningstar and ISS.
Despite the Investment Exclusions described above, there may be circumstances in which we may hold, or become exposed to, shares that meet the exclusion criteria for a period of time. This may occur, for example:
- where a merger with, or a transfer of members from, another superannuation fund (known as a successor fund transfer) results in us acquiring, or becoming exposed to, those shares;
- where we enforce our rights over assets that have been provided to us as security or collateral, and those assets include such shares;
- where a company event (such as a merger or a restructure), a new company listing, or a change in a company’s revenue or activities occurs outside of the annual review cycle; or
- where one of our investment managers does not comply with the Investment Exclusions applying to the portfolio they manage for us.
Where we identify a holding of this kind, we will seek to address it as soon as reasonably practicable, including by seeking to dispose of the relevant shares where we are able to direct or control the sale. In each case, we will act consistently with our duty to act in members’ best financial interests, taking into account matters such as the alternatives available to us, liquidity, market conditions, transaction costs and the investment structure. This means a holding or an exposure may be retained for a period of time or may not be disposed of at all.
Investment Exclusions form part of our broader responsible investment approach and are regularly reviewed as part of that approach. Consistent with our Responsible Investment Policy (PDF), the application of responsible investment considerations may vary across different investment structures and activities.
Tobacco-free finance signatory
We are a signatory of the Tobacco-Free Finance Pledge.
Responsible investing
Investing responsibly is important for our members’ long-term returns and quality of life.
Investment spotlight
We have history of investing back into our community, supporting industries that are important to our members.
1Material ESG risks and opportunities are those that are likely to affect business or investment performance.
2The wording is a summary. The exclusion is determined using the definitions, data and methodology provided by and applied by Morningstar Inc. Sustainalytics®.
3The wording is a summary. The exclusion is determined using the definitions, data and methodology provided by and applied by Institutional Shareholder Services Australia Pty Ltd.