At Tasplan we seek to build sustainable long-term retirement incomes for our members. As custodians of your wealth, there are many risks we need to consider including environmental, social and governance (ESG) risk.
The last decade has seen the rise of ESG as a responsible investment movement. While ESG investment was initially viewed as a means of managing risk and preserving investment returns, evidence suggests including ESG analysis within investment decisions can enhance returns.
When considering ESG, it’s typical to initially consider how a company is positioned in respect of climate change and the environment, but ESG is far broader in scope. ESG captures factors across the corporate spectrum including how a business manages its social licence and implements a robust governance framework to oversee its affairs. Progressive companies adopt ESG practices not for marketing purposes, but rather to enhance the firm’s opportunity to become responsible corporate citizens and market leaders over the long term.
Our increasing commitment to considering ESG analysis in our investment decision making is illustrated in our development and adoption of an ESG policy. Here is some information to illustrate how we manage your money while considering ESG issues and sustainability challenges like climate change.
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In January 2009, Tasplan Super was the first Tasmanian super fund to become a signatory to the UN Principles for Responsible Investing (UNPRI).
UNPRI plans to develop and implement a set of global principles that help environmental, social and governance (ESG) issues dovetail into mainstream investment practices.
The principles were an initiative of the UN Secretary-General and developed by large institutional investors. The six principles can be applied across all sectors of the fund’s portfolio and provide guidance on key challenges.
The principles are voluntary, aspirational and designed to enhance long-term benefits throughout the investment sector. They’re not formulated as a screening tool but, rather, for ESG engagement.
Under the six UNPRI principles, we'll:
The UNPRI recognises that ESG issues can affect investment performance and that considering these issues is a prudent part of managing an investment portfolio. UNPRI is a tool that will lead to a greater understanding of ESG issues and a way of managing ESG risk. Its outcome should enhance and protect member benefits.
As a member of the Australian Council of Superannuation Investors, we already comply with a number of the UN principles, plus we have developed our own ESG policies that will be enhanced over time to respond to evolving sustainability challenges.
For more information, visit the UNPRI website at unpri.org.
Climate change is the dominant sustainability challenge facing society and requires careful consideration by investors.
Climate change has become part of everyday vernacular but in a scientific sense refers to a change in weather patterns, and related changes in oceans, land surfaces and ice sheets, occurring over lengthy periods.
Most scientists recognise that climate change is scientifically supported with growing acceptance that the increasing rate of human-produced carbon emissions is the key driving force.
The actual and potential impacts of climate change include melting of snow and ice, rising global sea levels, changes to atmospheric and ocean circulation, changes to rainfall and wind patterns, and higher incidence of extreme weather events such as fires, floods and storms.
Climate change matters to investors because it has the potential to impact both positively and negatively on investment performance. It's commonly said that there will be winners and losers from climate change and its impacts give rise to a number of risks and opportunities for institutional investors such as Tasplan.
Climate change is challenging to governments and likely to result in growing regulatory responses. Indeed, APRA has publicly stated that climate change is a growing financial risk for the economy. These risks can be either physical risks (financial costs from storms, hurricanes, floods) or transition risks (regulatory developments superseding traditional fuel industries and driving development of energy sources and technology positioned for a low carbon economy).
Consider the following examples:
A fossil fuel supplier leasing a single, long life field. Declining demand triggered by an increased regulatory cost makes production economically unviable. Proactive management that addresses stranded asset risk and adjusts to the changing industry dynamics by investing in more attractive and sustainable energy sources are more likely to retain economic relevance and investor interest.
A transportation company operating a fleet of diesel engine powered vehicles faces increased competition from electric vehicle operators. Lower operating and maintenance costs increase the attractiveness of newer entrants to clients.
Increasingly unstable rainfall and rising water supply charges contribute to both rising input costs and declining yields for primary producers. Investing in newer technologies and more resilient, less water intensive crop strains may help alleviate these risks.
A commercial real estate property owner has responded to increasing electricity and water costs by investing in renewable energy and smart water supply resulting in improving building sustainability ratings. Heightened sustainability credentials increase the attractiveness of the building to tenants willing to pay a rental premium.
The threat of climate change demands co-ordinated global co-operation and action. Without concerted efforts global temperatures are likely to surpass the two-degree tipping point cited by the United Nations COP21 ‘Paris Agreement’ much sooner than expected.
Nations, including Australia, signed the Paris Agreement in December 2015 and in doing so agreed to work collectively to respond to the challenges of climate change and limit the global temperature rise to within 2 degrees Celsius of pre-industrial levels and move towards net zero emissions by 2050.
A key consideration of the Paris Agreement was how global investors can help contribute to the global economic transition required to meaningfully reduce carbon emissions and address global warming.
Climate change is one of many issues that Tasplan must consider as part of an ongoing comprehensive investment strategy. Tasplan deals with climate change risks under the terms of its Investment Governance Framework. This framework:
recognises that super is a long-term investment
states that Tasplan aims to maximise risk-adjusted returns over the long term and will not pursue strategies that put the sustainability of long-term returns at risk
requires environmental, social and governance (ESG) factors to be incorporated into all investment decision-making
is regularly reviewed to ensure it remains appropriate.
Tasplan is committed to considering analysis of ESG factors in its investment decision making. This recognises both Tasplan’s commitment to invest responsibly and a desire to promote improved sustainable, long-term investment returns for its members.
Tasplan believes that climate change is a major ESG theme and poses an investment risk to the sustainability of member returns. Under Tasplan’s ESG Policy, Tasplan adopts a multi-faceted approach to ensure climate change risk and opportunity is factored into our investment framework. These activities continue to evolve and will include initiatives such as:
measurement and disclosure of carbon intensity and greenhouse gas emissions across the Tasplan portfolios. An ongoing challenge for investors when assessing climate change risk has been the lack of universal reporting standards for companies with it largely a voluntary consideration for Boards at this point. Nevertheless, the Financial Stability Board’s Task Force on Climate-Related Financial Disclosures (TCFD) report launched in 2016 is viewed as an important step in promoting greater consistency in financial risk disclosures
developing strategies to minimise climate change risk in our investments
engaging with our external investment managers to evaluate how they're considering climate change risk. Tasplan will look to appoint high quality ESG investment managers who factor in climate considerations into their investment decision making and
collaboration and engagement. Tasplan believes that advocacy and engagement are important avenues for effecting change. Tasplan is a member of the Australian Council of Superannuation Investors (ACSI) and is a signatory to the United Nations Principles for Responsible Investment (UNPRI). Tasplan proudly supports the engagement and advocacy activities of these organisations and actively encourages its managers to become signatories. Further information on the activities of UNPRI can be found on their website at www.unpri.org.
Tasplan will continue to conduct and monitor research into the effects and potential risks of climate change, and to consider the potential impacts on the investment portfolio. Tasplan will look to increase our disclosure on these activities over time.
We're committed to considering analysis of Environmental, Social and Governance (ESG) factors in our investment decision making. This recognises both our commitment to invest responsibly and a desire to promote improved sustainable, long-term investment returns for our members. This policy outlines how the Trustee will incorporate ESG factors into its investment framework.
Tasplan is committed to responsible investing and believes that investing sustainably can contribute to our goal of building long-term retirement incomes for our members. Occasionally, members provide feedback querying exposure to certain industries or stocks that are contrary to their social values.
As a starting point, Tasplan has to consider the best interests of all members when framing its investment strategy. It's not feasible to implement an investment approach that will match the individual value preferences of all members. Tasplan has adopted Environmental, Social and Governance (ESG) analysis into its investment decision-making as a means of seeking to meet the investment needs of as broad a universe of members as possible. Our ESG activities provide a responsible investment overlay to drive improved company behaviour and positive social outcomes from our investment activities.
In this way, Tasplan doesn't typically adopt exclusion strategies, preferring to consider a broad range of factors that may materially impact investment performance. Where a company is involved in a negative activity or is deemed to have practices which fail to meet shareholder and community expectations, Tasplan prefers to engage with company management to promote improved standards. By divesting, Tasplan forgoes the ability to influence company strategy.
Nevertheless, Tasplan may periodically avoid investment in certain activities due to unacceptable risk return parameters and poor ESG assessment. In the case of fossil fuels exposure, Tasplan has no current intention to divest entirely from fossil fuels companies, but will increasingly consider the impact of climate change on investment risk and opportunity across all investments. Accordingly, we're interested in how investments are exposed to operational risk in the context of a warming planet and the need to reduce greenhouse gas emissions in the medium term.
Tasplan will continue to have exposure to fossil fuel stocks from time-to-time where the investment case remains attractive and the company is managing its climate change risk. It is true that the outlook for coal companies is clouded in the context of future energy policy and Tasplan may occasionally hold a very minor exposure to this sector due to one of Tasplan’s ‘enhanced index’ equity managers holding stocks in order to manage risk relative to the benchmark. This is an extremely cost effective way for Tasplan’s members to gain exposure to the stockmarket. It’s worthwhile noting that this situation is fluid and our investment managers may cease to hold such companies should the investment case deteriorate or the risk of holding such exposures become unacceptable.
Tasplan is a significant contributor to Tasmania’s economic growth through our investment contribution across the State. Indeed, Tasplan has nearly 5% of members’ Funds invested in local Tasmanian businesses, including equity investments in local food growers such as Nichols (ethical free range chickens), Pyengana Dairy, Meander Valley Dairy and Shima Wasabi. Many of these businesses have a sustainable focus. Tasplan also contributes to renewable energy investment through a wind turbine ownership. Additionally, Tasplan acts as an enabler for small and medium sized Tasmanian businesses across the economy via our internal commercial lending team creating business expansion, development and employment opportunities for Tasmanians. Tasplan is unequalled among superannuation peers in its contribution to the local Tasmanian economy.
Tasplan recognises there are a range of investment approaches regarding fossil fuel exposure in superannuation investment including a minor range of options that may look to completely avoid investment in fossil fuels. Tasplan is a profit-to-members fund unlike many fossil fuel free options which attract higher fees and are typically owned by entities listed on the Australian stock exchange.
Tasplan will continue to conduct and monitor research into the effects and potential risks of Climate Change, and to consider potential impacts on the investment portfolio. While fossil fuels investment may be a significant issue for some of our members, Tasplan’s investment activities, across the State and more broadly, signify our commitment to promoting sustainable investment outcomes.
Climate change is a complex issue that has emerged as the dominant sustainability challenge facing investors. Tasplan regards climate change as a central ESG investment theme that has the potential to impact on our members’ retirement savings. We recognise that this risk is evolving and will require a multi-faceted approach to ensure climate change risk and opportunity is factored into our investment framework.
Tasplan is a member of the Australian Council of Superannuation Investors (ACSI) and proudly supports the engagement and advocacy activities of ACSI.
ACSI and Tasplan support the notion that responsible investors can improve long-term returns through active engagement with company boards on how they’re assessing and managing their physical and transition risks associated with climate change.
Tasplan favours encouraging companies to respond to sustainability challenges over divestment strategies. We regularly survey external investment teams for evidence of:
We’re also active owners and use our shareholding to engage with companies to improve their disclosure on climate risk.
Tasplan and ACSI believe a planned transition to a low carbon economy is preferable to a disorderly transition, on the basis that a planned transition will result in better economic outcomes, is better able to take account of the needs of various stakeholders, and better manage uncertainty and volatility.
It is Tasplan’s policy to promote strong governance within our investment portfolio. We’re a universal owner of Australian and international equities and other investments. As the pool of assets grows and the number of super funds decreases, this ownership concentration and influence will increase.
It’s important that super members, investee companies and other market participants are aware of the voting behaviour of Tasplan and the principles developed to guide decision making as an active owner.
Tasplan is committed to incorporating ESG analysis into its investment decision making to improve long-term risk-adjusted returns for our members. Tasplan views active ownership and the incorporation of ESG issues into our ownership practices as consistent with our fiduciary responsibility to act in the best interests of our members.
Tasplan has enhanced its proxy voting procedures to more fully reflect our ESG objectives within our Australian equities investment holdings. Details on this development are outlined in the Proxy voting policy below.
We adopt a long-term approach to our investment decision making and are committed to the incorporation of responsible investment factors within investment decision making to improve performance outcomes and ultimately our members’ retirement savings. This approach provides opportunity to gain exposure to investment projects and holdings that may have a positive community, environmental or societal impact. For example, this may include exposure to renewable energy projects, community housing developments or green themed bonds.
We endorse responsible investment as an effective investment methodology for considering the challenges associated with the transition to a low carbon economy and considering broader ESG and evolving sustainability challenges.
We’ll incorporate analysis of ESG factors within our investment decision making to promote improved, sustainable long-term investment returns for our members.
We also seeks to ensure our investment activities continue to be aligned with member interests and meet broad community expectations regarding the societal impact of those activities.
For those members looking for a dedicated environmentally and socially responsible option we offer our Sustainable option.
This option is aimed at seeking moderate to high‑level capital growth over the long term (more than 10 years) using environmentally and socially responsible investments. It offers attractive long-term returns while accepting a medium to high level of investment risk.
It aims to provide a lower carbon exposure within its equity holdings and a number of the investment managers have been specifically chosen because of their expertise in the following areas: