Environmental, social and governance (ESG) policy

Policy goals

Commonwealth Superannuation Corporation’s (CSC’s) primary investment objective is to maximise long-term real returns for members while keeping risk to an acceptable level. We believe that poor management of environmental, social and corporate governance (ESG) issues can lead to financial risks as well as a decline in the long term value of shareholder investments. Analysis of ESG exposures and risks is a part of CSC’s risk management.

In particular, CSC believes:

  1. As capital allocators we are obliged to continuously seek the most productive uses for our capital resources. Sustainability across processes, people and assets is an intrinsic element of productive capital usage.
  2. ESG considerations as they pertain to sustainability across processes, people and assets are also an intrinsic element of our risk management.

CSC exercises these beliefs in three principal ways:

  1. CSC’s approach to implementing ESG practices in its investment process is through research and engagement, not exclusion. CSC works collaboratively with a diverse group of investment managers, advisors and shareholder groups to influence companies to adopt good ESG practices. CSC is able to more effectively bring about change by working collaboratively and engaging on ESG issues with companies, rather than by simple divestment.
  2. CSC acts as a responsible corporate citizen and embraces our proxy voting responsibilities. Where possible, we vote on all matters brought to shareholders by the companies in which we invest. Where required, we engage with companies directly or collaboratively with other shareholders, on matters that give rise to ESG risks.
  3. CSC publicly communicates its ESG policy and practices. CSC uses its influence as one of Australia’s largest superannuation funds to promote good ESG practices. CSC encourages investment managers, advisors and companies it invests in to adhere to ESG principles, maintain an ESG policy and report ESG activity.

In meeting its investment objectives, CSC invests in a diverse portfolio of assets including Australian Equities, International Equities, Private Capital, Direct Property, Infrastructure, Credit and Fixed Income, Alternatives and Cash. All investments are managed by external investment managers.

United Nations Principles for Responsible Investment

Our predecessor ARIA participated in the development of The United Nations Principles for Responsible Investment (PRI) and became one of the first signatories to the Principles in December 2006. We believe that over time the importance and effectiveness of the PRI will increase, giving investors a collective and effective voice on ESG matters and risks. We are committed to making sure that all investment activities we undertake are consistent with these Principles. These Principles state:

  • PRI1 We will incorporate ESG issues into investment analysis and decision-making processes.
  • PRI2 We will be active owners and incorporate ESG issues into our ownership policies and practices.
  • PRI3 We will seek appropriate disclosure on ESG issues by the entities in which we invest.
  • PRI4 We will promote acceptance and implementation of the Principles within the investment industry.
  • PRI5 We will work together to enhance our effectiveness in implementing the Principles.
  • PRI6 We will each report on our activities and progress towards implementing the Principles.

Assessment

CSC analyses the ESG exposure of investments and includes ESG exposures as one of the factors used to develop and maintain an appropriate risk management process in order to meet its long-term investment aims. CSC assesses the ESG impact of its investments to understand the risks arising from ESG factors in the investment portfolio and to actively engage with investment managers on an informed basis.

Implementation

CSC’s Chief Investment Officer has overall responsibility for the implementation of voting and engagement activities. CSC employs a dedicated full time ESG manager whose duties include active engagement with other superannuation funds and ESG focused bodies including the United Nations Principles for Responsible Investment (UNPRI) Secretariat and investment managers.

CSC participates actively in the development and implementation of best practice ESG standards around the world.

  • CSC engages on ESG matters with investment managers, advisors and service providers, as part of regular reporting, review and selection processes.
  • CSC encourages investment managers, advisors and service providers to adhere to ESG principles, maintain an ESG policy and report ESG activity.
  • ESG factors are a part of CSC’s reporting requirements with investment managers and advisors.
  • CSC engages with a number of service providers to measure ESG risks, analyse impacts of ESG risk and research ESG issues.
  • CSC, independently or collaboratively with other shareholders and advisors, engages with companies we invest in on ESG issues. We encourage companies to disclose ESG policies, activities and performance against accepted and appropriate benchmarks.

Proxy voting

CSC maintains a Proxy Voting Policy.

CSC values good governance in its own operations, in its service providers and in the companies in which it invests. CSC regards the right to vote as an asset to be managed and exercised in the discharge of its Trustee duties. CSC regards its voting rights as an important tool for communication with the boards of investee companies and requires that its investment managers protect its shareholder entitlements and actively resist proposals and practices that disenfranchise shareholders.

Communication

As part of CSC’s aim to engage with members, investment managers, advisors, companies and other stake holders, CSC encourages open and frequent communication on ESG matters. To further this aim, we

  • publish our ESG and Proxy Voting Policies
  • publish semi-annual proxy voting activity reports and annual ESG activity reports
  • communicate with our members on ESG policies, risks and activities
  • encourage companies to disclose ESG policies, practices and performance either in regular financial reports or standalone reports
  • collaborate with other investors to request ESG information from companies, managers, advisors and other financial intermediaries
  • encourage investment managers to maintain ESG policies, report ESG risks, highlight actions taken to reduce ESG risks, engage in ESG research and publicly publish ESG activity.