Brighter Super, the $31 billion Australian superannuation fund, is hoping to publish its first fund-wide carbon audit by the end of the third quarter of this year.
Fiona Mann, head of listed equities and ESG at Brighter Super, told AsianInvestor the fund would publish its first fund-wide reporting in line with the framework of the Task Force on Climate-related Financial Disclosures (TCFD), the Financial Stability Board’s initiative to improve and increase reporting of climate-related financial information.
“This will include all asset classes,” she said, noting that generally data for private equity investments was harder to collect than that on equities and fixed income. “We have worked with an external data provider, Emmi, on this for the last two years. Our work with them has been the cornerstone or our efforts,” she said.
Mann said that the TCFD was a key part of growing regulatory requirements that are helping shift Australian funds towards better practices.
She also singled out efforts by the Australian regulator APRA including CPG 229, the prudential practice guide to manage the financial risks related to climate change, which it released in November 2021.
“The initiatives are helping lift the visibility of climate risks to an even higher level: APRA is definitely [a regulator] that leads. The uplift in their work in this area has increased awareness of the fiduciary duty of funds and trustees, in this area,” she said.
Early in 2022, Brighter Super re-categorised ESG from an investment risk to a corporate risk, meaning one that applies to the fund itself rather than simply the investments it makes.
“This means more frameworks around measurement and has increased the importance of getting to our net zero targets,” she said.
The plans follow a significant rotation a year ago from active to passive mandates by the fund, which terminated a number of active equity managers mandates, in part to reduce costs, amidst growing concerns over the direction of global financial markets.
“We haven’t made any further changes since then: we still have a number of managers in the active space,” Mann said, adding that active managers had provided a positive contribution to the fund’s equities performance over the last year, which was favourable compared to its peers.
In APRA’s Annual Superannuation Performance Test 2022, published in August, LGIAsuper was among 64 out of 69 funds which achieved a pass.
Mann emphasised that the fund, which holds both growth and value strategies without a bias towards one or the other, had seen strong performance from its value managers over the last year compared with its growth managers, a trend reflected across the sector.
NEW ESG HIRE
In October the fund hired Oliver Boyte, an MBA graduate who previously worked at the Clean Energy Finance Corporation, to accelerate Australia’s transition to a low emissions economy. Prior to that he worked at Temasek-owned STT GDC, a data centre investor.
Together with Mann’s own role which combines responsibility for equities and ESG, the hire increases the number of senior staff with direct responsibility for ESG on the fund’s 13-person investment team, to two. A third, temporary ESG hire, is leaving in February.
Mann suggested that further ESG hires at Brighter Super were likely in the coming few years.
“Our team is a blend of investment and ESG expertise. But we can always do more: it’s a growing area and, as time progresses, we will get more staff on board as we look at our net zero and other stewardship commitments,” she said.
SOCIAL DATA GAPS
Despite strong progress on collecting information on the climate impact of its investments, Mann said that data concerning social impact remained hard to collect and evaluate.
“Some social data is thin on the ground in some areas and can be very subjective,” she said.
But she said that the fund had increased its scrutiny of modern slavery, uplifting how they examine the fund’s own supply chain as well as the companies it and its fund managers invested in.
“Modern slavery reporting is something that we have worked on hard to improve over the last year,” she said.
Where companies have extensive networks and large distributed workforces, identifying modern slavery is particularly challenging, she noted.
“At a very basic level, it is hard to put my hand on my heart and say that we can be certain that [modern slavery] is not present in a specific Walmart store in Texas which may be several layers down our investment or supply chain,” she said. “But we rely on our managers and their investee companies to be as diligent as we are in this exercise.”
She said the fund was also in the process of reviewing the diversity and inclusion practices (along with other ESG policies) of managers it employed.
“We hope to have the process completed for our equity managers by the middle of the year; eventually it will be complete for managers in all asset classes,” she said.