Social impact investing: Australian institutions show how it's done
Despite continued challenges in collecting information about the social impact of investments, super funds in Australasia are leading investors in the region.
Australian institutional investors are now ahead of the curve when it came to many elements of social impact, according to Martha Brindle, senior director public markets at bfinance, roughly a quarter of whose clients are institutional investors in Asia.
“In our recent manager searches for Australian investors we’ve observed a particularly strict line on diversity and social impact compared to what we have generally seen from asset owners in other regions,” London-based Brindle said.
Sustainability-themed investing AUM grew to $235 billion in 2022, of which $41.7 billion was in social-impact related themes, according to the Responsible Investment Association of Australasia (RIAA) Responsible Investment Benchmark Report.
bfinance
Brindle gave the example of an Australian endowment client that did not ultimately select their preferred equity manager because the manager would not formally agree to the investor’s ESG policy as part of the IMA contract, which set out detailed ‘S’ objectives for the investor.
These included a requirement to promote investment in companies supporting socially beneficial outcomes and avoid social injury.
She also pointed to an Australian super client that was focusing on diversity—a strategic priority of their board—during asset manager selection.
“The finalist due diligence meetings included substantial grilling from the investor on each manager’s diversity statistics, including hiring expectations for their investment team, and the consideration of diversity within the investment process."
A spokesperson for NZ Super pointed to the fund’s independent review into diversity, equity, and inclusion (DE&I) at the fund in 2021, and the resulting appointment of a head of DE&I, who was tasked with developing a five-year DE&I Strategy, which is currently being implemented.
“The strategy has a particular focus on initiatives to increase the number of Māori and Pacific people in our workforce and to promote women into leadership roles,” they said, detailing a number of areas.
These cover talent – including providing scholarships, internship and graduate programmes, and prioritising DE&I considerations in recruitment – and career development – including succession planning, training, and secondment opportunities.
The spokesperson also pointed to safety and wellbeing – including the fund’s Code of Conduct, complaints procedures, and health and safety regime – and “care and connection” – including measures to celebrate cultural diversity, and employee support groups.
Platon Chris, Australia superannuation advisory partner at KPMG said that super funds were spurred by the January 2023 the EU Corporate Sustainability Reporting Directive (CSRD), which requires large companies and listed companies to publish regular reports on the social and environmental risks they face, and on how their activities impact people and the environment.
KPMG
“The Australian government Department of Social Services has also introduced the Outcome Measurement Initiative to build outcome measurement capacity and grow the social impact investing sector,” he added.
MEASUREMENT CHALLENGES
Despite progress in Australia, Brindle said that in general, social impact investing by asset owners across Asia remained hobbled by a wide range of social impact metrics whose relevance varied widely across companies and industries, making it hard for asset owners to evaluate the social dimensions of their investments.
“There is still no single gold standard or representative S metric (like carbon intensity for environmental impact) that is used. This means headline S ratings differ wildly across different ESG data providers for the same company,” she said.
In some key areas, measures provided a very limited picture, she added.
She pointed to the emphasis placed by managers and data providers on gender diversity on boards which, while easy to measure, was disappointingly narrow as a measure of diversity across a company, she said.
This structural problem is not limited to Asia.
“Social impact investing is challenging due to its qualitative nature,” said Mart Keuning, advisor for responsible investing at ABP, the Netherlands’ largest pension fund, with €500 billion in assets, although he pointed to successes for the fund in sectors like affordable housing and investments that help make renewable energy accessible for more people.
An important requirement for better systems for measuring social impact is that it be quantitative, he added. “The key for us is to look for investments that have a measurable positive impact, combined with a good return,” he said.
While the problem of measurement was particularly visible on social impact it was not limited to that area there, he added.
“If I had a magic wand, I would wish for globally standardised and universally adopted ESG metrics and reporting practices across companies and funds worldwide. This would drastically enhance transparency, comparability, and decision-making in ESG investing,” he said.
ACGA
Jane Moir, head of research at the ACGA, said gaps in social reporting were part of a wider problem of getting accurate data in Asia, which frustrated efforts by the organisation to compile its biennial Corporate Governance Watch report for APAC.
“China can be a challenge – you have to know where to look. Taiwan is another market where disclosure is limited, making life difficult for investors,” she said.
Moir also pointed to language barriers in Japan, Indonesia and Thailand, where many disclosures had no – or poor – translations. “In Japan, finding information on regulatory disclosures means you have to rely on translations,” she said.