New recommendations for Australia on fiduciary duty and ESG issues

December 19, 2016

Today, the PRI, UNEP FI and The Generation Foundation launched the Australia roadmap, following consultation with investors, policymakers and lawyers. The roadmap makes a series of recommendations covering both policy and practice that will allow a fiduciary to fully integrate ESG risks. The roadmap has been developed in collaboration with the Australian Council of Superannuation Investors (ACSI) and marks the first time that the PRI and UNEP FI have made national-level recommendations in Australia.

Download Australia roadmap

On the relationship between fiduciaries and their beneficiaries, the roadmap focuses on APRA, the Australian Prudential Regulation Authority. Rather than new regulation, the roadmap recommends clarification of SPG 530, and in particular, clarification that ESG issues are material to risk and return analysis. Also reflected in the roadmap is a recommendation that stewardship expectations could be formalised through the development of a stewardship code.

This work positions the Australian capital markets in a broader international context, as regulators and investors respond to a rapidly-changing investing environment. And it acknowledges the many successes of Australia’s well-established responsible investment industry.

Internationally, pension regulators have made considerable progress in clarifying investors’ fiduciary duties. The Ontario Pension Benefits Act, introduced in January 2016, requires pension funds in Ontario to disclose their approach to ESG integration as part of their investment policies. Passed in November 2016, Europe’s occupational pension fund directive will require European funds to disclose how they consider ESG issues in their investment models.

In its recently produced Global Guide to Responsible Investment Regulation, the PRI identifies almost 300 policies or initiatives covering the relationship between finance and ESG issues, of which over half date from the past three years. Since 2014, Japan, Hong Kong, Singapore and Malaysia have recently adopted voluntary stewardship codes, which include commitments to sustainability.

“As the impact and importance of environmental, social and governance factors have grown, stewardship and responsible investment have become core concepts for institutional investors globally,” said Pablo Berrutti, Head of Responsible Investment Asia Pacific for Colonial First State Global Asset Management. “Regulators and standard setters in a number of markets have recognised and supported this shift by clarifying legal obligations and setting new or higher standards for investors.  Ensuring that fiduciary investors in Australia understand their responsibility to manage the risks and opportunities that these issues pose will be critical for protecting the long-term interests of millions of superannuation members.”

Australia’s pension market has one of the highest growth rates of pension fund assets in the world. Willis Towers Watson values Australia’s pension assets at US$1.48 trillion as of end of 2015. There are 118 Australian signatories to the PRI with assets under manager of over AUD$2 trillion.

Angela Emslie, Chair at HESTA Superannuation, said: "Consideration of ESG factors is important for protecting and enhancing long-term value of members' money. As custodians of their retirement outcomes, we have a duty to encourage active stewardship through the investment chain and appropriate corporate disclosure."

Cbus CEO David Atkin said “As an organisation committed to principles of sustainability in our investment framework, we support the PRI’s Australian Roadmap in its call on Australian policy makers to clarify investors’ ESG obligations and duties, and for the development of consistent mechanisms to take account of ESG issues in investment processes. We encourage other investors to do likewise”.