Environmental, Social and Governance (ESG) risk management has become critical to mainstream investment practice.
When it comes to investing, there are a number of risks. Many of these risks are financial, however some are not.
For example, a company with poor labour standards may have lower costs initially, however as societal standards and regulations change, the company may find itself in decline. Social media may draw attention to such issues which can affect the company's reputation, sales and value. Viewing companies through a long term lens and against certain standards, helps identify issues and complications which can and do effect their long term performance.
Members often focus on fees and returns when it comes to their super, and there’s nothing wrong with that. But as long-term guardians of your money, we have a responsibility to weigh up a range of risks for you.
Sometimes a focus on longer term issues can come at the expense of shorter term performance, however by identifying these issues now and making changes to the portfolio, longer term issues can be avoided.
Much work has been done to show that following an ESG investment approach can provide positive longer term returns.
These risks include assets that may harm the earth (e.g. polluters), negatively impact society (e.g. violators of human rights) or be unethical or immoral (e.g. prostitution).
To help protect your savings, MTAA Super follows an investment philosophy that includes the consideration of ESG factors.
ESG is much more than being ‘green’. Just as the approach resulted in us divesting your savings from tobacco, it also guides us as to how we discharge our shareholder voting rights at company meetings.
Also, many of our managers for listed assets, as well as our Asset Consultant, are signatories to the United Nations’ Principles for Responsible Investment and we look for the strongest possible governance within unlisted assets.
As a foundation member of the Australian Council of Superannuation Investors, which has various ESG policies, we're helping to influence how companies operate. The aim is to support and foster businesses with the highest probability of providing strong long term returns.
Management of ESG risks is all about finding a balance to promote and encourage sustainability throughout the investment portfolio, which supports the long term growth of your super.