Superannuation: SRI and CSR – hype or reality?

THE SUPERANNUATION QUESTION SOCIALLY RESPONSIBLE INVESTMENT AND CORPORATE SOCIAL RESPONSIBILITY HYPE OR REALITY? 2004

I take up one key issue, that of the question of Socially Responsible Investment, SRI, often called ethical investment together with Corporate Social Responsibility, CSR.

SRI is superannuation fund investing in socially responsible companies.

CSR refers to those companies that report and adhere to social responsibility standards.

I argue that labour and social movement activists can be more involved in SRI and CSR activities.

There are organising opportunities for alternative social and political campaigning. The union movement in alliance with Non-Government Organisation, NGO social activists can organise superannuation member shareholders to have a greater voice.

Workers assets of over $500 billion for retirement could be one vehicle to improve corporate social responsibility. The argument is that workers who own retirement assets can influence economic and social policy.

I urge such activism by first advocating proxy voting. I look at means to reform corporate governance, and to shift superannuation investment towards socially responsible policies, including for high labour standards.

I canvass the strong debate about such strategies: whether they are hype or reality. Evolving SRI and CSR policies reflect the tensions and inherent contradictions in investment and company performance. I conclude by looking at the Howard and Labor political landscape.

Proxy Voting

As a result of our superannuation funds allocation to Australian equities, superannuation members are part-owners in major Australian companies. My argument is that the accompanying responsibility of superannuation shareholders should involve exercising the right to vote at company AGMs through proxy voting.

This is happening. Shareholder activism is growing. Controversy at AGM’s is in the news.

One illustration is superannuation funds instructing their votes against directors receiving obscenely large salaries and payouts. Such action has had some impact, even against large share option deals at Coles Myer’s AGM and Murdoch’s AGM. The Finance Sector Union campaigns in Bank AGMs, as do some unions in their industries.

Ways of being active is to join shareholder associations or to insist that your superannuation fund is involved in proxy voting.

Are you as a superannuation member aware of your rights as a shareholder? What, if any, information do you receive? Can you organise around socially responsible issues with other shareholders?

What is your union doing? These are important questions.

Superannuation investment decisions should be open so that members are able to be informed on SRI decisions. An obvious difficulty is that an individual super fund member has little influence. So improved collective forms of exercising influence on superannuation investment through proxy voting has to be developed by union leaders and social activists.

Many companies have low ratings on the SRI and CSR index.

Proxy voting on director remuneration and against excessive restructuring and further redundancies and to improve poor work practices is on the increase putting pressure on company mangers and directors. An important debate is whether voting activism to ensure director independence is more important than remuneration.

Unlike pension funds overseas, Australia’s proxy voting as a superannuation trustee responsibility is not exercised as widely as it should be. Unions could be more active in organising proxy voting campaigns. Increased investor activism could put some meaning behind shareholder democracy, however limited.

NGO social activism

Campaign leadership on SRI is shown by the NGO sector. Activism comes from organisations such as the Ethical Investment Association, Greenpeace, Friends of the Earth, Wilderness Society, Australian Conservation Foundation, Amnesty International, Oxfam, the Mineral Policy Institute, St James Ethics Centre, Humane Society International, and similar environment and social justice activists.

The strengthening of alliances with agreed upon strategies has important potential. The United Nation’s Global Compact is a way that NGO’s and unions can campaign to enforce CSR or in many cases to expose the corporate reporting as hype.

Michelle Chan-Fishel is a Program Manager of the Green Investments Project for the US Friends of the Earth. A keynote speaker at the 2002 Ethical Investment Conference, she is one of many examples of the vigorous role of NGO’s social activism as part of the social justice global movement. She brings environmental advocacy to Wall Street and lobbies major corporations and financial institutions, the World Bank, IMF and WTO. She co-ordinates shareholder activism and corporate disclosure campaigns. She gave an optimistic address on her activities for Global Social Change and Justice through SRI investing. She campaigns against unchecked global corporate power threatening the environment. She was critical of many global corporations that claim they are on board sustainably, but where such reporting is just public relations spin or “SRI Lite”; more hype than real change. However, optimism that world civil society can have an influence changing corporate investment for social responsibility was evident. Sustainability as an investment style is on the world agenda.

Amnesty International is an example of activism on CSR campaigning by lobbying superannuation investors on human rights issues. Companies are targets that breach UN and ILO standards, whether against child labour, slavery, or discrimination, and for security of the person, privacy, freedom of speech, freedom of association and union rights.

There has been pressure from environmental groups. To give an example, pressure has been on BHP-Billiton on their level of commitment to sustainability with their greenhouse gas record, OK Tedi pollution and poor industrial relations record.

Are changes by BHP-Biliton in their 2003 Sustainability report (and like giant mining, financial and retail corporation claims) real or just greenwash spin? Is the new global corporate CSR reporting hype or reality? The UN’s Global Compact on CSR is an international vehicle for lobbying.

SRI choice

Polling shows very popular member support of 90% is driving SRI.

SRI in Australia grew 37% last year topping $21.3 billion according to the Ethical Investment Association benchmark study. SRI is firmly on the superannuation agenda, with returns similar to the main sharemarket, including volatility.

Your superannuation fund probably has a range of choices including SRI products. Your fund should have an SRI option as a Member Investment Choice amongst the choice of balanced managers. If your fund doesn’t, then get onto it. Funds should allow members a choice in investing in companies that meet socially responsible standards. CSR policies can have an important impact on where and on what values your retirement assets are invested.

A movement is growing to influence superannuation investment decisions because tolerance of poor corporate, environmental and labour practices and economic rationalism is decreasing.

Slowly but inevitably companies who do not improve their triple bottom line, social as well as financial will become less sustainable. Superannuation funds with a SRI strategy are positioned to benefit from this shift. CSR is on the agenda despite the dominance of the economic rationalist ideology where financial returns are asserted to be the only criteria.

Labour standards

High labour standards should be key SRI and CSR criteria. Does your superannuation investment committee assess the industrial relations record of the companies your fund invests in?

Remarkably, too many Australian union superannuation trustees have an underdeveloped focus on the labour standards of companies their members’ retirement income is invested. There is greater activism on industrial relations by European and American unions.

Union trustees in industry funds have joint Board responsibility with employer representatives.

Nevertheless, they could be negotiating that investment of employee assets should only be in companies with quality labour standards. The core basics are International Labour Organisation ILO standards, union rights, workplace democracy, quality occupational health and safety and injury management systems, equal opportunity and anti-discrimination workplace standards.

An important campaign that could be followed is the international union campaign, led by the CFMEU, against such powerful corporate mining giants Rio Tinto and BHP-Biliton. Superannuation funds world-wide investing in Rio Tinto were contacted and marshalled by unions. Superannuation funds in Australia, US, UK and other countries were asked to support resolutions at the Rio Tinto AGM to enforce core ILO standards. Although the union resolutions were not successful, they received significant shareholder vote. Some bargaining pressure for improvement in Rio Tinto’s labour standards was developed. The unions continue to struggle against Rio Tinto with international networking. The CFMEU also challenged BHP-Billiton’s so-called adherence to CSR, with criticism of the company’s support for the UN’s Global Compact that upholds human rights, core labour and environmental standards. The company is keen to have SRI investors and to promote its corporate social responsibility through the Global Reporting Initiative. But these union exposures show that this is more hype than reality. The CSR standards do however provide unions with campaign vehicles.

An important example is the construction of the Olympic Games described in the book “The Collaborative Games”. This is an inspiring story of unions, business, superannuation funds, NGO’s, the community, governments and the Olympic organisation working together to deliver the largest infrastructure project under budget, on time and with SRI.

Ethical investment principles

SRI has historically evolved from ethical investment initiated by church funds and NGOs.

One important ethical investment style is for funds to use negative screens. These negative screens cut out certain investments using ethical principles. Trustees may have policies to not invest in companies involved in weapons, war (used in the Vietnam war), apartheid (used against the racist South African regime), gambling, tobacco, alcohol, brothels, uranium mining, wood chipping, GM foods, animal testing and companies with proven breaches of human rights and labour standards, such as child labour. Churches have funds run on the basis that Christians should be God’s stewards of resources. Investment should be based on ethics not just financial returns.

A common form of SRI is “best of sector” investing. This is where the fund manager selects within an industry sector e.g. banking those companies with the best CSR standards. There is a vigorous debate on the research criteria assessing such standards.

Corporate governance

There is activity to improve Australia’s poor corporate governance in the wake of Australia’s dramatic spate of corporate collapses and scandals. Closer public policy attention is being made to the responsibilities of company boards, managers, auditors, trustees and consultants. Even Peter Costello with his CLERP 9 legislation claims a response to remuneration disclosure.

What CSR does is put on the agenda the relationship between companies and the community. There is a growing public pressure on the social ramifications of company actions. CSR principles address the problems of short-termism and urge long-term sustainability.

Companies now have to report on their SRI position. Some companies are changing to triple bottom line reporting, financial, environmental and social standards. SRI is a legitimate mainstream investment style adding value to financial criteria. Much research concludes that SRI develops better management over the long term.

Other companies rely on “spin” and require their marketing department to produce more hype. Is your SRI fund only doing “green wash” or really changing to support environmental sustainability?

The debate rages. Is this corporate response hype or reality?

Engagement

The Commonwealth employees’ superannuation fund, CSS/PSS, has a leading successful strategy on corporate governance, that of engagement. The Trustees’ focus is on engagement with the companies they invest in. The development of the CSS/PSS Investment Governance overlay is a risk management strategy applied over their billions in Australian equities.

Risk management for superannuation funds addresses a range of potential risks to the share price over the medium and long term. In the same way that Boards monitor and employ strategies to address areas of risk including economic, political, interest rates and currency risk, the PSS/CSS Board manages risk arising from social, environmental, labour and governance practices within companies, in order to protect their asset base over the long term and build long term sustainable value for investors.

PSS/CSS receive advice to provide a service that, in conjunction with research, assesses risk associated with a range of social, environmental and governance issues.

It recommends strategies to manage the risk based on a process of engagement with companies, industry and regulators. Outcomes are then monitored to determine whether companies are changing to meet the CSR standards.

Research and engagement has covered audit independence, workplace health and safety, environmental disclosure, energy use and human rights in the supply chain. All have indicated that there are significant areas of deficiency within a range of companies in the index that cause concern about the potential impact on the share price. Many companies have responded positively to the engagement and there is evidence of changes. Much of the success is attributed to the asset weight that these funds have in the Australian share market and the positive method of engagement with companies, industry and the regulators. PSS/CSS recently was awarded a Royal Award for Sustainability, a United Nations Environmental recognition of their governance strategy.

Some superannuation governance engagement strategies apply overlay as additional scrutiny over investments, but with a difference-they divest from some funds, sell where the companies do not meet the social responsibility standards.

SRI, Sweden

At the Ethical Investment Conference, representatives from MISTRA, Sweden’s National Default fund and the Strategic Environmental Research Foundation, reported on their decisive action to divest investments in global companies breaching international standards. They gave examples of their actions to cease investing in some 27 key global corporations, including Coke, Texaco, and Rio-Tinto. This divestment was taken because of proven breaches of UN standards; for proven violations of Human Rights Conventions, International Environmental Conventions and laws against bribery and corruption. This process of using global CSR ethics to assess whether companies are ethically responsible has an impact. There was successful engagement with those breaching companies. Good returns by this Swedish Fund are not jeopardised.

Australia?

Superannuation reform is a pressing policy issue. I conclude by urging consideration of reform in this election year. The Howard government’s SRI and CSR record is not good, informed by neo-liberalism, the “free market” and “corporate self regulation”: read “corporate greed.” Recent corporate collapses, scandals, corruption, wealthy snouts in troughs and a crisis in governance means that Howard’s agenda is unravelling, being contested and need of reform.

The ALP’s Shadow Minister for Corporate Governance and Financial Services, Stephen Conroy says Labor policy is directed at providing a protective umbrella under which ethical investment and shareholder activism can flourish. At the ALP Conference he said: “Every worker’s retirement income is affected by corporate greed. That’s why Labor wants to empower you to take on the boards”.

As well, Senator Nick Sherry, the ALP Shadow on Superannuation has relevant initiatives. Watch for the SRI and CSR details from Mark Latham. The next Parliament may just become most interesting for SRI and CSR advocates, if Latham is PM and the Senate dependent on the Democrats and Greens. Both the Democrats Senator Andrew Murray and Greens Senator Bob Brown have strong SRI and CSR policies. So the direction for SRI and CSR is important. Whether SRI and CSR is mainly hype or making a positive contribution to our community, economy and environment is a real one.

The ACTU and unions have active superannuation committees lobbying policy makers. The ACTU calls for policy focusing on the benefits to be gained for workers with a shift in superannuation investment towards economic and social infrastructure and companies offering real growth through sustainability and social responsibility. The ACTU welcomes the development of opportunities for such fund investment, e.g. into public rental housing that could address social need while ensuring a reasonable return for workers’ retirement savings over the long-term. Options invites contributions on these reforms. (For the ACTU Congress policies on Superannuation, see www.actu.asn.au).

(See also the debates in the Ethical Investment Association news www.ethicalinvestor.com.au ).

Chris White was a former Director of SA Statewide Superannuatio

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2 Responses to Superannuation: SRI and CSR – hype or reality?

  1. examinator October 26, 2008 at 8:53 pm #

    Good stuff!
    I would like you to give a truncated version for OLO and Unleashed.
    We all bitch about the negative side of corporate capitalism including excessive packages. I’ve commented before that the ‘paying peanuts’ argument is flawed and a more current version is “if you pay in heaps you get pigs”. Executives in their own self interest have sold the idea that they are a unique very rare commodity. In reality this is simply market manipulation.
    Likewise any the further one gets from the source of production the less morally concerned the individuals tend to become.
    How many people buy on price without any effort to consider the efficacy of the means of production? The response is I am a battler (a relative term), Cost of living is lower there and the most relevant to this topic what can I (as an individual) do? Clearly all these excuses are lacking. We are simply involved in exploitation by proxy in that we often chose the most profitable options in super.
    The bad side of capitalism is that without force it will simply chose the easiest way to profit.
    Shareholder proxy activism is one of the three ways to force change. In investment strategies and ‘compensation packages’ (sic) . The concern that many investors will have is the perception that unions have political axes to grind consequently may be distrusted or simply not effect their political persuasion. Belonging to a union maybe mandatory or advantageous at work but outside that?
    In the final analysis I suspect this is one the percieved flaws in Australian unionism today. As is union controll of industry super.

  2. Chris White October 27, 2008 at 6:02 pm #

    Good points.

    I am here urging shareholder proxy action…the union reps on
    super trusts are not really in control, but could organise responsibly
    pressure on investment strategies, really critical in this crisis.

    i can give a shorter version updated.