During one of the closing sessions of this week’s Responsible Investment Association Australasia (RIAA) Annual Conference, Peter Chun, CEO of UniSuper, who manages $125 billion AUD in superannuation shared something powerful.
He showed a high preference for the younger demographic of their members who wanted an investment portfolio that was considered responsible or ethical, and worked to solve climate change.
When asked, “Would you be willing to sacrifice returns to achieve these outcomes”,” the vast majority indicated no.
A question from the audience asked if Peter thought UniSuper members would have responded differently if instead they were asked:
Are you happy with an investment portfolio aligned to a four degree increase in temperature?
Did you know the current trajectory of the ASX is aligned with a four-degree or more increase in global temperature?
Seriously – check it out from Morningstar in 2023, “No Australian-listed company is on track to reach net zero by 2050“.
That’s not to say the whole world is in stagnation—the shift to renewables and net zero by councils and others is moving at a significant rate—though in the context of large investment funds, and thus the question from the audience;
Would UniSuper members respond differently to sacrificing returns if they knew what they were currently in for?
This schism between being confined within a system—the global financial system—and being a human, an individual member of the collective, confronted with the enormity of the species-level challenges we find ourselves facing, is profound.
Several were defined in the very first session of the recent RIAA conference by the Hon. Gareth Evans, Former Minister for Foreign Affairs (briefly detailed by the AFR here), making for some sobering, unnerving, and deeply challenging reasons to ask, “What the hell are we all doing?”
As a notable aside, Fortescue is pursuing its Real Zero by 2030 programme, which, out of everything I’ve seen seems to be one of the rare on-the-level initiatives for the kind of reality we need to be in to make good on all the pledges, claims, and announcements around environmental sustainability that I’ve seen.
The (hu)man in the mirror
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During the conference, a highly intelligent, skilled practitioner, a senior leader in her industry and a young mother, asked me;
“If working inside the system to create change and secure a future for my daughters isn’t going to have a positive impact, should I get out? That’s why I’m doing this”
That is a great question.
I champion those seeking to shift the world’s axis from an economic system based on infinite growth in a finite reality.
Personally, it’s my life’s work, and 20 years ago, it was quietly suggested to me that while the business we were in at the time might be being steered in a relatively profit-for-all-purposes direction, if we collectively lean to one side while on board, we could alter its direction by a point or two.
Decades later, I sit in RIAA workshops, hearing the familiar references to overshooting planetary boundaries and Doughnut Economics in systems thinking classes.
I here from the Nature Repair Working Groups and those at the Investor Group on Climate Change (IGCC), the new owner of the Impact Investment Summit Asia Pacific and myself fresh from the Climate Investor Forum.
We’re all about leaning to one side in a very big ship.
Doughnut Economics is a relatively well-known systems theory / environmental concept that became popular via this TED talk back in 2018. Read more on Kate Raworths’ website.
It’s based on the Stockholm Resilience Centre’s work about mapping planetary boundaries.
Interestingly, I’m working with a growing company that packages together a solution for biodiversity loss, land conversion, nitrogen and phosphorous loading, and climate change, though you’re welcome to have that side discussion with me if you’re an investor.
The lies we tell ourselves
There is a fundamental mismatch between humanity on a collective and individual level and the financial and economic system, which underpins and enmeshes itself throughout all of our lives – it’s the fiduciary duty to deliver shareholder value.
The managers of our collective wealth are legally bound to consistently make judgment calls in the short-term interest of their shareholders.
If the managers of our superannuation funds or pensions, as they are called in Europe, who receive 10% or so of everyone’s wages weekly, are expected to invest it in a way that generates returns, if they make a decision where those returns are compromised, they are legally liable.
In some cases, as we saw with ChristianSuper in Australia, they have to email all of their members telling them they’ve underperformed and maybe they should go look at a competitor. Imagine having to do that as a business. It went further, and CS was rolled up into a larger fund as part of the Australian Prudential Regulation Authority’s pursuance of its ‘annual superannuation performance test’.
Don’t get me wrong, I’m no specialist in superannuation, I believe regulation is useful, and ensuring financial firms don’t skive off with people’s money is an excellent thing to pursue.
Though anecdotally from my conference discussions, for all the responsible and ethical investors who manage funds on behalf of clients and don’t invest in fossil fuels, consider this;
Over the past several years, when the war in Ukraine meant the price of oil and gas significantly increased, if you didn’t own shares in oil and gas because you were responsibly divesting in alignment with planetary and social imperatives to reduce the impacts of climate change, by the numbers, you would’ve returned significantly less for your shareholders than if you held oil and gas stocks.
As a result, you would need to email your members because you underperformed the market, claiming liability or demonstrating your lack of investment sophistication due to your financial performance.
The work around
People want responsible investment, right?
And the people who manage their superannuation want to give them what they want.
So product makers package together groups of companies, that have shares you can buy listed on various stock exchanges around the world (listed equities), based on the assertion that these companies aren’t contributing to climate change or similar, and then RIAA certify those products, to three levels, based on the new structure announced at the conference.
However, the ASX is aligned with a 4-degree or more temperature increase, and most companies have no credible plan to get to net zero by 2050, within the construct that they must keep delivering short-term shareholder value.
We will consistently get the outcomes we incentivize and measure towards
Whilst we focus on quarterly results, infinite growth, and a requirement to pursue incremental profit at all costs, and an entire industry of tens of thousands, if not hundreds of thousands, of the very smartest mathematical, financial, and client service-related minds are dedicated to this cause, it is inevitable that we continue to wreck the planet while increasing the wealth inequality between those who own financial assets and those who don’t.
There is no other way for this to go within the current system than to exacerbate the divide shown above.
That’s how it works.
Bhutan measures Gross National Happiness instead of GDP (Gross Domestic Product, you can read about it in detail via Oxford Poverty and Human Development Initiative.
.. and the American government has a $34 trillion debt, against which conversations about austerity and realistic spending, like financing war instead of universal basic income, are regularly had (the first bit, the bombs, the second is hardly spoken about).
Maybe I’m not smart enough to understand the benefit of pursuing infinite growth on a finite planet.
Whilst access to resources for innovative technologies, initiatives to abate climate change, and others associated with creating a more equitable society are constrained by the need to create value for investors, and a good return that is non-concessionary compared to the market at large is the mechanism, I’ll gladly continue to play the game.
However, I thought this was a conversation worth having and putting on the record.
