Page 4250 - Week 10 - Wednesday, 22 September 2010
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providers to offer ethical options for the superannuation funds they manage. Perhaps the most compelling argument for those not predisposed to support the policy for intellectual or ethical reasons is that on purely financial grounds it is certainly no worse and probably a little better to invest ethically.
Asset consultant Mercer conducted a study reproduced in the Australian Financial Review which found that over the past five years the average return of a sustainable fund was 5.6 per cent and the ASX index was only 4.6 per cent. There are in fact six major funds whose ethical portfolios outperformed the ASX average over the past five years. The best performer almost doubled the ASX return. There is now a very large body of research around ethical, sustainable, responsible investment. Perhaps the most notable and comprehensive is the Russell research paper entitled “Sustainable investing, marrying sustainability concerns with the quest for financial return for superannuation trustees”.
Before I move on to explain the operation of the bill, there is one issue that needs to be clarified. That is the claim of fiduciary responsibility. Often those who have been unwilling to engage or take up this issue have said that our fiduciary responsibility means that we must invest for the best return and we cannot take other factors into account. We will put to one side for the moment the fact that ethical funds have actually done slightly better. The ACT does not have a fiduciary responsibility to, or relationship with, any individual’s superannuation. The performance of our fund in no way affects any individual’s superannuation entitlements. There is no fiduciary relationship.
Our liability is to the commonwealth and we are free to meet the liability in any way we choose. Equally, the manner that consolidated revenue in the territory banking account is invested is entirely at the discretion of the territory. On the question of fiduciary relationships, I refer the Assembly to the case Hospital Products Ltd v United States Surgical Corporation. This case sets out the nature and conditions for fiduciary relationships and the proper purpose test. The key point is that no individual’s entitlements change because of the performance of a superannuation fund.
That said, of course we do have a responsibility to the community to be prudent in our investments and to get good returns on money. This bill acknowledges that we also have a responsibility to reflect community values. We should be prioritising positive investments and prohibiting the territory from investing in activities that are not in our community’s best interests and that do not reflect community values.
In addition to the general ESG risk criteria, which will continue to be applied to all investment decisions, the draft bill sets out the minimum standards for territory investments and requires that, where prudent, investments must be in positive practices that promote human rights, protect the environment and also have good social outcomes. The investments that we have put in the prohibited list are in alcohol, tobacco, armaments, gambling, uranium, coal and oil, old growth forests, GM crops, animal testing and labour practices that breach international conventions.
These are basic screens which are offered by many of the major fund managers. The requirement set up by the bill is that the ACT cannot invest in a company that derives
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