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CBUS Superannuation Fund

PRI reporting framework 2020

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Investment policy

SG 01. RI policy and coverage

New selection options have been added to this indicator. Please review your prefilled responses carefully.

01.1. Indicate if you have an investment policy that covers your responsible investment approach.

01.2. Indicate the components/types and coverage of your policy.

Select all that apply

Policy components/types

Coverage by AUM

01.3. Indicate if the investment policy covers any of the following

01.4. Describe your organisation’s investment principles and overall investment strategy, interpretation of fiduciary (or equivalent) duties,and how they consider ESG factors and real economy impact.

The Trustee believes that responsible investment is entirely consistent with its long-term return objectives and accords with acting in the best interests of the Funds members under its fiduciary duties and the sole purpose test.

As a responsible investor we can improve long term risk adjusted returns through active involvement in environmental, social and governance (ESG) issues.

We also believe we have a role in:

  • influencing and contributing to the shift towards a sustainable finance system — and have identified the SDGs where Cbus believes it can invest, engage and advocate
  • demonstrating leadership in the built environment and
  • operating in a manner consistent with our responsible investment approach

The Trustee also believes that climate change is a complex environmental and social issue which creates both investment risks and opportunities.  The Fund has developed a position statement approved by the Board and reports against the TCFD's.

Cbus has developed Responsible Investment Principles which communicate the issues that are important to Fund: climate change; cognitive diversity; health and safety; labour and human rights in direct operations and supply chains and product supply chains. The principles provide guidance to our investment managers and are also reflected in our voting and engagement activities.

01.5. Provide a brief description of the key elements, any variations or exceptions to your investment policy that covers your responsible investment approach. [Optional]

Purpose and objectives of the policy

The Policy sets out Cbus’ approach to managing responsible investment including ESG matters, and climate change, in its investments and the Fund. It directs the Fund to adequately consider ESG risks and opportunities as part of the investment process in accordance with the Investment Governance Framework. It is applicable across all investment options. Cbus aims to apply best practice approaches for responsible investment to the Fund’s investments and within the organisation. The Policy is set by the Investment Committee and will be reviewed every two years, or more frequently.

Application

This Policy applies to all Trustee Directors, all Cbus Group Executives, and all members of the Fund’s investment team.

Accountability

The Trustee is at all times responsible for the Fund’s investments. The Trustee has delegated decision making responsibilities for responsible investment to Board Committees (primarily the Investment Committee) and management. The responsible investment team is primarily accountable for guiding the strategic direction for responsible investment. The investment team has accountability for supporting the implementation within the Fund’s investments activities.

Responsible Investment Philosophy and Beliefs

Responsible investment is a fundamental investment belief the Trustee considers necessary to deliver long term value creation for beneficiaries. 

Responsible Investment Approach

The Trustee requires that responsible investment applies to all of the Funds investment activities including: across all geographic locations; all asset classes; direct, mandated and pooled funds; and all styles including active and passive.

The approach to implementation is shaped by the Fund’s investment strategy including outsourcing to investment managers to invest on its behalf and direct investment through internally managed investment portfolios.

The manner and extent to which responsible investment is incorporated into investment decision will differ and is dependent on the investment characteristics of each strategy. The Trustee acknowledges that implementation of responsible investment may require a tailored approach within and between asset classes.

Internally Managed Investment Portfolios

The Trustee has implemented an asset class specific internalisation model. The Fund implements responsible investment processes or procedures as internal capability is built for each asset class. The Fund will seek to be a leader in responsible investment for the asset classes in which it invests directly.

Investment Managers

Responsible investment is a component of the investment manager selection and appointment process. The Fund prefers investment managers that have sound ESG practices or are actively developing their approach, which allows the Trustee to accommodate for managers at different stages in their responsible investment journey.

Investment managers are only appointed after a selection process in accordance with the Fund’s Due Diligence Policy and, where appropriate, its Outsourcing Policy. Investment Management Agreements (IMAs) detail the specific requirements for responsible investment, including reporting and monitoring requirements, and are based on the type of asset class and investment strategy being employed.

After an investment manager has been selected, the Fund actively engages with the manager and monitors the integration of responsible investment into their processes.

Mandates afford the Fund a greater level of control. They provide greater transparency and the ability to actively engage with both investment managers and the underlying companies on responsible investment. Some investments can only be accommodated in pooled arrangements. Where possible, the Fund uses its influence to ensure the terms of the pooled vehicles are aligned to its needs and will seek to incorporate the Fund’s approach to responsible investment in the governing documents.

ESG Integration

Integration of responsible investment is the systematic and explicit inclusion of ESG considerations into financial analysis and decision making. This enables ESG risks and opportunities to be identified and factored into the risk return assessment for an investment. .

Exclusions

The Fund does not typically exclude particular companies, sectors or asset types. However, there are some circumstances in responsible investment where it is appropriate to consider exclusions of a sector or a specific stock from the Fund’s portfolio.

Any proposed exclusions require approval by the Investment Committee.

Active ownership

The Fund seeks to influence the companies and assets in which it invests through engagement and voting. The purpose is to communicate the interests of the Fund with the aim of enhancing long term value creation and minimising risk. Internal guidelines form the basis of the Fund’s approach to active ownership. These are approved by the IC and reviewed as required. Cbus acknowledges the additional responsibility of its influence in the Australian market. This reflects the size and ownership in Australian companies and assets and the location of Fund members.

Advocacy and collaboration

The Fund undertakes advocacy with the aim to influence the broader market and promote a shift towards a sustainable financial system. The focus is primarily on influencing standards, guidelines and regulatory reform that support long term value creation. The Fund has a preference to undertake advocacy through collaboration with other stakeholders.

Reporting and disclosure

Cbus seeks to take a leadership role on transparency and disclosure and will report its responsible investment activities and progress to all stakeholders through the Fund’s website and annual reports and through disclosure of the PRI Assessment Report.

 

01.6. Additional information [Optional].

          
        

SG 01 CC. Climate risk

01.6 CC. Indicate whether your organisation has identified transition and physical climate-related risks and opportunities and factored this into the investment strategies and products, within the organisation’s investment time horizon.

Describe the identified transition and physical climate-related risks and opportunities and how they have been factored into the investment strategies/products.

The global economy faces major economic disruption. For many of our members, the effects of climate change will be increasing when they are starting to retire. This is why the transition to a low carbon economy is so important. We are conscious that our members work in industries that will be impacted by it. We are engaging with companies to enure they are managing the workforce risks and opportunities brought about by this transition. We are also encouraging companies and our investments managers to report against TCFD.  

Our Climate Change Roadmap outlines our commitment to transition to a net zero carbon emissions. Key highlights of our actions on climate change this year were:

- confirmation all our property fund managers would commit to net zero emissions by 2030.

- working towards net zero commitments for our infrastructure assets

- identifying investments for our $500m allocation to climate change solutions. We seeded our first investment in an international renewables fund manager. 

- our 100% owned direct property construction and development manager, Cbus Property, invests in commercial developments that target minimum 5 star-NABERS energy and Green Star ratings.

- identifying a forward looking climate risk reduction metrics to incorporate into our passive / alternative beta equities quantitative investment models for commencement in 2020. 

- Our Trustee Office is becoming carbon neutral

- Participation in the Australian Sustainable Finance Initiative (ASFI) to develop the future direction of the finance industry in Australia.

- Engaging with the most intensive fossil fuel companies with other asset owners through Climate Action 100+ and the Australian Council of Superannuation Investors (ACSI).

We prioritise climate change risks relative to other risks based on their materiality and our exposure. As part of our risk analysis we consider existing and emerging regulatory requirements related to climate change. Key short- and medium-term climate risks arise from structural change during the transition to a low carbon economy, through rapid policy and technology shifts. These could result in impacts on our investments. We continue to work on this. 

01.7 CC. Indicate whether the organisation has assessed the likelihood and impact of these climate risks?

Describe the associated timescales linked to these risks and opportunities.

In May 2018, Cbus asset consultant, Frontier, undertook modelling of specific risks that relate to climate change and that could impact upon portfolio returns in the medium-term. The analysis intended to provide results in advance of, and to complement, Cbus’ own climate change analysis and annual Strategic Review. Cbus will be reviewing this approach in 2020 in addition to scenario analysis.

The scope of the analysis focused on Cbus’ listed equity portfolio and listed companies in the energy sector (and the resources sector to a lesser extent) including: 
- Test sensitivities of energy companies and the broader equity portfolio to changes in benchmark commodity prices and GDP impacts;
- Stress test portfolio values to shocks in oil prices, which we estimate to be commensurate with an assumed shift in carbon prices and fossil fuel demand, using historical scenarios and a customised 2 degrees climate change scenario;
- Identify the scale of potential value at risk (VaR) for the Cbus listed equity portfolio under the customised 2 degrees scenario;
- Review three selected companies to illustrate how the estimate of VaR is derived and further test the sensitivities of estimates to macro assumption

The results of the analysis suggest that the impact of a decarbonisation policy that is enacted in the medium-term future and over a relatively short time frame would have moderately severe impacts on listed Energy stocks returns. The potential impact at the portfolio level for a listed equities configuration did not appear alarming based on assessment of the contribution from a single sector – albeit, one likely most affected by medium-term carbon risks. The potential impact on the Australian Equities, Developed Markets Equities and Emerging Markets Equities portfolios appeared to be of a similar scale, which partly reflects the fact that the Energy sector has a similar weighting in these listed markets.

Frontier also developed a Climate Change Module estimating the long-term impact (return outcomes) on Cbus’ Growth Option from a return perspective under five different climate change policy response scenarios. This is discussed in other sections. 

01.8 CC. Indicate whether the organisation publicly supports the TCFD?

01.9 CC. Indicate whether there is an organisation-wide strategy in place to identify and manage material climate-related risks and opportunities.

Describe

In 2016, the Cbus Board approved a Climate Change Position Statement to help guide the integration of climate change considerations within the broader investment framework. This approach enables us to focus on making decisions that will lead to better long term retirement outcomes for our members. Further, we believe that as a large investor, our actions can have a flow on benefit to society and the broader economy.

In 2018 our Investment Committee approved a Climate Change Road Map, which implements the Climate Change Position Statement.

It also provides a consistent approach to considering climate related impacts of risks and opportunities. The Road Map has directed our activities with respect to climate change over the past 2 years. The key areas of focus include:

- Investment opportunities - committed a 1% multi asset class allocation to climate opportunities

- Climate risk integration (asset allocation, fund manager integration and TCFD reporting, transition risk reduction for quantitative equities portfolio)

- Engagement and voting

- Advocacy 

- Built environment - We also believe the built environment is a key enabler in the transition to a climate resilient economy and there is an opportunity for Cbus to use its leadership to continue to raise the standards of the built environment. As such we have also set targets in this area and committed our real estate and infrastructure portfolios to net zero emissions.

- Monitoring and disclosure - includes our commitment to reporting under the TCFD.

- Trustee office alignment - Cbus Trustee office is carbon neutral at the end of 2019.  https://www.cbussuper.com.au/content/dam/cbus/files/governance/reporting/Cbus-Carbon-Neutral-Public-Disclosure-Summary.pdf

1.10 CC. Indicate the documents and/or communications the organisation uses to publish TCFD disclosures.

specify

          Our TCFD reporting appears in our Responsible Investment Supplement.
        

SG 02. Publicly available RI policy or guidance documents

 

02.1. Indicate which of your investment policy documents (if any) are publicly available. Provide a URL and an attachment of the document.

02.2. Indicate if any of your investment policy components are publicly available. Provide URL and an attachment of the document.

02.3. Additional information [Optional].

Cbus has also publicly disclosed its Climate Change Position Statement which has been approved by the Cbus Board: https://www.cbussuper.com.au/content/dam/cbus/files/governance/policies/Climate-Change-Position-Statement.pdf

Cbus has developed a set of Responsible Investment Principles to communicate to our fund managers the Environmental, Social and Governance (ESG) issues that are important to us as a Fund.  The Principles are also used in our voting and engagement activities. https://www.cbussuper.com.au/content/dam/cbus/files/governance/policies/Responsible-Investment-Principles.pdf

Cbus has also committed to the ACSI Australian Asset Owners Stewardship Code. Cbus supports the principles and guidance outlined in the Code which are designed to promote greater transparency and accountability in relation to stewardship activities. https://www.cbussuper.com.au/content/dam/cbus/files/governance/reporting/Stewardship-Statement.pdf

Cbus has an Engagement Escalation process https://www.cbussuper.com.au/about-us/sustainability/escalation-process


SG 03. Conflicts of interest

03.1. Indicate if your organisation has a policy on managing potential conflicts of interest in the investment process.

03.2. Describe your policy on managing potential conflicts of interest in the investment process.

The Conflicts Management Policy sets out and explains how actual, potential and perceived conflicts are identified and managed. The Securities Trading Policy applies to investing activity and assists the Fund to comply with relevant laws and regulations in respect of insider trading.

03.3. Additional information. [Optional]


SG 04. Identifying incidents occurring within portfolios

04.1. Indicate if your organisation has a process for identifying and managing incidents that occur within investee entities.

04.2. Describe your process on managing incidents

The Fund has a long history of voting and engaging with companies. In undertaking our stewardship activities, we obtain information from a range of sources, for example: through our due diligence program, asset manager/investment broker reports, ESG data providers, controversy reports and stakeholder views. Based on all the available information irrespective of it is source, Cbus forms its own view based on the long-term interests of our members

If an incident is raised or ongoing engagement has been unsuccessful, or a company has been unresponsive, the Fund has an escalation process in place.  The Responsible Investment Team will seek input from portfolio managers, external fund managers and service providers (where applicable) before undertaking additional or alternate engagement activities.  Escalation activities and contentious meetings involve internal approval processes.

Examples:

The Financial Services Royal Commission highlighted widespread unethical and, in some cases, illegal behaviour by the banks and other financial services companies. These failings cost their customers and long-term shareholders such as Cbus.  We used our voting rights to send a strong signal to banks,which continued to pay large bonuses to their executives. Our votes contributed to three of the four major banks receiving a ‘first strike’ on their pay reports. We also voted against the re-election of directors at the major banks as a result of the issues revealed during the Royal Commission. Together with ACSI, we are engaging with each of these companies to seek positive improvements in conduct and culture. This includes discussions about removing ‘cross-selling’ of products and sales targets that compromise customer outcomes. It also includes using ‘customer advocates’ and ensuring better understanding by staff of the consequences for policy breaches. Taking positive actions like these are part of being an active and responsible investor the case studies above were reported publicly in the Fund’s 2019 Responsible Investment Supplement.


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