‘Good’ investment is in the eye of the beholder

WITH Michelle BALTAZAR Editor-in-Chief • Money magazine

Extreme weather around the globe, the threat of pandemics such as Covid and a decline in corporate governance in some sectors are reminders that risks abound and pose a threat to our future prosperity and sometimes our very existence.

There is a consensus that global warming is posing a significant risk to economic growth and by extension our savings, prompting super fund members, especially younger generations, to pay more attention to environmental, social and corporate governance (ESG) issues.

Super fund trustees have a fiduciary duty to maximise their members’ retirement savings and consequently manage the risks that lie ahead.

“Running a big super fund is a tough job,” says Alex Dunnin, executive director of research and compliance at Rainmaker Information.

“Sometimes you’ve got to make long-run decisions with incomplete information and investment bets about what might be happening over the next 10, 20, 30, 40 and 50 years.”

Renewables challenge

For example, transitioning to a decarbonised future will be challenging and won’t happen overnight, which means a more nuanced, pragmatic approach is required, says Dunnin.

“Sometimes a fund is criticised because it’s got BHP exposure.

“If you do not want your super fund to have any investments in fossil fuel or resources companies, that’s fine – there are specialist funds like that.

“But other people will say they want to support the companies that are trying to convert their businesses.

“While people might not like BHP, it’s one of the biggest investors around the planet in renewable energy, so does that make BHP a bad or a good company?

“So, you can look at these things in several ways, which makes it complex.”

And if we want to electrify the country and have everyone driving EVs, we’re going to have to dig up more rare earth minerals than ever before.

“And to produce all those EVs, all those batteries, all those rare earth minerals, is going to take so much energy, maybe it’s counterproductive.

“There’s a lot of nuance everywhere you look.”

Adding to the complexity, there are no official standards on what a green investment is.

“The regulator is saying, we’re not going to judge you on a technical definition of what an ethical investment is,” says Dunnin.