Investing responsibly: our approach and our legal obligations

It is impossible not to be moved by footage out of Gaza in recent months. As each of us hopes a lasting ceasefire can be brokered soon, some members are asking what could or should UniSaver be doing to promote peace in the Middle East and other international conflict zones. This article looks at our approach to such issues of responsible investment within the context of our overall fiduciary duty to optimise returns on members’ funds.

Our fiduciary responsibility

UniSaver is managed by a trustee company called UniSaver Limited. Managing the scheme is the company’s only role. The Board of UniSaver is made up of professional directors, member-elected directors and university-appointed directors. In discharging our duties, we are mindful that our primary legal responsibility is the stewardship of members’ funds in order to optimise long-term financial returns. This responsibility is set out in trust law, and the legal advice we have obtained confirms our duty to act always in members’ financial interests.

Responsible investment will mean different things to different people. For us, it means ensuring the prudent investment of members’ funds to help our membership achieve their financial goals. We consider environmental, social and governance (ESG) issues through the lens of this fiduciary duty.

So where do values fit in?

Each of us has ethical beliefs that are an important part of our value system. For example, many members will be concerned about carbon emissions and will be working to reduce their personal carbon footprint. Those members may want to see us divest from energy companies because “it’s the right thing to do”. We don’t have the latitude to exclude such companies on that basis. Our central obligation is to focus our decision making on the creation of financial value for the over 12,000 members of the scheme as a whole. While respecting the ethical values of individual members, directors have no licence to express those values in investment decisions.

However, and in this context, we do believe it makes financial sense to reduce the carbon intensity of our portfolio over time and to support the transition away from fossil fuels. In 2021, we took the decision to invest half the global shares portfolio in a fund with a particular emphasis on sustainability. This has reduced the carbon intensity of our portfolio substantially relative to benchmark portfolios (you can read more about this here [external link]). At the same time, we continue to invest in a broader universe of global shares, which provides benefits in terms of returns and diversification (see below).

Does the trustee place any limits on what the portfolio invests in?

Absolutely. We set the broad framework that guides the decisions our investment manager makes on our behalf. These are set out in our statement of investment policy and objectives [PDF, 119 KB]. This document sets out the investment governance and management framework, philosophy, strategies and objective of the scheme in accordance with the Financial Markets Conduct Act 2013 and associated regulations. It includes the trustee’s responsible investment policy that, among other things, requires that our investment manager seeks to avoid, where practical, investment in companies whose activities are materially contrary to the intent of New Zealand legislation. These activities currently include cluster munitions, anti-personnel mines, nuclear explosive devices and tobacco. Russell Investments has additional exclusions for its Sustainable Global Shares Fund in which we invest. These include exclusions related to coal power generation, the mining of thermal coal, uranium mining and the manufacture and sale of assault weapons and small arms. We also require our investment manager to incorporate ESG considerations into its investment process.

The SIPO is necessarily a high-level document. It would be inappropriate for us to try to influence investment in or divestment from individual securities, countries or sectors (other than those covered by our specific exclusions outlined above). Investment management is outsourced to Russell Investments, a well-respected, global asset management company. UniSaver funds are invested in funds provided by Russell Investments, which is recognised as a Responsible Investment Leader by the Responsible Investment Association Australasia [external link].

Russell Investments believes that having a sound awareness of ESG risks and opportunities helps it to deliver on clients’ long-term objectives while enhancing financial security by investing in a sustainable and resilient future. Russell Investments has an 88-year history driven by the purpose of improving financial security for people. Read more about its commitment to corporate responsibility [external link] and its responsible investment practices [external link].

How does Russell Investments assess ESG factors?

Russell Investments strives to employ a firm-wide, holistic, ESG-integrated approach to its investment process. Its beliefs shape its investment strategy:

• ESG factors impact security prices. These factors can vary by company, industry and region and their importance can vary through time.
• A deep understanding of how ESG factors impact security prices is value-adding to a skilful investment process.
• Embedding ESG considerations into a firm’s culture and processes improves the likelihood of prolonged and successful investing.
• Active ownership of securities is an effective tool for improving investment outcomes.

While the exclusion of securities from portfolios is one tool available to investment managers, divestment (exclusions) can introduce significant portfolio risk and research finds little correlation between divestment and stock prices. Russell Investments believes that engagement has a greater likelihood of generating real-world change and increasing portfolio performance through improvements in ESG practices. Engagement is a central pillar of Russell Investments’ approach to active ownership, and as a significant shareholder, Russell Investments uses its influence and voting rights to improve governance practices. 

Russell Investments incorporates responsible investing into its investment manager evaluation process, portfolio management and advisory services. This process includes using the services of ESG and corporate governance research firm Sustainalytics, which rates the sustainability of listed companies based on their ESG performance and is used by 18 out of 20 of the world’s largest investment managers.

United Nations Global Compact Principles

In addition to abiding by international sanctions, Russell Investments utilises Sustainalytics to identify corporations that are aligned to the United Nations Global Compact (UNGC) principles. Sustainalytics’ Global Standards Screening is intended to capture severe, systemic and structural violations of international norms as enshrined by the UNGC principles. These principles aim to meet fundamental responsibilities in the areas of human rights, labour, environment and anti-corruption (read more here [external link]). None of the Israeli companies into which UniSaver invests have been identified as being non-compliant with Sustainalytics’ Global Standards Screening.

Continued focus on ESG

We acknowledge that UniSaver’s portfolio at any time may include investments in organisations some members would prefer us not to hold. This is to be expected given a large and diverse membership. However, members can be assured that our investment consultant and manager has robust processes in place to assess ESG metrics as part of its decision making, which includes alignment with UNGC principles and adherence to international sanctions. The trustee receives regular reporting on and takes an active interest in ESG measures as part of our oversight of the scheme. We will continue to ensure ESG considerations are integrated appropriately into investment management processes as part of discharging our fiduciary duty to members.