Superannuation has hit the political headlines in recent days following calls by the Australian Council of Trade Unions and others for super trustees to support workers’ industrial demands at companies they invest in.
ACTU president Michele O’Neil told a conference super funds had “a responsibility” to ensure social considerations were at the “forefront of our minds” when investing in companies.
Treasurer Josh Frydenberg described the the calls as “a dangerous development” and wrote to Australian Prudential Regulation Authority chief Wayne Byers, warning the regulator to ensure that super fund members interests were favoured whenever trustees had a clash.
Super has only one use
Mr Byers, meanwhile, was looking at the issue already and wrote to funds, telling them APRA would update guidance on the ‘sole purpose test’ during 2019. The sole purpose test is what ensures funds put their members retirement needs first in all situations and Bernard Mees, a professor in management at the University of Tasmania, says it does a good job.
“Australia’s ‘sole purpose’ test has been in existence since a legal case in 1966 and similar legislation exists in the US and the UK.”
The sole purpose standard is not a formal test that a super trustee must go through, more a rule of thumb to keep in mind when making decisions that guide a fund’s investments.
The Australian Taxation Office (ATO) says a trustee must maintain a fund “for the sole purpose of providing retirement benefits to your members, or to their dependents if a member dies before retirement”.
Ultimately, the test demands that the members’ financial interests be treated as a paramount, but it still leaves plenty of scope for super fund trustees to consider issues beyond narrow cash returns.
Good causes must help members
“ESG [environment, social and governance] has developed to fit into the sole interest test. If a company is taking action that climate activists will campaign against in the future then those actions could be seen as not in the long-term interests of members and trustees could push for change,” Professor Mees said.
“If a CEO is being paid a ridiculously high salary then it could be seen as stealing from shareholders.
“If a company had a hard-core view on smashing the power of unions, that could be seen as against the long term interests of members because it will create industrial discord within the company.”
There are already examples of funds moving against companies whose actions they see as not in member interests. Back in 2015, industry fund HESTA sold out of Transfield Services which managed the refugee detention centres at Manus Island and Nauru over concerns of human rights violations that could ultimately damage Transfield’s performance.
More recently industry funds, through their membership of the Climate 100+ initiative, pressured the world’s largest coal miner, Glencore, to cap its coal output to help fight climate change. Funds have also engaged with energy giants BHP, Rio and AGL over climate change without selling their shares.
APRA is looking at some issues that emerged from the Hayne financial services royal commission in relation to the sole purpose test and will review them through the year. They include advertising and corporate entertainment as a marketing exercise.
Demands from unions or employers that super fund trustees act in the narrow interests of any particular group would not comply with the sole purpose test. “It wouldn’t be appropriate,” Professor Mees said. That means industrial campaigns couldn’t be run through super funds.
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