Thank you and welcome once again to our conference. I also acknowledge the Wurundjeri people of the Kulin Nation, the traditional owners of the land on which we meet, and pay my respects to their elders past and present.
ACSI was founded more than 20 years ago because our visionary early members recognised the importance of good governance in creating and maintaining financial value in listed companies, particularly over the long term.
And as investors of Australians’ retirement savings, that was the horizon they had their eyes on.
Since then, business and governments have increasingly also begun to act to address governance and other sustainability factors.
“Corporate governance” is a short phrase, but it covers a multitude – composition of boards, oversight of management teams and workforce, as well as company culture. There’s also remuneration structures and outcomes, oversight of financial and non-financial risks, capital structure and shareholders’ rights.
Strong corporate governance is a crucial foundation for strategic success and supports a company’s ability to effectively manage sustainability risks and opportunities.
So it’s no surprise that we speak about governance practices in around 70% of our company engagements.
Recent years have seen a number of instances where poor corporate governance has resulted in significant destruction of shareholder value. These are critical issues for ACSI’s investor members and are a reminder of the need for strong, capable, diverse and independent boards to achieve the best outcomes.
Significant progress has been made: the boardrooms of our listed companies are now close to being gender balanced. This is an increase from under 22% women a decade ago.
It’s a massive change, and one that has benefited companies and shareholders alike. A diversity of views improves decision-making, and that’s just a fact.
Similarly with climate reporting – mandatory reporting began this year, but even before that, most of the top 200 companies were detailing their management of climate risks.
Again, a huge change in a few short years – in 2016, 70 companies in the ASX200 didn’t make any climate disclosures at all, and more than half of the index didn’t have a climate policy or an emissions reduction target.
We advocated for climate reporting because our members have a legitimate need to price climate risk into their investment decisions to ensure they are maximising long-term benefits for their beneficiaries.
That statement holds true not just for climate but about the range of issues today’s program focuses on, whether it be AI, safety, modern slavery and more.
As we all know, there have also been huge political shifts overseas, where it has become fashionable to dismiss some of the material factors we consider.
However, Australia is not the United States, though of course some of what happens there can affect us all. It’s worth remembering though that Australia’s corporate governance has long run on a different path to that of the US, and I believe it will continue to do so.
And the work of ACSI and its member funds in tackling the issues we do is strongly backed by people with the most to gain from it – the members of Australian superannuation funds.
Early last year, we commissioned research to see what super fund members thought of this ‘active ownership’ approach.
While ‘active ownership’ might not be a household phrase, when we dug into it, super fund members strongly supported their fund’s aim to maximise the value of their retirement savings by encouraging better practices.
- Nine in 10 wanted their fund to invest in companies that have a positive impact on people, communities and employees.
- Eight in 10 wanted their fund to use its influence to encourage responsible environmental management by companies on issues that affect performance and returns.
- Eight in 10 thought funds should encourage governments to implement policies and regulations that promote better business practices and risk management by companies and investors.
- Eight in ten wanted funds to address long-term issues like safety, slavery and damage to the environment to maximise returns for fund members.
- And they were more than twice as likely to want their fund to be active and vigilant in their engagement with companies than they were to prefer a hands-off approach, and nearly four times as likely to prefer active ownership to divestment.
These financial material investment issues aren’t going away, and ignoring them won’t magic away the costs to shareholders – and ultimately the beneficiaries of our members – if they’re mismanaged.
Super funds invest over long-time frames and across political cycles. They must make decisions in the best financial interests of their members, and that is key to their investment approaches.
For our members, taking into account the impact that corporate governance, climate change, employee safely and stakeholder management can have on a company is about delivering the best possible value to their members.
That’s why our members will keep our eyes over the horizon while riding the wave of disruption.
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