The $59 billion Rest industry super fund has launched its responsible investment option.
As reported in sister publication Financial Standard, Rest's 1.7 million members will now have access to 'Sustainable Growth', the fund's first socially responsible investment option developed on the back of member feedback.
Rest's new Sustainable Growth option has an asset allocation mix of 75% growth and 25% defensive assets across Australian and overseas shares, property, infrastructure, bonds and cash.
"Rest has partnered with investment manager, Parametric, who are drawing on the expertise of global responsible investment leader, Calvert Research, to construct the Australian and Overseas equities portfolio of this new option," said Andrew Lill, chief investment officer, Rest.
The equities portion of the option feature positive and negative screens. It screens out companies involved in labour and human rights abuses, unethical supply chains, fossil fuels, animal cruelty, gender discrimination, tobacco, gambling, palm oil, controversial weaponry, or have a recent track record of environmental damage, or excessive executive remuneration have been excluded.
The portfolio has then been positively tilted to companies who are demonstrated leaders and promote environmental sustainability and resource efficiency, equitable societies and respect for human rights, and accountable governance and transparency.
The Australian share portfolio is based on the ASX 300 index, while the international share portfolio is based on the MSCI World Index ex-Australia (for Overseas Shares), with negative screens applied using the Rest ESG criteria. This results in an 'Acceptable Universe' for investment, Rest said.
The positive tilts are derived from the Calvert Principles of Responsible Investment screens. Each portfolio is positively tilted to the companies which meet the requirements of these principles.
For the property component, the option will invest in assets that have demonstrated a GRESB Real Estate Assessment, Rest said.
Rest estimates total investment costs will come in at 0.36% per annum, making it one of the cheapest SRI options on the market.
As reported by Financial Standard, Rest surveyed a random sample of members in December 2020 to better align the investment option with their values. The survey was sent to 647,218 members, with the fund receiving 7311 responses - over 75% of which expressed a moderate to strong interest in the option.
"The fund spoke closely with members to determine their preferences on the ESG factors, including the various inclusions and exclusions that would go towards shaping this option," Lill told FS Sustainability.
"Extrapolating on the screens of the Equities portfolio, Rest then went on to develop strict ESG criteria for any assets that would be acceptable in the Property and Infrastructure asset classes of the option, utilizing the assets that the organisation already had exposure to."
The Sustainable Growth option will also invest in infrastructure assets which have integrated ESG factors and have been identified as able to help the transition to a low carbon economy, or which have limited exposure to climate-related transition risks.
The criteria for the option's infrastructure assets also excludes investing in companies that own fossil fuel reserves, derive revenue from oil or gas exploration, production and related activities, have power generated from thermal coal, oil and gas, or lease, mine or process coal and coke.
"The Responsible Investment team were critical throughout the entire process of creating Sustainable Growth," Lill notes. "More particularly, they were pivotal in the building process of the negative screening criteria in the equities portfolios, as well as running the verification, and iterating the portfolios to ensure risk adjusted returns alongside the member preferences.
Development of the option follows the landmark Federal Court case brought against Rest by member Mark McVeigh.
After more than two years, the case was dismissed as Rest agreed to all of McVeigh's requests, including publicly acknowledging the threat that climate change poses both economically and socially.