Socially responsible investment (SRI) choices have added more than $6 million to the Local Government Superannuation Scheme (LGSS) in the last two years, according to a recent assessment.
LGSS embarked upon a SRI approach in 2000, when it made a commitment to screen companies that did not meet SRI criteria established by a board investment committee.
It was decided the criteria would exclude investment in companies conducting a range of activities including gambling, armaments, uranium mining, logging of old growth forests and poor workplace practices.
Following this decision, LGSS first extended this SRI overlay to its holding in ASX-listed British and American Tobacco on the basis that this would have minimal detrimental impact on member returns.
This was next applied to its Australian shares, where companies that were engaging in practices falling outside the criteria were short-sold. The most notable of these were timber company Gunns and gambling company Aristocrat.
LGSS chair Peter Woods said the board had aimed to integrate the new requirements while maintaining the fund’s strong performance.
“In fact, our decision to short sell companies that did not meet our SRI requirements is actually working financially for our members as well.
“[$6 million] may sound like a modest gain, but it is actually proof that superannuation funds can continue to perform impressively while following a SRI approach,” he said.
According to Woods, LGSS’s gradual approach of short-selling those companies that don’t meet its SRI criteria, without interfering with the decisions of its fund managers, is “the most transparent and management-efficient way of doing this”.
“Our fund managers don’t have the excuse that the SRI directive is preventing them meeting their benchmark.”
The same approach has been extended to the fund’s property holdings, and it is now in the process of upgrading the sustainability ratings of its eight directly held properties to improve their environmentally friendly status.
“The LGSS approach shows it is possible to invest sustainably and avoid harming people’s lives, while providing better returns for our members.”
