ESG - Frequently Asked Questions

The United Nation’s sustainable development goals form the underlying principles for the ESG factors. Key ESG factors we take into consideration when selecting investments include:

• Environmental (such as climate change, resource depletion, waste, pollution, and deforestation).
• Social (such as human rights, healthcare, mental health support, child labour, working conditions,  and employee relations).
• Governance (such as bribery and corruption, executive pay, board diversity, female leadership and structure, political lobbying and donations, and tax strategy).

This area is dynamic, and we may take other factors into account that are not described here.

legalsuper believes that incorporating responsible investment considerations in investment analysis and decision making can have a positive impact on long-term investment performance. Responsible investment considerations can affect the value and the long-term financial performance of the companies, and the funds into which legalsuper invests. These factors are considered amongst other long-term risks when the Trustee makes investment decisions in the best financial interests of members.

legalsuper incorporates responsible investment considerations in all stages of investment analysis and decision-making processes by the Board, Investment Committee, internal investment function and external advisers and service providers.

legalsuper appoints third party investment managers to assist with management of its investments. A formal component of the investment manager selection process involves an assessment of the extent ESG objectives are taken into consideration by these managers during their investment decision making process.

1. Each investment manager or external advisor that assists with manager selection is expected to incorporate ESG objectives into their processes.
2. ESG objectives, screens and requirements are incorporated into investment mandates and adherence to these parameters are monitored by Management.
3. The portfolio’s ESG metrics, including but not limited to manager ratings, carbon scoring and high-risk exposures are monitored and reviewed on a frequent basis.
4. legalsuper undertakes a formal responsible investment review on an annual basis.

While we actively monitor their compliance, we do not directly control our investment managers, except that we require our investment managers to meet our screening requirements.

Responsible investing is an approach to investment that explicitly acknowledges the importance of ESG factors and incorporates them into investment decisions and active ownership.

Resolutions may be put at Australian company Annual General Meetings that are relevant to our ESG position. We can exercise active ownership by voting on those resolutions, and will be guided by the recommendations made by ACSI since with other investors, we can exert appropriate influence on the Australian companies we invest in. We do not cast votes in relation to foreign shares, although our investment managers may do so on our behalf.

We require our investment managers to have ESG objectives which are outcomes that align with the UN's sustainability development goals and encompass themes such as human rights, labour, environment and anticorruption.

legalsuper requires its investment managers to use the same three negative screens across all asset classes in the portfolio.

• Tobacco production;
• Controversial weapons (cluster bombs, anti-personnel mines, chemical or biological weapons which are prohibited under applicable international treaties or conventions);
• thermal coal production where it accounts for more than 10% of total gross revenue.

legalsuper requires its investment managers to establish an ESG strategy implementation plan so that ESG objectives are taken into consideration in their investment decision making process, their business operations, and the management of their staff.

ESG risks are a set of ESG factors that have the potential to adversely affect the financial performance or valuation of a company or investment.

Controversial weapons include cluster bombs, anti-personnel mines, chemical or biological weapons, which are prohibited under applicable international treaties or conventions.

Where thermal coal production account for more than 10% of total gross revenue.

legalsuper believes in the following broad principles with regards to proxy voting;

1. the right to vote is an integral part of a well-functioning corporate governance system;
2. proxy voting rights are a valuable entitlement and should be diligently and prudently managed;
3. where the Trustee has a right to cast a proxy vote, such rights should be exercised in the best financial interests of the beneficiaries of legalsuper; and
4. the Trustee may abstain from exercising a proxy voting right where it considers it appropriate to do so for governance reasons or as this is in the best financial interests of the beneficiaries of legalsuper.

For discrete investment mandates for Australian shares, legalsuper has appointed ACSI as its proxy voting advisor. ACSI undertakes research which supports its advocacy, engagement and voting programs. ACSI’s advice is governed by the ACSI voting guidelines, which are available on the ACSI website.

Management will consider whether legalsuper has a different view to ACSI on each vote. Where legalsuper has a different view, legalsuper will override the proxy advisor’s vote.

In formulating legalsuper’s position on a particular proxy vote, legalsuper may seek information and advice from various sources, including the Investment Committee, other proxy voting advisers, investment managers, co-investors, and/or investment advisors.

For external pooled investment funds, the manager/responsible entity of the pooled investment fund is responsible for proxy voting. legalsuper may inform a manager of a pooled investment fund of its views in relation to a proxy vote but does not control the vote.

Proxy voting on Australian listed shares will be disclosed on legalsuper’s website within 20 business days after the end of each financial year.

Examples of some key ESG issues include:

• Environmental (such as climate change, resource depletion, waste, pollution, and deforestation);
• Social (such as human rights, healthcare, mental health support, child labour, working conditions, and employee relations);
• Governance (such as bribery and corruption, executive pay, board diversity, female leadership and structure, political lobbying and donations, and tax strategy).

This area is dynamic, and we may take other ESG issues into account that are not described here.