Australian companies 'should prepare for more active impact investors'

Finance expert Jeremy King of Pinsent Masons said a predicted growth in the share of equities held by superannuation funds over the next 15 years could also create an opportunity for growth in socially responsible investment by those funds.

King was responding to recent research produced by data firm Rainmaker Information, which said that super funds are expected to own 50% of the Australian equity market within 10 years, and 60% within 15 years. Currently, super funds hold A$700 billion in equities listed on the Australian stock exchange, equivalent to about 40% of the index.

Rainmaker said super funds are likely to funnel around a third of the new money into Australian listed companies.

King said changing community expectations about the role of government and the financial sector in funding social service delivery highlighted a need for impact investing in Australia. Impact investing allows investors to pursue opportunities that provide social or environmental as well as financial returns.

“Super funds are often seen as the ‘magic pudding’ for all funding solutions,” King said.

He said investors had, for some years, been asking for clearer guidance from the Australian Prudential Regulation Authority on the appropriateness of impact investment for superannuation trustees.

Investors also wanted statutory amendments to the Corporations Act to facilitate private ancillary funds established and controlled by ‘sophisticated’ or ‘professional’ investors accessing wholesale offerings for social impact bonds, as well as simpler and more consistent measurement of social outcomes, said King.

King noted that the largest Australian super funds were industry superannuation funds originally established to provide for the retirement of workers from a specific industry. For example, REST Super was established to cater for workers within the retail industry; Cbus was set up for the construction industry; Unisuper caters for university employees; and HESTA for health & community service sectors.

“There is a natural ‘fit’ that an industry super fund that supports the construction industry would be populated by members who would support reducing homelessness; university employees would want to support education programs for disadvantaged children; and health workers would want to aid sufferers of mental illness,” King said. “If they can do this in a way that satisfies the trustees’ fiduciary duties and delivers a market return, then the pudding might indeed be magic.”

Earlier this year World Bank subsidiary the International Finance Corporation finalised operating principles for impact management, designed to create a common market standard for ensuring that impact investment funds achieve alignment with sustainability objectives. Some 60 fund managers and impact investors signed up to the principles.