How much do you know about your superannuation?
You probably know which super fund you’re with and roughly how much you’ve got.
But do you know where it’s going?
So long as your account balance is higher than $0, your money is financing something.
As a finance reporter, I’ve become increasingly curious about where my superannuation is invested. Not just because of market turbulence and whether I’m getting the best financial return – but also because of critical issues such as climate change.
I began to wonder: is my money invested in ways that go completely against my values? Or is my money invested so that it’s having a positive impact in the world?
I decided to find out.
Where is my money going?
The process of finding out where my super is invested turned out to be more difficult than I thought. First off, I emailed my super fund to ask for a list of the companies my investment option was invested in, only to effectively get knocked back.
Not only that, but I told two colleagues and fellow finance reporters of my experience, who then emailed their super funds with the same request. One faced the same closed door – the other didn’t receive a response from her fund at all.
It struck me as strange and unexpected to hit roadblocks so early in the process. I thought the request (“what companies are you investing my money in?”) was reasonable.
Were all super funds like this?
I did a bit of digging. Within minutes of Googling, I quickly uncovered that some other super funds had taken a decidedly different tack: Australian Ethical, for example, has published a full list of the companies they invest in, while Unisuper has published a list of their major holdings. ResponsibleReturns.com.au has a list of funds approved by the Responsible Investment Association Australasia, all of which announced their portfolio holdings.
So why the discrepancy? Why are some super funds seemingly more transparent than others?
The future is transparent
Eva Scheerlinck, CEO of the Australian Institute of Superannuation Trustees (AIST), told Yahoo Finance that a global trend of greater transparency was seeing fund managers and asset owners pivot towards a higher level of disclosure.
“The push for greater disclosure is being driven both by the need to promote trust and the advent of technology that makes it easier to collect data across the investment executive chain,” Scheerlinck said.
“It’s a welcome trend, but we need to ensure that disclosure is meaningful for consumers and will not lead to unintended commercial consequences.”
Regulation needs to “get it right”
While the industry has acknowledged this shift towards greater transparency, the regulation needed to kick this into gear has slowed to a standstill.
“The super industry is moving to full transparency, but it is vitally important that the super industry and the regulators get it right.”
Plans have been in place to get superannuation funds to disclose their portfolio holdings for six years now. The Labor government’s ‘Stronger Super’ reforms, passed in 2012, contained new rules around disclosing portfolio holdings.
The start date for these new rules was initially set for July 2014. But the Coalition government deferred this four times, Scheerlinck pointed out.
The upcoming start date is set for July 2019, which isn’t too far away at all.
But it’s complicated
So, what of my and my colleagues’ experience? Don’t super funds have an obligation to disclose to their members where exactly their money is going?
“Poor disclosure can produce worse outcomes than no disclosure.”
“It does surprise me that we’ve still got funds that are point blank not providing that information,” said Stuart Palmer, head of ethics research at ethical fund manager Australian Ethical.
He speculates that one of the reasons why super funds resist these requests could be due to “practical inertia”: they’re simply not used to receiving them.
There are also concerns that fuller disclosure would expose the super fund to greater scrutiny.
“They might be worried if they are telling members, ‘okay, [we’re] invested in this coal company, or in this company which has a questionable human rights record in terms of its manufacturing in certain developing markets’.
“They might be worried that they might become a target for members to complain or indeed for NGOs to ring them up and say ‘hey, why are you investing in these businesses which are engaged in activities or practices which don’t sound terribly responsible?’”
“And I think a lot of funds just aren’t ready to answer that question.”
But it could also be this. At the moment, super funds simply don’t have to. The current laws stipulate that super funds need to announce their asset classes (e.g. Australian shares, international shares, property, cash, etc) – but don’t require disclosure beyond that.
“AIST has consistently supported the move to require super funds to disclose where they invest,” Scheerlinck said.
“There is no point disclosure being so complex that it means nothing to the average member of a fund.”
But the technicalities can be hard to navigate. “Given the diversity among super fund portfolios, the new disclosure requirements are necessarily complex and granular and there are a number of sticking points that the regulator is yet to resolve.”
For example, full disclosure of asset prices – such as the price of a property a fund intends to sell – would see commercially sensitive information released to the market. This could subsequently drive down the sale price of the asset.
“This would not be in the best interests of the members of that fund.”
Maybe it’s too complicated
On top of this, full disclosure of portfolio holdings needs to come at the clear benefit to the consumer – the majority of whom, frankly, are not going out of their way to ask these questions.
“There is no point disclosure being so complex that it means nothing to the average member of a fund,” Scheerlinck told Yahoo Finance. “That would be a waste of everybody’s time and money.”
Then there are other issues; some to do with certain super funds being exempt from the new requirements (funds that have been closed to members for 5 years or more are exempt), others to do with how up-to-date the data should be.
Concerns have been flagged about the proposed timings failing to sufficiently safeguard confidential and commercially sensitive information, or about funds’ ability to comprehensively report their holdings.
After all, Scheerlinck said, if full disclosure was inconsistent across super funds, it may not be in members’ best interests – and could in fact go against it.
“Poor disclosure can produce worse outcomes than no disclosure.”
Progress is slow-going – but it’s going
For many superannuation funds, the current state of affairs is that they’re waiting around for regulation to be finalised before they make a move.
“While it is good to see that some funds have taken first steps in disclosing the top ASX companies they invest in, equally many other funds are waiting for certainty around the disclosure requirements before they act,” Scheerlinck observed.
The reality is, disclosure is costly – and ultimately it’s members who will pay for it.
But the AIST CEO also foresees that, once the nuts and bolts are ironed out, greater disclosure will come at the benefit of the consumer.
“Once these challenges are overcome, consumers can be confident that their super fund’s website will contain a lot more detail about where their super is invested,” she said.
Where your money goes matters
Challenges or not, Palmer underscores the importance for consumers to understand their funds’ stance on certain environmental and social issues.
“Without that transparency, I think there’s real reason to be suspicious about how much action funds really are taking to take into account things like climate change.
“It’s also about how they’re trying to exercise a positive influence on those companies. How are they engaging with the companies they invest in? How are they voting at meetings?”
Palmer pointed to the growing number of shareholder resolutions where shareholders were holding company executives to account on issues such as climate change.
In the last month alone, Westpac, NAB and Origin Energy have been hit by shareholder activist campaigns to review their ties to lobby groups, such as the Business Council of Australia, that played a part in thwarting debate and action on climate and energy policy.
“So the question is: what are funds doing on that front?” Palmer asked.
“Are they supporting those resolutions? Are they having constructive conversations with companies about those issues? And how are they being transparent about that?”
Make your money work with Yahoo Finance’s daily newsletter. Sign up here and stay on top of the latest money, news and tech news.