IOOF is an investment management and financial services company listed in the ASX 100, administering over $130 billion on behalf of its clients.
The company offers retail superannuation products, which currently boast almost half a million members. Despite very limited disclosure of portfolio holdings, we know IOOF invests its members’ retirement savings in fossil fuel companies including BHP Billiton and Wesfarmers.
With no obvious fossil fuel screens or exclusions, it is highly likely IOOF invests in many other fossil fuel companies.
At the company’s AGM in Melbourne today, shareholders questioned IOOF’s board on its approach to climate change risk, also extending the question to external auditors KPMG. While IOOF were keen to espouse their support for ‘ethical investing’, neither outgoing Chairman Roger Sexton nor Managing Director Christopher Kelaher explained any policies or practices that the company was undertaking in order to understand and appropriately deal with the financial risks posed by climate change.
Climate risk – just an ethical consideration?
Worryingly, IOOF scored an X on the Asset Owner’s Disclosure Program’s 2016 Global Climate Index, which assesses the world’s largest investors’ climate-risk management. The ‘X category [is] for those funds… that appear to be doing absolutely nothing to manage this critical risk.’
A quick read through IOOF’s Annual Report and Corporate Governance Statement reinforces AODP’s scathing assessment, with statements like:
‘The Board does not believe it has any material exposure to environmental and social sustainability risk.’ – IOOF Corporate Governance Statement 24 October 2016 (pg 11).
‘The IOOF Group is not subject to significant environmental regulation.’ – IOOF 2016 Annual Report (pg 32).
The difference between these statements and the rhetoric coming from other investors is stark. For example, Mercer’s 2015 report Investing in a time of climate change states ‘climate change… will inevitably have an impact on investment returns, so investors need to view it as a new return variable.’
In an attempt to better understand IOOF’s approach to climate risk, a shareholder asked: ‘In the 2016 financial year, did IOOF directors, superannuation fund trustees or external auditors consider the impacts of physical and transition risks relating to climate change on the company and its holdings? If so, how?’
Listen to Chairman Roger Sexton and Managing Director Christopher Kelaher’s responses below:
Sexton initially explained that climate change formed part of the company’s ethical investment approach, and explained IOOF’s part-owned specialist investment manager Perennial is a signatory to the United Nations Principles for Responsible Investing. The Chairman also pointed to IOOF’s 20% stake in Australian Ethical as a further example of the company’s support for ethical investing.
Similarly, Kelaher referred to Australian Ethical, and also claimed ethical- and Environmental, Social and Governance-based funds offered through IOOF’s investment menus allowed people to focus on these considerations in their investment choices.
From the board’s responses, it seems IOOF think of climate change as merely an ethical consideration. However, there is a growing body of expert commentary that recognises climate change as a financial risks to investors.
For example, former deputy head of the Bank of England’s Prudential Regulatory Authority, Paul Fisher explains: “[Climate change] is a financial risk if you’ve got a long-term asset portfolio. Forget the ideology, do the risk analysis, otherwise you’re not meeting your responsibilities… It’s coming, and ignoring it or pretending it isn’t there is not going to help.”
IOOF’s apparent failure to undertake this risk analysis is a worrying signal that the fund is poorly prepared for changes to the global economy that will be required to meet the legally-binding targets of the Paris Agreement.