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Superannuation funds seeking to appoint nominee directors (part one)

Piggy bank with coins around it

Australia’s Superannuation Industry

On Wednesday 30 January 1991, the then Federal Treasurer, Paul Keating, and the then Secretary of the Australian Council of Trade Unions, Bill Kelty, sat down for lunch over tandoori chicken and pakoras at the India House Restaurant in Melbourne with two other colleagues. The following year, the Keating Labor Government made employer contributions to their employee’s superannuation funds compulsory at a level of 3 percent of wages (4 percent for employers with a payroll of over $1 million annually).

Today, the rate of superannuation contributions by Australian employers is 11 percent of wages, increasing to 11.5 percent on 1 July 2024 and potentially to 12 percent in 2025.

When compulsory superannuation started, the funds under management were estimated to be worth A$148 billion. Today, the pooled value of superannuation funds at the end of the December 2023 quarter is A$3.7 trillion, making it the fourth largest pool of retirement savings in the world and 1.5 times Australia’s Gross Domestic Product.

Superannuation funds have become the dominant providers of investment capital in the Australian economy.  With a dominant position on the share registers of the top 200 companies listed on the Australian Securities Exchange, the funds have begun to take a greater interest in the position of these companies. They are particularly interested in Environmental Social, and Governance (ESG) issues.

Australian Financial Review columnist James Thomson recently wrote:

Australia’s biggest superannuation funds will vote against the re-election of directors they believe have failed to manage climate risk appropriately and step up the push for companies to give investors an annual vote on the firm’s climate progress.

Louise Davidson, the Chief Executive of the Australian Council of Superannuation Investors, was quoted as saying:

We’ve really reached the view that the best accountability mechanism for our members as shareholders of companies is to make it really clear to directors that we hold them accountable for the success or failure of their dealing with climate change.

ESG Matters

Two notable instances highlight the industry’s stance on environmental, social, and governance (ESG) matters.

  • Australian Super’s Stand Against Origin Energy Takeover: AustralianSuper, a major shareholder in Origin Energy, rejected the takeover bid by the Brookfield and EIG-backed consortium. They believed that Origin possesses a strategic portfolio of assets that can contribute to and benefit from the energy transition. AustralianSuper emphasised Origin’s unique position in the energy market and its potential to capture value from renewables and gas-peaking generation.  AustralianSuper increased its stake in Origin Energy, solidifying its position as the company’s largest shareholder.
  • HESTA’s Nominee Directors for Woodside Energy Limited: HESTA, another superannuation fund, requested the appointment of their nominated candidates to the board of Woodside Energy Limited. This move underscores the growing influence of superannuation funds in shaping corporate governance and ESG practices.

According to a recent Reuters article:

HESTA, one of Australia’s largest pension funds, has urged the country’s largest oil and gas firm Woodside Energy to consider appointing new directors who are equipped to manage climate-related challenges.

HESTA currently manages assets worth A$81 billion and owns a 0.8% stake in Woodside Energy, and was further quoted as saying:

Ongoing strong governance, culture and capabilities are required for the company to support the energy transition. As part of this engagement we shared with Woodside for their consideration, independent and highly qualified credentialed potential director candidates, whose new energy and business transformation skills we believe would add to the board’s current capabilities.

Managing a colossal A$3.7 trillion in assets, superannuation funds hold a substantial financial interest in the success of their investment companies. The influence they wield over not just climate change, but also other Environmental, Social, and Governance (ESG) matters, is being closely watched.

Assume that one or several directors nominated by HESTA are appointed to the Board of Woodside Energy at its upcoming Annual General Meeting in several weeks. What might be the factors that both the nominated directors and HESTA need to consider going forward?

These matters are considered in Part Two of this Blog.

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