The ACT will in future routinely quiz companies on their environmental, social and governance practices when making decisions on $1.4 billion in share investments managed by the ACT Treasury.
Chief Minister Jon Stanhope yesterday afternoon tabled in the Legislative Assembly a recommending the government hire a “third party engagement service” that will systematically engage with company management and boards on environmental, social and governance (ESG) issues and seek to “directly influence and change corporate behaviour”.
The ACT government has accepted all recommendations made in the report by its advisory Finance and Investment Advisory Board, Stanhope told the Assembly. Stanhope commissioned the board in March to investigate how the ACT should incorporate ESG matters into its investment decisions.
The board’s report focuses on management of the Superannuation Provision Account (SPA) and the Territory Banking Account (TBA) managed by the ACT Treasury, which involve invested funds totalling about $3 billion. The new procedures will apply to decisions about the $1.4 billion component of these funds that is invested in shares.
The board explicitly rejects a “values-based” approach to incorporating environmental matters into investment decisions, such as ‘screening out’ certain industries. Instead, it calls for an approach involving discussions with companies on how they deal with and plan to manage potential ESG risks.
This risk-based approach means “securities that may not be considered desirable on a values-based assessment will still be held”, it acknowledges. “However by holding these stocks, the investor ‘buys a seat at the table’ to enable engagement with the companies.” “The implementation of a risk-based approach through the engagement process is directly targeted at changing corporate behaviour as a means to achieving improved ESG outcomes,” it adds.
The report notes that the United Nations Principles for Responsible Investment, released in April 2006, espouse a risk-based approach.
“A third party engagement service provider will be engaged to assist in the implementation of a risk-based approach to ESG issues for the Territory's investments,” Stanhope told the Assembly. “The adoption of a risk-based approach to the consideration of environmental, social and governance issues by the ACT Government is a very significant step forward.
“It is a measured approach, it is consistent with the approach recommended by the United Nations and is considered current best practice.”
Hiring a third party engagement service provider is likely to cost up to $500,000 a year, the board’s report says.
Review Of The Application Of Environmental, Social And Governance Principles To Territory Investment Practices (Independent, Non-Executive Members of the Finance & Investment Advisory Board, dated June 29, tabled in the ACT Assembly October 18)
