At the same time, Treasurer Josh Frydenberg has written to prudential regulator Wayne Byres expressing alarm about union demands in February that industry super funds use their leverage as investors to pressure BHP to save the jobs of seafarers.
The treasurer said this was a “dangerous development” and warned that superannuation was “not a plaything for union bosses nor a platform for pushing their industrial relations agenda”.
Mr Frydenberg sought the “urgent advice” of Mr Byres on this “aggressive union behaviour” and whether the regulator had adequate powers to ensure trustees were acting in the best interests of members.
The super system is projected to be worth $4.2 trillion in today’s dollars by 2030. Rice Warner predicts that industry funds will control the largest stake at about 36 per cent of the market. IFM, which is owned by industry funds and manages large amounts of their money, is one of the nation’s largest equities investors.
Mr Combet said super funds wanted to partner with government and business but there was an implicit threat that super funds will have to take more money offshore if local companies looked like they will underperform over the long term.
“I think from an Australian national interest point of view, obviously it’s desirable to maximise how much capital can be deployed into the domestic economy,” Mr Combet said.
“But to maximise investment in the domestic economy for the good of society some things have to be tackled as a consequence of the royal commission.”
Mr Combet said businesses that used conflicted remuneration and vertical integration to squeeze consumers for short-term profits would be first in the firing line.
From ESG to business models
“You’ll see more focus on ESG issues but also over time an interest in business models, in particular in the financial services sector,” Mr Combet said. “AMP’s model has destroyed value. That is not in the interests of shareholders and not in the interests of super fund members whose funds have invested in it.”
Mr Combet noted Glencore’s about-face on coal production under pressure from investor action group Climate Change 100+ as an illustration of the power of collective action by investors.
In a move it describes as unprecedented globally, IFM has determined the carbon footprint of its infrastructure portfolios and will this year publish emissions reduction targets for its Australian assets. The belief is that if listed companies are required to act on climate change risks, so too should unlisted infrastructure businesses.
“The energy sector is an example of where long-term thinking is needed,” Mr Combet said. “We have to start making a significant transition from old coal-fired power plants to renewable energy generation and distribution.”
Mr Combet shrugged off concerns that industry super funds were susceptible to activist agendas, including campaigns by unions. “What I’m talking about has nothing to do with activism,” he said.
“We want to work with Aussie business to get it on a long-term sustainable basis, not hostage to the short-term share price or six-monthly profit announcements. We as major investors want Aussie business to succeed.”
The Australian Council of Trade Unions has urged 30 industry funds to use their leverage as shareholders to force BHP to guarantee the jobs of up to 80 seafarers. ACTU national president Michelle O’Neil wrote to the funds urging them to set up meetings with BHP.
Ms O’Neil is an alternate board member on the biggest industry fund, AustralianSuper. The ACTU and Australian Industry Group are shareholders of non-profit AustralianSuper, which at $140 billion is the nation’s largest super fund.
Members’ interest lens
AustralianSuper has $33 billion invested in the Australian stock market and is believed to be the largest single block of active capital controlled by a single entity in the market.
Asked about the BHP issue, Australian Industry Group chief executive Innes Willox, who sits on the board of AustralianSuper, told the Your Money program that industry funds were singularly focused on their legal obligation to deliver for members.
“There was an attempt by the ACTU to revive an idea they’ve kicked around for a while which is that industry super and super more generally should use their investment might to influence industrial relations outcomes,” he said. “That is not going to happen. It is totally against the remit of industry super funds. I’ll put a line through it; we will not allow that to happen.”
Mr Combet said: “Every decision has to be seen through a member’s interest lens. This is one of the important things about the joint representation structure on the industry funds between business and unions.
“When they come together there is a single focus and obligation, which is in the interests of the members. I was on the AustralianSuper board for a long period of time and have a very close association with a lot of the funds. That’s how they work; that’s why they are successful.”
The treasurer said Labor Leader Bill Shorten should not allow militant unions to pressure super funds to use their leverage over listed companies and their boards.
“It’s time Bill Shorten distanced himself from his union masters and condemned this aggressive union behaviour,” Mr Frydenberg said in a statement.
“His continued silence on these issues confirms what we already know that Labor is on the side of the unions not the superannuation members.”
The treasurer said that actions of unions showed “complete disregard for the law and the responsibilities of trustees to discharge their duties in the best interests of members.
“Superannuation is the product of the hard work of all members and represents their nest egg in retirement. It must be protected,” he added.