The Australian National University has divested itself from some – but not all – resource stocks.
Just last week, the Australian National University announced it would sell shares in seven companies: Santos, Newcrest Mining, Iluka Resources, Sandfire Resources, Oil Search, Independence Group and Sirius.
The seven companies represent $16 million, or 1 per cent, of ANU’s estimated $1 billion of investment holdings.
They’re all resources companies, but many aren’t fossil fuel related.
There might be some good reason for that – for example, their portfolio could have been over-weight in resource stocks, or they may have thought those particular stocks had poor prospects going forward, or the ANU may have needed the cash for some other investment or expenditure. Lots of good reasons.
But, no. The ANU has adopted a socially responsible investment strategy.
Vice-chancellor Ian Young said CAER had rated ANU’s $1 billion portfolio using socially responsible filters, such as environmental performance, corporate governance and indigenous affairs.
“We think it’s an objective approach to looking at what are challenging issues,” he said.
The seven blacklisted companies received the lowest rating on a scale of one to five.
That is a bit strange – because it isn’t clear that those seven firms are poor corporate citizens. Quite the contrary.
Iluka Resources and Santos have won Premiers’ awards and other gongs for environmental rehabilitation, indigenous employment and engagement. One blacklisted company,Sirius Resources, has been feted by Aboriginal leaders in Western Australia for its engagement with indigenous people near its Nova nickel deposit – and it isn’t even mining yet.
Nickel is used in lithium batteries used to power electric cars and store renewable energy.
Mark Bennett, chief executive of Sirius Resources, was surprised to be on the blacklist.
The company had involved local Aborigines in environmental assessments and gone the extra mile to show the world a new mining project could be done “right” from the start.
I suspect this next bit is going to cause some trouble.
None of the blacklisted companies were contacted by ANU or CAER, the consultants ANU used for the decision, or invited to put their case.
One of the companies blacklisted by Australian National University’s $1 billion investment fund says it will pursue its legal rights against the consultants who advised the university on the move.
“We reserve all of our rights and we’ll be seeking legal advice and to the extent we can we’ll pursue the matter formally and we’ll be looking for a full retraction of the negative statements made by any parties in the media because they are misleading, false and untrue,” Mr Simich said.
He was “flabbergasted” that a publicly funded university could take such a decision based on third party research containing multiple errors without contacting the companies concerned.
Fund managers and institutional investors also have to consider their fiduciary duty. As I have argued before having an unbalanced portfolio is a problem.
According to Rice Warner, which looked at a sample of 59 super funds with 90 socially responsible investment options, returns compared to similarly structured conventional funds were as much as 0.73 per cent worse over three years. Costs were also around 30 basis points higher. They found that a 35-year-old earning $75,000 who switched 10 years ago to a socially responsible fund would now be $3700 behind a conventional fund, with that figure rising to $68,000 by retirement.
The figures were based on returns until June 2013 and don’t capture the impact of falling coal prices on share valuations in the subsequent 12 months.
REDUCED DIVERSIFICATION, MORE VOLATILITY
Rice Warner argues that attempting to remove coal investments from super funds could lead to unbalanced portfolios, with reduced diversification that might be more volatile.
“Most fossil fuel production is carried out by diversified companies that have other mining interests and also interests outside mining,” the report says. “Divestment from the fossil fuel elements of these companies cannot be accomplished without divestment from the other elements too.”
All this before we even think about the fact that the ANU is making investment decision that will undermine the performance of its investment portfolio and increase its reliance on hand-outs from the taxpayer. It isn’t just the companies themselves that should be asking for a please explain. Treasurer Joe Hockey and Education Minister Christopher Pyne should be asking for an explanation too.
As Raymond de Silva Rosa, Professor of Finance at UWA, wrote in the AFR today:
If the ANU feels a pressing need to behave like an expert with an opinion on all the world’s problems, it would be far more fitting for the university to organise forums and conferences where many voices may be heard on this issue rather being hostage to the strident few.
An apology to those firms whose reputation it has traduced without giving them the opportunity to present their case is also something we should hope for.
Remember this isn’t a case of a private investor selling stocks to suit their risk-return profile or preferences. This is an overtly political statement from a public institution. Worse this is an Australian public institution working with a foreign campaign to undermine and sabotage the Australian economy and the livelihoods of those many individual Australians who are dependent on the mining industry.