Responsible Investment Report 1 July 2010 31 December 2010
Table of contents FOREWORD BY JOHN PEARCE 3 1. COLLABORATIVE INITIATIVES 4 1.1 THE 2010 GLOBAL INVESTOR STATEMENT ON CLIMATE CHANGE 4 1.2 AUSTRALIAN COUNCIL OF SUPERANNUATION INVESTORS ESG FORUM 4 1. ACTIVE OWNERSHIP 4 2.1 PROXY VOTING 5 Australia 5 The UK 6 The US 6 Europe 7 Asia 7 2.2 PRIVATE EQUITY CORPORATE ACTIONS 8 2.3 ESG ENGAGEMENT ACTIVITIES 8 3. OTHER ESG ACTIVITIES 9 3.1 RESPONDING TO MEMBER ENQUIRIES 9 3.2 PRESENTATIONS, CONFERENCES AND OTHER EVENTS 9 Responsible Investment Association of Australasia (RIAA) Conference 9 Citi Investment Research ESG Briefings 10 Alliance Bernstein Qantas Sustainability Briefing 10 Presentation by UniSuper to PricewaterhouseCoopers (PwC) 10 Presentation by UniSuper to Colonial First State Global Asset Management (CFSGAM) 10 Internal presentations on ESG at UniSuper 10 3.3 REGULATORY SUBMISSIONS 10 3.4 SPONSORING AND JUDGING THE SUSTAINABILITY AWARDS 11 3.5 CORPORATE RESPONSIBILITY AND SUSTAINABILITY AT UNISUPER 11 4. COMMUNICATION ON PERFORMANCE 11 Responsible Investment Report 1
Foreword by John Pearce The second half of 2010 saw UniSuper continue its focus on integrating environmental, social and governance (ESG) factors into its mainstream investment process. Of particular note, it was a busy Australian proxy voting season with UniSuper voting on over 800 resolutions put to Annual General Meetings of ASX 200 companies. In addition to our activity over the proxy voting season (September to December), we continued to: engage with investee companies on ESG issues respond to member enquiries regarding our ESG practices collaborate with our peers on ESG issues contribute to the regulatory debate regarding executive remuneration share our ESG knowledge with others by conducting a range of presentations on ESG related matters sponsor the Sustainability Research category at the Annual Ethical Investor Sustainability Awards (which we have sponsored since 2007), and participate in the UN Principles for Responsible Investment (UN PRI) and achieve good results in the annual UN PRI reporting and assessment survey. Read more about these and other activities in this report. John Pearce Chief Investment Officer 2 Responsible Investment Report
1. Collaborative initiatives Like many other investors, UniSuper believes that collaborating with others on matters relating to ESG risks is an important way to influence change and share learnings on best practice. In addition to our on-going collaboration with a range of groups and initiatives (refer to the Responsible Investment Report Q1-Q1 2009 for a detailed listing), the last six months saw UniSuper become involved in two additional collaborative initiatives, namely: The 2010 Global Investor Statement on Climate Change, and Australian Council of Superannuation Investors ESG forum. 1.1 The 2010 Global Investor Statement on Climate Change In 2010 UniSuper was a signatory to the Global Investor Statement on Climate Change: Reducing Risks, Seizing Opportunities & Closing the Climate Investment Gap. This statement is supported by 259 investors globally and collectively represents assets of over US$15 trillion. The purpose of the statement is to call on governments to develop domestic policy frameworks and achieve international agreement to enable the transition to a low-carbon economy. A full copy of the statement can be found at: http://www.igcc.org.au/resources/documents/global_investor_statement_nov2010.pdf 1.2 Australian Council of Superannuation Investors ESG forum UniSuper is a foundation member of ACSI. ACSI conducts a broad range of ESG related work on behalf of its members, much of which centres on company engagement. However, ACSI also convenes an ESG forum on a regular basis to bring its members together to discuss topical ESG related matters. Over the second half of 2010, ACSI held an ESG forum which focused on: key issues for the 2010 major proxy season, and human rights issues in the mining sector. Responsible Investment Report 3
2. Active ownership 2.1 Proxy Voting (Q3 Q4 2010) UniSuper is committed to being an active shareholder and as such has exercised its proxy votes since 2004. In terms of how the Fund s proxy voting process operates, UniSuper s specialist proxy voting advisors provide how to vote recommendations to UniSuper and UniSuper s fund managers. All UniSuper Australian fund managers must vote FOR or AGAINST and are not entitled to ABSTAIN unless there is a conflict of interest. Votes are generally cast in accordance with the Australian Council of Superannuation Investors (ACSI) Corporate Governance Guidelines (www.acsi.org.au), which have been adopted by UniSuper. However, all voting recommendations are considered internally and assessed on a case by case basis and the voting advice is not just mechanically followed. UniSuper also obtains specialist voting advice on international corporate governance best practice in ex-australian markets from Pension Investment Research Consultants (PIRC), who vote on behalf of UniSuper s international fund managers across the FTSE 350 (UK), FTSE Eurofirst 300 (EU) and the S&P 500 (US). Over the Q3 Q4 2010 period, UniSuper voted on 1941 ESG related resolutions which were put forward by companies in the S&P/ASX 200 (Australia), FTSE 350 (UK), FTSE Eurofirst 300 (EU), S&P 500 (US) and various Asian companies. 4 Responsible Investment Report
Australia UniSuper voted on 819 corporate governance resolutions put forward by companies in the ASX/S&P 200. A summary of results is set out below: Number % Number of corporate governance related resolutions 819 Voted FOR 764 93 Voted AGAINST 55 7 The highest number of AGAINST votes cast by UniSuper, at a particular meeting, were in relation to company resolutions at the shareholder meetings of Atlas Iron, Sundance Resources, Eastern Star Gas and Harvey Norman. UniSuper is conscious of ensuring that remuneration practices are transparent, include challenging hurdles and align executive and shareholder interests. As such, UniSuper does not blindly vote in support of all remuneration reports (or any other resolutions for that matter). Over Q3 Q4 of 2010 UniSuper voted against 15 of the 89 remuneration reports that it was entitled to vote on (i.e. against 17% of the remuneration reports). The companies at which UniSuper voted AGAINST the remuneration reports were: Paperlinx Billabong Riversdale Mining Downer EDI Transpacific Industries Transurban Leighton Holdings Eastern Star Gas Onesteel Mineral Resources Limited Challenger Financial Services Harvey Norman Holdings Sundance Resources Macmahon Holdings, and Crane Group. Of particular note, the remuneration reports at Paperlinx, Billabong, Challenger Group, Transurban and the Crane Group all received AGAINST votes, by their shareholders, in excess of 50%. The most frequent FOR votes lodged by UniSuper pertained to the election of directors and executive remuneration. Responsible Investment Report 5
The UK UniSuper voted on 549 corporate governance resolutions put forward by companies in the FTSE 350 (UK) and a summary of the results is set out below: FTSE 350 (UK) Number % Number of corporate governance related resolutions 549 Voted FOR 413 75 Voted AGAINST 136 25 The companies that received the highest number of AGAINST votes included companies such as Investec PLC, Tesco PLC, Wolsely PLC and British Associated Foods PLC. The type of resolutions that UniSuper voted AGAINST most frequently included: the approval of remuneration reports and other remuneration related matters, and the appointment of directors. The US UniSuper voted on 668 corporate governance resolutions put forward by companies in the S&P 500 and a summary of the results is set out below: S&P 500 Number % Number of corporate governance related resolutions 668 Voted FOR 415 62 Voted AGAINST 185 28 Voted WITHHOLD 65 9.5 Voted ABSTAIN 3 0.5 The companies that received the highest number of AGAINST votes included organisations such as Sysco Corp, Cisco Systems Inc and Pall Corp. The type of resolutions that UniSuper voted AGAINST most frequently were in relation to remuneration related resolutions. 6 Responsible Investment Report
Europe UniSuper voted on 181 corporate governance resolutions put forward by companies in the FTSE Eurofirst 300 and a summary of the results is set out below: FTSE Eurofirst 300 Number % Number of corporate governance related resolutions 181 Voted FOR 105 58 Voted AGAINST 76 42 The companies that received the highest number of AGAINST votes included organisations such as Richemont SA, Mediobanca S.p.A and Pernod Ricard SA. The type of resolutions that UniSuper voted AGAINST most frequently included: various remuneration related resolutions, and the appointment of certain directors. Asia UniSuper voted on 273 corporate governance resolutions put forward by companies in China, India, Singapore, Indonesia and Hong Kong over the second half of 2010. Asian Proxy Voting Number % Number of corporate governance related resolutions 273 Voted FOR 255 93 Voted AGAINST 18 7 The companies that received the highest number of AGAINST votes included Hang Lung Properties Limited, Sun Hung Kai Properties Limited, Lenovo Group Limited and Digital China Holding Limited. The type of resolutions that UniSuper voted AGAINST most frequently included: the issuance of equity without pre-emptive rights, and the re-purchase of issued share capital. Responsible Investment Report 7
2.2 Private Equity Corporate Actions (Q2 Q3 2010) In addition to voting on share holder resolutions at publicly listed companies, UniSuper is also actively involved in managing its investments in unlisted assets. Not only do we have a role in appointing directors, UniSuper votes on a range of corporate actions (i.e. proposed corporate activities, governed by the shareholder agreement, which require shareholder approval). Over the six months to 31 December 2010, UniSuper voted on 17 private equity corporate actions and all of these were related to the Fund s domestic private equity portfolio. In all but one instance, UniSuper voted for the proposals, which were in relation to a variety of matters including: waiving pre-emptive rights alteration of management fees amendments to management agreements amendments of articles of association the appointment of directors. The one instance in which UniSuper voted AGAINST a proposal related to the voluntary winding up of a fund. 2.3 ESG engagement activities In addition to our ongoing proxy voting activity, particularly over the 2010 major domestic proxy voting season, we continued to be active in engaging with the companies in which our members funds are invested. This is consistent with our belief that it is important to be an active shareholder that seeks to drive change and positively influence corporate behaviour. Over the last decade the Australian Council of Superannuation Investors has engaged with a large number of companies on behalf of UniSuper and other Australian superannuation funds, and continues to do so. However, since 2009, UniSuper has become more focused on directly conducting some engagement activities itself and has continued with this approach over 2010. Over the six months to 31 December 2010 (in addition to ACSI s engagement activities), we engaged with six companies on ESG issues and the topics of engagement included: sustainability performance and carbon risk management (one company) corporate governance and board succession planning (two companies) environmental risk management (one company) executive remuneration (one company), and occupational health and safety and the management of legacy issues (one company) To ensure that we continue to have access to companies, and that we can have open conversations, we ensure that the details of all such engagement remains private and confidential. 8 Responsible Investment Report
3. Other ESG Activities The nature of ESG issues is that they are diverse, covering a wide range of investment themes in an ever evolving environment. Over the last six months we have: written to our fund managers seeking reports on progress made a regulatory submission conducted a number of presentations on ESG issues sponsored a Sustainability Research Award attended conferences, given presentations and attended other events, and responded in detail, to a number of ESG related member queries Greater detail on some of these activities is outlined below. 3.1 Responding to member enquiries Over the last six months we received several enquiries from our members on a range of ESG issues. These included questions regarding why we are invested in certain companies, our stance on animal rights and also a range of questions regarding environmental matters. In responding to our members we seek to be comprehensive and openly address the issues that they raise. If you have any questions, please do not hesitate to contact us through the website, or alternatively by emailing Talieh Bentley, Head of Governance & Sustainable Investment, at talieh.bentley@unisuper.com.au. 3.2 Presentations, conferences and other events Key to the integration of ESG into the investment decision making process is collaboration and knowledge sharing. One of the main ways in which this knowledge transfer can occur is though giving presentations and attending conferences and other events. UniSuper has been active in this regard over the last six months with key activities including: Responsible Investment Association of Australasia (RIAA) Conference In July 2010 RIAA held its biennial conference which drew together a range of ESG professionals from both Australia and overseas. A range of topics were explored including: emerging mega-trends extractive industries in China implementation of the UN PRI climate change financial modelling and ESG In addition to this, UniSuper sat on a panel for financial advisers, the focus of the panel being socially responsible investing. Responsible Investment Report 9
Citi Investment Research ESG Briefings Elaine Prior is a Director at Citi Investment Research and focuses her research on ESG investment issues. As such, Citi regularly convenes and hosts a large number of ESG presentations and briefings over any given year. One particularly interesting briefing hosted by Citi was one provided by Michael Luscombe, CEO of Woolworths Ltd. Michael provided a detailed overview of key sustainability initiatives that Woolworths Ltd has undertaken, key achievements and challenges ahead. Not only was this briefing informative, it also provided investors with an opportunity to ask questions and engage in dialogue with Woolworths Ltd. In addition to briefings such as these, in November 2010 Citi also held an ESG symposium with a range of speakers from organisations including The World Resources Institute, Gap Inc., Nestlé Australia and ANZ. Alliance Bernstein Qantas Sustainability Briefing At the end of November 2010, Alliance Bernstein hosted a briefing for investors in relation to Qantas and the key ESG issues that it is facing. The presentation at this briefing was given by Alan Joyce CEO of Qantas, who demonstrated a strong understanding of the key sustainability issues facing the business. In addition, the Chief Financial Officer and the Chief Risk Officer were also present and contributed to the discussion. Presentation by UniSuper to PricewaterhouseCoopers (PwC) In mid August 2010, Talieh Bentley gave a presentation to PwC s Sustainability & Climate Change team. The key purpose of this presentation was to provide the team with an understanding of the investment process, the importance of ESG issues in investing and how superannuation funds are seeking to integrate ESG into their investment processes. Presentation by UniSuper to Colonial First State Global Asset Management (CFSGAM) In December 2010, Talieh Bentley of UniSuper along with a representative from HESTA Super Fund gave a presentation to the investment team at CFSGAM, and focused on what super funds expect of their fund managers, as well as also providing some insight into what ESG activities superannuation funds are undertaking. Internal presentations on ESG at UniSuper Toward the end of 2010 Talieh Bentley also gave two internal presentations at UniSuper regarding ESG issues and investing. One was to the entire organisation at a quarterly CEO briefing session and the other was at a new starter induction. From now on, ESG and sustainability are issues that are addressed as a matter of course at new starter inductions. We believe this is an effective way to ensure that all staff have a good understanding of ESG issues in investing. 3.3 Regulatory Submissions Like many other institutional investors, UniSuper is focused on executive remuneration at its investee companies. It is often difficult to solely focus on quantum and, as such, we look at disclosure, performance hurdles, and ensuring that an executive s remuneration is aligned with the interests of the company and its shareholders. Related to this, in 2009, we made a submission to the Productivity Commission as part of its review of executive and director remuneration. In 2010 UniSuper again made a submission to the Corporations and Markets Advisory Committee regarding executive remuneration. ACSI also made a submission on behalf of its members (including UniSuper). Both of these submissions are located at: http://www.camac.gov.au/camac/camac.nsf/byheadline/submissionsexecutive+remuneration?opendocument http://www.pc.gov.au/projects/inquiry/executive-remuneration/submissions#post-draft 10 Responsible Investment Report
3.4 Sponsoring and judging the sustainability awards UniSuper has sponsored the sustainability research category award at the Ethical Investor Australian Sustainability Awards since 2007 and continued to do so in 2010. A number of high quality research pieces were judged and the winning piece of research was The Low Carbon Growth Plan by ClimateWorks Australia. The Plan provides the first comprehensive economy-wide blueprint for how Australia can achieve an ambitious reduction in greenhouse gas emissions, whilst also building a growing low-carbon economy. This is a quality piece of research that has a practical application and can also be used by investors. More information can be accessed at: http://www.climateworksaustralia.com/low_carbon_growth_plan.html 4. Communication on Performance As part of our commitment to the UN PRI, one of our responsibilities is to report on our progress in integrating ESG issues into our investment processes. Preparing this report is one way by which we do this. Every year UN PRI signatories are encouraged to complete the UN PRI Reporting and Assessment Tool, the purpose of which is to identify the extent to which signatories are implementing the UN PRI and benchmark performance amongst signatories. UniSuper has just received the results for its performance over calendar year 2009. For the first time since becoming a signatory, UniSuper achieved 1st quartile performance* across all six principles which encourage a signatory to: integrate ESG into investment decisions be an active owner promote the importance of ESG disclosure by investee companies promote the PRI collaborate with others report on progress Whilst this is a positive result, it is important that we continue to remain focused on ESG issues and seek to drive continuous improvement. * Scores have been calculated based on signatories self-assessment and using the scoring methodology approved by the PRI Assessment Group. Although a limited verification exercise was undertaken with a proportion of signatories, responses have not been independently audited by the PRI Secretariat, PRI Assessment Group, or any other third party. Individual results including comparisons to the overall results (quartiles) are indicative and do not imply an endorsement of signatory activity. While this information is believed to be reliable, no representations or warranties are made as to the accuracy of information presented, and no responsibility or liability can be accepted for any error, omission or inaccuracy in this information. Responsible Investment Report 11
Helpline 1800 331 685 Website Email www.unisuper.com.au enquiry@unisuper.com.au Facsimile (03) 9910 6141 Address UniSuper Level 35, 385 Bourke Street Melbourne VIC 3000 Disclaimer The information in this publication is of a general informative nature and is not intended to be financial advice. Before making financial or investment decisions, you should consult a licensed adviser. You should read this information in conjunction with other disclosure documents the Trustee has prepared for members. Every care has been taken with the information provided in this publication. However, because of the complex nature of superannuation and taxation law and the frequent changes occurring, UniSuper Management reserves the right to correct any error or omission. If there is any discrepancy between this publication and the Trust Deed and Regulations, the Trust Deed and Regulations will be the final authority. Information in this publication regarding investment returns, administration charges, and benefit structures is current as at the date of publication, but may change in future. Issued by: UniSuper Management Pty Ltd ABN 91 006 961 799, Australian Financial Services Licence No. 235907. Level 35, 385 Bourke Street, Melbourne VIC 3000. Phone 1800 331 685. Fund: UniSuper ABN 91 385 943 850 Trustee: UniSuper Limited, ABN 54 00 027 121 Date: April 2011 ProxyVoting 0411