WIS NSW HOSTS PANEL ON REGULATORY REFORMS

Your Future, Your Super has been touted to make the superannuation system better for members, but at what cost? Active Super’s Head of Legal and Compliance, Natalie Kalouche, lead a panel this week, to discuss the recent regulatory reforms and the practical consequences they will have on funds, and ESG issues. Joining her on the panel was Linda Elkins, Partner, KPMG, Michael Mathieson, Senior Regulatory Counsel, Allens and Moya Yip, Head of Responsible Investment, Active Super. The panel discussed the challenges facing superannuation funds of all sizes, covering off on key topics such as best financial duty, performance testing and the importance of documentation and metrication. 

On the challenges faced by Super Funds

Speaking about the challenges created by the legislation, Michael Mathieson, Senior Regulatory Counsel at Allens, noted, “The performance test will affect not just funds with underperforming MySuper products but also funds that want to be, or are considered to be, part of the solution' and also 'I can see a few years of considerable unrest ahead, and at the end of the process the industry is going to look very different to what it looks like today.'

Linda Elkins, Partner of KPMG added, “I feel like there are layers of change underway and coming, and the enormity of how much is happening at the same time should not be underestimated.”

Moya Yip, Head of Responsible Investment at Active Super, highlighted one of the challenges facing funds like Active Super that prioritise ESG is the best financial interest duty, “The biggest issue is how do you balance say a commitment to Net Zero, with being able to demonstrate long term value? We believe the answer lies in having the tools and methodology to demonstrate this. Developing this has been a key focus of Active Super as well as our engagement with our membership.

Keeping track of “best financial interest”

One of the key takeaways from the session was around how funds could prove alignment of various decisions to ensure they met the best financial interest test.  While Michael Mathieson, noted the change to the best interests covenant 'is unlikely to make a difference because, in most cases of trustee decision-making, the non-financial interests of members would not have been paramount in the first place' and that, in context, 'the change may not be as radical as first thought'.

Linda Elkins, agreed, “As Michael pointed out, the changes are not as big as they seem on the surface, and there are already obligations in place which require trustee decision making processes and recording of evidence and enhancement of expenditure framework.  They key for superfunds is ensuring they have a data strategy in place.  For example, what is the metric you will use to validate the decisions and the way you monitor the benefit realisation?” 

What about Environmental Social Governance?

Speaking about Your Future, Your Sper reforms and how funds ensure there is alignment with ESG, Moya Yip noted, “It has been our own experience at Active Super that returns have not been compromised with the application of ESG principles.  Rather when presented with two investments of similar return we will choose the one with the greatest positive impact on member financial outcomes. What we have found is this generally leads us to higher ESG quality investments. At Active Super, we can measure our portfolios using a range of metrics – ESG quality, carbon emissions, impact of SDG’s, and also within alternative  asset classes – we feel confident we have processes in place and metrics to demonstrate ESG principales lead to better financial outcomes for members.”

WIS NSW would like to thank all of our panel and members for their participation in this event, as well as our sponsor, Active Super.

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