Rise of industry super creates crisis for Liberals

He 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”.

BHP announced an end to hiring local shippers to transport iron ore from Western Australia to Bluescope’s Port Kembla steelworks in Newcastle, in preference for better value-for-money foreign shipping crews.

Labor leader Bill Shorten has slammed BHP.

BHP is not alone in being in the firing line.

Glencore has agreed to cap coal production after coming under pressure from investor action group Climate Change 100+.

To be sure, there is a legitimate case for shareholders to pressure boards on long-term investment risks such as climate change where such issues could materially hurt a company’s future profits, performance and, possibly, corporate reputation.

But there is rising alarm in Liberal and business ranks where funds cross into progressive activism for causes that could undermine shareholder returns and where super fund member money is used for political agendas.

Left-wing news website The New Daily is funded by Industry Super Holdings and is a regular critic of the Coalition government.

Where the line is drawn between justifiable shareholder engagement and political activism that undermines the financial returns of fund members will be a critical issue for super fund trustees under their environmental, social and corporate governance (ESG) frameworks.

Greg Combet, the former Labor minister and union leader who now chairs both Industry Super Australia and IFM Investors, says the industry is preparing to exercise its voting rights and influence with governments and the public to force a focus on ESG matters in the interests of long-term value creation.

The rapid growth of industry funds has been abetted by mandated contribution flows via the industrial relations system and exposure by the royal commission of financially conflicted for-profit retail funds that are bleeding money to industry funds which on average have delivered higher returns.

Genius and forward thinking

It was the genius and forward thinking of one of the architects of compulsory superannuation, unionist Bill Kelty, who almost 30 years ago saw the potential for trade unions to stay relevant through the default super system.

Labor is quietly rubbing its hands with glee about the rise of industry super and downfall of bank-owned retail funds.

It explains why some Liberals are attracted to the idea to set up a low-fee and less conflicted government-owned default super fund, such as the Future Fund, to compete against industry and wounded retail funds.

Yet the government has put the idea on ice, with some senior ministers worried that a vicious backlash by cashed-up industry funds and unions could hurt the Coalition in the lead-up to the election.

That political timidity ignores that assets held by industry funds will surpass $1 trillion in 2024 and hit $1.7 trillion in 2033 according to consultant Rice Warner.

By then, the industry super goliath will be so much more formidable.

Source link Finance News Australia

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