CSC manages and invests five schemes:
- CSS (Commonwealth Superannuation Scheme)
- PSS (Public Sector Superannuation Scheme)
- MilitarySuper (Military Superannuation & Benefits Scheme)
- PSSap (Public Sector Superannuation accumulation plan, including the CSCri: the Commonwealth Superannuation Corporation retirement income)
- ADF Super (Australian Defence Force Superannuation).
This section details how investment performance of these schemes affects a customer’s superannuation benefit.
It also provides CSC investment performance to 30 June 2020, together with information on our investment approach, strategy, internal governance, environmental, social and governance practices as they relate to investments, and investment options.
How investment performance affects a customer’s benefit
The impact of investment performance on a customer’s benefit differs across our schemes. Investment returns do not affect PSS contributing customers’ final benefits. Investment performance has a greater impact on CSS contributing and deferred benefit customers and on PSS preserved benefit customers because in those circumstances performance directly influences a customer’s final benefit.
In some circumstances, investment returns also affect the Australian Government’s financial outlays on customers’ benefits, such as in the case of PSS contributing customers.
For MilitarySuper, investment performance directly affects the final benefit for all customers, together with a small part of the employer benefit for contributing customers.
Benefits in PSSap, ADF Super and CSCri (including transition to retirement income streams) are directly affected by investment performance.
The 1922, DFRB, DFRDB and the PNG schemes are unfunded superannuation schemes. While CSC administers these schemes, CSC does not invest monies for these schemes. Details of each Scheme’s structure is found in the Investment Options and Risk Product Disclosure Statement.
Our investment approach
We aim to achieve consistent long-term returns within a structured risk framework. To achieve this, we manage and invest each scheme’s investment option to enable its stated investment objective within strictly defined risk limits. Each scheme is managed in a way that allows for payment of monies to meet customer benefit payments, and to achieve equity among all customers, as well as exercising care and diligence to maintain and grow the assets of the schemes.
CSC jointly invests the schemes in one pooled investment trust, providing economy-of-scale benefits to customers of each regulated scheme.
Professional external investment managers are responsible for managing investments, which enables investment options in each scheme to gain exposure to a number of different asset classes.
Target asset allocation and rebalancing ranges are set for each investment option.
Our investment strategy
Our investment strategy focuses on providing financial adequacy in retirement for all scheme customers. The level of risk taken focuses on maximising the likelihood of achieving this outcome for all CSC customers.
This means that CSC-managed investment portfolios, relative to those managed by other superannuation fund providers, should preserve more wealth through periods of negative equity market returns and capture a significant proportion, but not all, of the returns available through very strong market conditions. Note, however, that through periods of strong equity market returns, CSC customers’ investment returns should comfortably exceed targeted objectives.
Over the full investment horizon (that is, the length of time an investor expects to hold an investment product), as more capital is preserved in weak markets and most of the returns are captured in strong markets, the cumulative return to customers will be very competitive and the volatility of returns will be reduced.
Our investment governance
Our investment governance focuses on managing and pricing investment risks efficiently. CSC’s primary objective is to achieve stated investment objectives within strictly defined risk limits.
Our Board has established a comprehensive investment governance framework, which includes a clear statement of both Board and Executive responsibilities.
The CSC Board
Our Board is responsible for the sound and prudent management of the assets of CSC’s schemes. It sets, reviews and oversees the investment strategy, mission statement and core investment beliefs. It approves and monitors investment strategies for each investment option, agrees the budget, and determines appropriate delegations.
To approve CSC’s investment strategy, factors such as CSC’s specific scheme-membership characteristics – including demographics, perceived organisational comparative advantages, scale (as measured by funds under management), and the broader investment environment – are all explicitly considered.
To approve an investment strategy for an individual investment option, the Board considers the objective, in terms of return and risk measures, and the investment horizon, in the context of these factors.
Our Board delegates management of investment activities to relevant members of the Executive. Reports on approved investment policies, investment performance, liquidity, risk, external investment manager and portfolio activity, portfolio structure, capital allocation and the risk budget are submitted and discussed at every Board meeting.
Our Investment team
Our Investment team advises the Board on investments, implements Board-approved strategies and manages all investments that fall within Board-approved delegations. The team is led by the Chief Investment Officer (CIO) and manages investments in a manner consistent with the Board’s investment strategy, its decisions on asset allocation, and its detailed investment policies.
Our Investment team performs two major functions:
- It executes investment strategy, option design and risk budget deployment, and monitors the evolving risks and opportunities for each fund as well as for broader financial markets.
- It identifies the most efficient implementation channels for investment strategies, where ‘efficient’ is defined as the highest prospective, net (of fees), return per unit of risk.
Both functions are fulfilled by specialist senior investment managers, supported by investment analysts, who report directly to the CIO.
Our Investment Operations team
Our Investment Operations team is led by the Executive Manager Investment Operations. This executive position reports to CSC’s Chief Operating Officer, who reports to the CEO. Responsibilities of the Investment Operations team include:
- implementation of investment team decisions, in accordance with Board-approved delegations
- management of CSC’s custodial relationship and its associated activities
- assurance that CSC’s external investment managers comply with all CSC requirements
- conduct of operational due diligence.
Under scheme legislation, CSC is required to invest through external investment managers. On the recommendation of the CIO, the Board approves the appointment of ‘investment-grade’ managers who may be appointed at any time by CSC.
Investment managers are selected for their specific expertise and invest according to individual mandates set by CSC that address our specific portfolio requirements. These mandates provide direction to the type of investments to be held, the maximum and minimum holdings for each investment type, and target rates of return and risk limits.
External investment managers are paid a fee usually based (in part) on the value of assets managed on behalf of CSC but, importantly, where possible on their performance in both returns and risk taking.
Fees reflect investment costs applicable to each asset class category and the investment style of each manager.
Some managers who exceed predetermined benchmarks within specified risk limits may be paid a performance fee, which is usually a share of the excess performance.
Environmental, social and governance factors
We are proactive asset owners and engage with companies that our customers’ savings are most exposed to in order to support areas such as: smooth transitions in the use of energy in the economy, and robust and accountable management of human resources in the companies’ dayto-day operations (for example, pollution and carbon footprint). We concentrate on understanding the robustness of our investee companies’ governance frameworks and focus on observing their consequences. We believe that when these are done well, management of environmental, social, human capital and other strategic risks is more likely to also be robust.
Customer savings are proactively invested in the infrastructure, technologies and innovations of the future to both improve the retirement outcomes of customers financially, but also contribute positively to the environmental, social and governance goals of society (e.g. United Nations Social Development Goals – SDGs). Case studies are available online and include renewable energy projects, biotech and pharmaceutical solutions, healthcare services, data centres, telecommunication satellites, affordable and reliable access to water and sanitation, energy and education.
We endeavour to integrate consideration of all relevant risk factors into our investment process, including those that have the potential to impact future franchise values over long horizons. We take this responsibility seriously and we have been recognised globally for our innovation and market-leading approach by the United Nations’ PRI innovation awards, the Bretton Woods II most responsible asset allocator initiative, and the Asian Investor Excellence Award in the categories of Governance and Innovation.
We actively pursue the principles of good governance in our operations and seek them in the companies in which we invest. Poor governance, sometimes evident in poor environmental and social practices, can be a sign of poor corporate management and may lead to a decline in the value of our customers’ investments. We seek to identify these risks and mitigate them, where they are potentially material to our customers’ superannuation savings. To this end, CSC is an active owner of all our investments: our mission is to create and steward enduring wealth for our customers.
Our ownership is prosecuted through several channels, including:
- voting on all shareholder resolutions of our Australian and international investee companies
- voting on all private capital advisory board resolutions, where an advisory board position is held
- publicly communicating our ESG and proxy voting policies and practices, to which our external managers are asked to adhere
- engaging constructively and proactively with our material public-investee companies in Australia, to deepen internal corporate governance and fit-for-purpose strategic execution
- directly influencing governance practices and decision-making in our private capital investments
- committing, firstly, to reflect these practices in our own governance and innovation execution, for example:
- In 2002, we founded an industry-first research capability after recognising an industry-wide gap in understanding and measuring of the impact of ESG factors on investment portfolios. This allowed us to gain insight and actively engage with Australian public companies that we materially invest in: on their governance practices, environmental footprints and social externalities of their operations.
- In 2006 we were an early signatory to the United Nations–backed Principles for Responsible Investment (PRI), founded in April 2006 (see more below).
- In 2009 we were the first Australian fund to have its portfolio carbon footprinted by the Climate Change Institute.
- In 2015 we were an early signatory to the Montreal Carbon Pledge (see more below).
CSC is currently:
- rated A+ by the PRI global benchmarking exercise on responsible-investment prosecution by asset owners and managers
- in the top 20% of the 2019 global Most Responsible Asset Allocators Initiative (RAAI). This follows on from CSC’s position amongst the most responsible asset allocators among Sovereign Wealth Funds and Government Pension Plans around the globe in the inaugural leaders list in 2017.
Principles for Responsible Investment (PRI)
In November 2006, CSC was among the earliest signatories of the United Nations–supported Principles for Responsible Investment (PRI, founded in April 2006). PRI provides a framework for institutional investors to align investment activities with the broader interests of society while maximising long-term returns for their beneficiaries.
The six principles of PRI and its signatories are:
- We will incorporate ESG issues into investment analysis and decision-making processes.
- We will be active owners and incorporate ESG issues into our ownership policies and practices.
- We will seek appropriate disclosure on ESG issues by the entities in which we invest.
- We will promote acceptance and implementation of the Principles within the investment industry.
- We will work together to enhance our effectiveness in implementing the Principles.
- We will each report on our activities and progress towards implementing the Principles.
Montreal Carbon Pledge
We are a signatory to the Montreal Carbon Pledge which is supported by PRI. It aims to increase investor awareness, understanding and management of climate change–related impacts, risks and opportunities. Under the pledge, we commit to measuring and disclosing, on at least an annual basis, the carbon footprint of our public market equities portfolio. Table 16 shows that our public market equities carbon footprint (as at 30 June 2020) is estimated to be 12% lower than its benchmark by 12 million tonnes of CO² emissions per AUD million invested.
Table 16. CSC’s public market equities carbon footprint at 30 June 2020
* Carbon footprint is measured in million tonnes of C0² e (Scope 1 + Scope 2) per AUD million invested (as at 30 June 2020).
At present we have over A$771 million invested in high-quality private and public assets including wind farms, waste management infrastructure projects and renewable energy initiatives that add to the net new supply of facilities (as at 30 June 2020) .
These investments reduce our portfolio carbon emissions by over 200,000 tonnes of CO² per annum, compared to having this money invested passively to meet a similar level of energy demand (for calendar year 2019).
Further details are available on our Climate Change Factsheet on our website.