Local Government Super was established on 1 July 1997. This followed two years of negotiation with the State Government to allow the separation from State Super and First State, for local government employees in New South Wales to have their own fund. The local government employers’ organisations and the unions wanted better representation, our own directors, more control over members’ futures, lower fees, and to reflect the values inherent in local government.
Great ambitions. As directors we discovered we didn’t have to own tobacco, a commitment that developed and led to significant responsible investment achievements and then, in 2015/2016 a nosedive - a narky and petulant regulator, a compliant Board, the loss of the long-standing and much-loved CEO Peter Lambert, who had faithfully, honourably and loyally protected our interests over 12 years.
A succession of failed replacements, whose appointments confronted us with the magnitude of the loss, and whose exits confirmed it. All the while the Board fiddled. Nero would have been proud.
It got worse, a so-called “independent” director appointed as Chair who wasn’t from local government (yes, one of the 7-1 votes) and then after a long investigation, last year the regulator ASIC launched a prosecution in the Federal Court, alleging “greenwashing” - that Active Super had conveyed a false impression or misleading information to emphasise green/environmental/ethical credibility. On 5 June 2024 Justice O’Callaghan humiliated the Fund with substantial findings of Active Super’s guilt for claiming they were doing things which they were not. It’s little comfort that one charge about tobacco wasn’t confirmed, the rest were.
The prosecution challenged the fund’s credibility and the judgement demolished it. We await a judgement on penalty from the Federal Court -argued before the judge on 17 December, with ASIC pushing for $13.5 million and $2.5 million argued by the Fund.
And now, on 1 March, Local Government Super/Active Super will disappear - merged with, but more merged into, Vision Super. The Victorian equivalent covering local government employees, a comparable size but less money under management. And forever after will be Vision, with no acknowledgement of our LGS history.
The historic and world-leading responsible investment abandoned as the Fund folds into the approaches taken by Vision Super, whatever that might be.
Vale, Local Government/Active Super, rest in peace.
For decades there had been pressure on Local Government Super to merge. APRA the regulator, believed it too small to provide services in a competitive environment, but the Board fought back, at least until 2013, resisting the pressure and contesting APRA’s vision of the future. The Board held strongly to the importance of retaining the fund’s NSW local government focus.
On top of the pressure to merge came significant pressure to move away from the equal-representational model (equal numbers of employee and employer representatives, and no one else) and add so-called “independents”. This was embraced by LGNSW and the other two unions, so depa was in a minority resisting this.
In May 2019 depa agreed to forfeit the position of our director, which I had held from 1997 to 2013, and two replacements. This would allow the 3:3:3 composition they wanted.
We’d had enough of being the loser in 7-1 votes, whether it was our director, or our shareholder.
The Board was clear to progress their sweeping plan that would retain three employee representatives, three employer representatives and three so-called “independents” including a so-called “independent” Chair. They defended it, saying it retained equal representation, but if it did it was equal representation between employee representatives, employer representatives, and outsiders. Not quite the same thing. Interestingly, the other two so-called “independents" resigned as the merger became imminent.
It was the beginning of the end, followed by a name change to Active Super in 2021 with a new juvenile, cartoonish website, using animated characters and where the site contained people they were invariably in a state of high excitement, regardless of whether that was an appropriate image, looking like they had all sniffed too much nitrous.
Inevitably after all that, on 7 June in 2023, Active Super and Vision Super issued a media release announcing they planned to merge. In one A4 page, it mentioned “without losing the focus of both funds on exceptional service and strong returns ... delivering sustainable, long-term returns for members” and absolutely no reference at all to any commitment to responsible investment.
At a subsequent Shareholders Meeting I was assured by the new Chair, in response to a question about not compromising our responsible investment practices, that Vision was excited to merge and to bring themselves up to the level of activity of Active. What could possibly go wrong?
Vision was an early adopter of entry level responsible investment but never to the extent, or with the success and achievement of Local Government Super.
There has been little information to members until all members of the fund on 16 January 2025 would have received a “Significant Event Notice”- a mechanism established in the Superannuation Industry (Supervision) Act 1993. The Act prescribes four specific areas where this notice must be provided and leaves to the discretion of funds the opportunity of making their own decisions about what they believe constitutes a “Significant Event”. A discretion that was subsequently not exercised, but should have been, by Active Super - Part 2 below.
The Notice confirms “that on 1 March 2025, active Super will merge with Vision Super, creating a fund of around 165,000 members and more than $29 billion in funds under management”. There will be an almost immediate reduction in administration fees but they make it clear “Vision Super Proprietary Ltd, currently the trustee of Vision Super, will be the trustee for the merged fund”.
All Active Super Members, their benefits and all assets will transfer to Vision Super from 1 March 2025. Alarmingly in 7. Responsible Investment Changes, they say this:
“From 1 March 2025, the merged fund will adopt Vision Super’s approach to responsible investment, including the environmental, social and governance (ESG) - related exclusions from the portfolio.” None of us know what that means.
Obviously, the enthusiasm for Vision to do more and learn from the way Active did things has disappeared. I hope the Chair, at what I desperately hope to be my final meeting as a shareholder on 27 February, can explain why he will/can no longer deliver on the undertaking he had given.
ASIC is the Australian Securities and Investments Commission, the Australian securities regulator. In 2023 they targeted financial institutions making claims about their green or environmental credentials, otherwise known as greenwashing.
Last year they had their first scalp, the Federal Court imposing a penalty of $12.9 million on Vanguard, a financial services company with their own relatively small fund compared to LGSS, quickly followed by a second scalp, with a penalty of $11.3 million on Mercer Superannuation (Australia).
In parallel with these two cases, ASIC had already conducted an exhaustive examination of Active Super’s investment and publications, and on 10 August filed claims in the Federal Court alleging that LGSS Pty Ltd had contravened sections of the Australian Securities and Investments Commission Act 2001 “by making false or misleading representations, and engaging in conduct liable to mislead the public in relation to investments made by the superannuation fund of which LGSS is the trustee, now known as Active Super”. ASIC alleged “LGSS engaged in greenwashing by making false or misleading representations to members and potential members of the fund about their ‘green’ or ‘ESG’ credentials.”
(Please note reference to “LGSS is the trustee, now known as Active Super”, why the prosecution is referred to as ASIC v LGSS Proprietary Limited.)
In considering how to respond to ASIC’s threatened prosecution, Active Super should have been aware of the cases and the likely penalties to be imposed on Vanguard and Mercer but chose to contest all allegations and not advise members that this was happening. Multiple requests made by us that something needed to be said were met with the response they were acting on legal advice. Surely there was something that could be said to members, but nothing was revealed. LGSS should have issued a “Significant Event Notice” to members, Instead they chose to do nothing, only to batten down the hatches.
On 5 June 2024 Justice O’Callaghan found heavily against Active Super and adjourned to determine an appropriate hearing date for ASIC and Active Super to argue an appropriate penalty and costs.
There were significant ramifications. The Fairfax media, both in the Sydney Morning Herald and regional press, described Active Super as the "disgraced superannuation fund Active Super", and two employer-nominated LGSS/Active Board representatives, who were also members of the State Parliament, resigned from the board after being hounded by the Opposition for their failures as company directors to properly oversee the business.
Clearly the standards of propriety for members of Parliament are higher than the other directors of the Board, who remain unchallenged - although the Singleton Argus on 14 June exposed the culprits with the headline "Newcastle directors earning $100K at disgraced super fund". How lucky the other directors were that they were not investigated separately.
The Judgement identified failures in the management of responsible investment - in my view, but I can only guess, let down by a new gungho CEO, a comatose Board, a total failure of governance, management and oversight: a new juvenile website cleaned up to look edgy and modern, and in doing so removing the fine print provisos qualifying how the fund managed responsible investment protections. A complete collapse of risk management protocols and Board oversight after a long proud history of responsible investment. A betrayal of the directors who set it up, like me, with its checks and balances, and proud results. Shameful.
The CEO at the time is no longer there, neither is the person responsible for marketing. The Board is saying nothing, bobbing along like a cork floating in the sewer, thinking they are irrelevant and untouched by the fiasco. It’s hard to know exactly what happened, and Active Super hasn’t said. Active Super won’t say. We all deserve an apology.
Maybe a combination of the Board/Senior Management losing an interest in responsible investment processes; not examining things that would have come across their meetings; processes were weakened or not kept up-to-date with new technology; an increased use of sustainable investment as a marketing tool but without the provisos and checks and balances, and a more vigilant ASIC chasing the greenwashers. No significant fund has had such a high profile committed to a low carbon future. What a great target, an accident waiting to happen.
On 2 December, two weeks before penalties and costs were to be argued on 17 December, Active Super placed a “Notification of Misconduct by Active Super” on their website. Not easily found, not on the homepage, only if you happen to be looking under “Investing with us”, you find a “Notification of Misconduct by Active Super”.
I attended the penalties and costs argument on 17 December. It was an horrific experience, how the mighty had fallen.
LGSS had contested all the allegations, Vanguard and Mercer had cooperated and accepted guilt, and the ASIC SC pointed to both decisions “as being relevant to take into account in assessing whether the penalties that ASIC is seeking are appropriate, and in the circumstances where the figure of $13.5 million would be less than the amounts that would have been ordered in those cases by several million dollars, were it not for the cooperation that was exhibited by Vanguard and Mercer - in circumstances where admissions and cooperation were absent in the case of LGSS - we say that that provides further support for the figure of $13.5 million”. Uh oh …
No admissions or cooperation from LGSS, a lack of contrition, criticisms of the witnesses not providing explanations of how this happened, and who deliberately chose to remain silent.
LGSS has never explained how statements which were inaccurate were made, not addressed it in any evidence, “ASIC is still none the wiser as to precisely why the conduct happened.” He noted that the only contrition was an affidavit from the acting CEO in the costs hearing, the absence of any acceptance that anyone was misled and no public expression of contrition.
That doesn’t bode well for the penalty, but then it got worse. The LGSS SC stepped up to the challenge noting the likely financial impact on members, because “if a penalty more than about two and a half million dollars is payable, there will be an income tax - capital gains tax liability, and as we say it follows, as night follows day, it must be paid by members.” Still no contrition, no acknowledgement, no explanation and, to finish with a humiliating note, said “the pertinent circumstances are this is a very poorly-resourced entity”.
That is a submission of desperation. No one has ever suggested LGSS/Active Super is a very poorly resourced entity. Until now.
As if living with "the disgraced superannuation fund Active Super" wasn't enough. All this explains why, despite having more funds under management than Vision, LGSS/Active will disappear without trace, a CEO from Vision, a CIO from Vision, as if Active Super had nothing to offer.
In a late development, ASIC had also prosecuted Australian Super for failing to merge multiple member accounts, which the court found to be a breach of the fundamental duties and obligations AustralianSuper owed to its members, over nine years, and that it was inexcusable for AustralianSuper not to have had the processes and systems in place to ensure compliance.
Australian Super was fined $27 million... It’s not a greenwashing prosecution but it does show a readiness to levy significant fines even when those members disadvantaged to the tune of $69 million in losses, have had their losses remediated.
Al Gore was Vice President of the US to President Bill Clinton from 1993 to 2001. He missed becoming President in 2000, defeated by George W Bush, despite winning the popular vote. He had been aware of the risks in climate change from the 1970s, became an environmental campaigner and in 2006 released a film, “An Inconvenient Truth” which opened the eyes of the world to the risks and our destiny unless something is done.
When he came to Australia in 2012, he wanted to meet with LGSS representatives involved in investment. Our reputation preceded us, but the significant work done by LGSS on climate change began, relatively innocently, in 1999. The board had been operating for two years, and that year considered a report I’d written “Development of an Ethical Investment Policy” and resolved that the Chief Investment Officer and I should develop recommendations on ethical investment for further consideration by the Board.
The resolution acknowledged that since our inception in July 1997 tobacco share ownership had been discussed regularly by the Board. It had been a running sore for both State Super and First State (where our members’ money was before LGSS was established) with constant pressure from doctors and nurses in the membership that it compromised the integrity of their superannuation.
That report is now a significant historical document and part of our legacy. Restrictions on tobacco have been in place continuously for 25 years and coincidentally, was the only investment area LGSS was able to satisfactorily defend in the ASIC prosecution.
Our members, with a health and environmental focus, didn’t want to own tobacco shares either and the Board resolved “to divest itself of all tobacco shares” (noting the minimal investment risk) and that the CIO and I “continue to develop ethical investment options for recommendations to the Board.”
The Board embraced the concept, it took time to implement to ensure there was no disadvantage and get moving, and this was the history:
2000 The First Australian fund to exclude tobacco stocks.
2001 Board approved the Fund’s first responsible investment policy, examining the fund’s portfolio from a social responsibility perspective. Companies involved in gambling, armaments, nuclear or uranium mining or poor mining practices, questionable work-place practices, and corporate governance activities, old-growth logging. Transparent process allowed gains and losses to be calculated to ensure the fund was not disadvantaged.
2007 Analysis of all investments to identify risks to income if not properly pricing carbon and assets and Local Government Property Fund created as a separate entity to enhance sustainability performance to strengthen long-term assets.
2007 Demonstrated investment screening benefited the Board by $7 million.
2008 Asset Owners Disclosure Project trialed locally for three years, LGSS ranked number one each year, although only the top 10 funds were acknowledged, to protect the failures.
2009 Comprehensive sustainability policy, one of the first superannuation/pension funds to focus on climate change risk.
2010 Awarded Sustainable Super Fund of the Year.
2011 Won SuperRatings Infinity Award for the fund “most committed to addressing its environmental and ethical responsibilities”, subsequently awarded in 2012, 2014, 2015, 2016 and 2017, and acknowledged as a finalist in 2013 and 2018.
2011 First ever shareholder vote on climate change (Woodside petroleum), supported by LGSS and three other funds.
2012 Asset Owners Disclosure Project goes international and reviews 500 institutional investors with around A$40 trillion in funds under management for sustainable investment practices and disclosure of climate change risk. LGSS was ranked number one in the world in the initial international survey, and ranked either number one or number two globally until the last survey conducted in 2017. Ranked number one in 2012, 2014, 2015 and 2017, and ranked number two in 2013 and 2014. These were our greatest achievements. Mind you, lunch with Al Gore, at a table of 10 in a private meeting room for four LGSS representatives that year and a couple of other funds, at his invitation, was very special.
2012 Green Globe Awards for climate change leadership and energy award.
2013 Money Magazine Best Green Super Fund, also awarded in 2013, 2015, 2016, 2017 and 2018, and NSW Government Green Globe Awards for climate change leadership and energy award.
2017 Directly held property portfolio wins 5-star Green Star Rating, first portfolio to achieve the rating in Australia. In the final Asset Owners Disclosure Project survey, LGSS was the top-rated fund in the world again and VicSuper was 34th - the fifth Australian Fund - down 13 positions from the year before.
2018 Property portfolio receives five-star rating from the Global Real Estate Sustainability Benchmark assessment, first in Australia.
2019 First certified carbon neutral property portfolio in Australia.
Over that time the Chief Investment Officer and team knew exactly what stock was being held and were able to guarantee that. Systems had been put in place right from the start, but particularly after the appointment of the incomparable Bill Hartnett as Head of Responsible Investment from 2010 to 2019, that meant any breach of the screening could be detected and remedied. His systems were flawless, he constantly oversaw fund managers’ decisions and any likely impact on our prohibited stocks. And acted immediately if there were a breach.
No one knows, or is admitting, how those systems failed. Somehow, something went wrong.
A reputation and a legacy destroyed.
Off to Vision on 1 March. Our future is part of a larger fund with some mainstream responsible investment but nothing like the halcyon years we have enjoyed.
We can be comforted that five of the directors of Active Super will be heading off to sit on the Board of Vision to continue their work looking after our interests.
Unless ASIC/APRA next turn on the directors who didn't see this coming...
Ian Robertson
Secretary
|
| |
 |
In this issue
|
|
|
| |
|
|
| |
|
Contact us
|
|
Email us
|
|
Phone (02) 9712 5255
|
|
|
