John Brogden

Sustainability and increased consumerism are at the heart of the changes taking place in the life insurance industry, John Brogden CEO of the Financial Services Council said yesterday.

“The FSC is taking a lead in how the industry is responding to these issues,” Mr Brogden told delegates at the opening of the fifth annual FSC Life Conference in Sydney.

“We engaged Milliman consultants to conduct research on the sustainability of the life industry with a particular emphasis on the retail and group markets,” he said.

The research categorised issues for the life insurance industry into three key areas of:

• Market – for  individual companies to address;
• Industry  − may require an industry response and would benefit from an industry-coordinated approach, but do not involve competition; and
• Regulatory − areas where regulatory intervention may be required by government.

Mr Brogden emphasised that the FSC and its members were strongly of the view that challenges driven by market factors should be left to the market to resolve.

“However, there is a role for the FSC in coordinating and leading responses to industry-wide issues and in advocating for regulatory and legislative reforms,” he said.

The FSC is advocating for proactive legislative changes.

The first will be to introduce a ‘statute of limitations’ on group insurance disability claims to help the industry manage pricing with more certainty and to ensure the long term sustainability of premiums. The second will be to change the Private Health Insurance Act so insurers can fund medical treatment for claimants to improve return to work rates.

“This is an important change which will deliver better outcomes for claimants and will help to manage increasing claims costs for insurers,” Mr Brogden said.

“It will also help to improve the welfare of individuals by allowing them to remain engaged in the workforce and ultimately contribute to economic growth through higher labour force participation.”

The FSC is leading the response to non-regulatory issues that must be dealt with by the industry/ These include:

• Improving the quality and consistency of data shared by the industry, particularly for group insurance;
• Considering an industry fraud bureau similar to that used by  the general insurance industry and in other countries such as Canada and South Korea; and
• Establishing a medical impairment bureau.

Mr Brogden also said financial services industry can increase its already significant role in supporting the sustainability of the Federal Budget.

“Life insurance needs to be seen in the context of its capacity to reduce government outlays,” he said.

“Underinsurance has a significant impact on the Federal Budget as many of those with insufficient insurance ultimately draw on the government through various pensions.”

“The potential for life insurance to reduce welfare costs has not been considered.”

The FSC is examining how the industry can help reduce the future costs of the National Disability Insurance Scheme and the Disability Support Pension to the government.

“Life insurance can be the private sector solution to the increasing budget costs of welfare just as superannuation is the private sector solution to the costs of an ageing population and private health insurance is a private sector solution to managing health care cost.

Mr Brogden said the FSC’s Financial System Inquiry submission will include modelling by Deloitte on the potential benefit of privatising some elements of the NDIS and DSP to the Federal Budget.

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High calibre entries from some of the country’s biggest broking and other financial services players mark the continued push by market leaders to factor Environmental, Social and Governance (ESG) research into mainstream investment analysis.

The annual Awards are conducted by ESG Research Australia (ESGRA), the industry association whose members include major superannuation funds and investment management firms with a combined $600 billion in funds under management.

Winners were announced today at a lunchtime event attended by some 120 ESGRA members and their guests who were addressed by Nigel Hartley, Executive General Manager, Sustainability of Oil Search Limited who discussed the numerous ESG challenges his organisation faces operating in Papua New Guinea.

This year’s winners are, in the ‘Best Piece of ESG Research by an Individual Analyst or Team’ category, Hamish Tadgell and Jien Goh of Goldman Sachs for their research work, Equity Strategy: Introducing the GS&PA Structural Leaders Framework. The ‘Best ESG Broking Firm as voted by Investment Managers’ went, for the second year in a row, to Citi, in recognition of work by analyst Elaine Prior. The awards apply to research undertaken in 2010.

Also highly commended was the work by Alva Devoy, Elliot Crane, Mark Williams and Michael Newbold of RBS, for their research: Australian Strategy: RBS ESG – Qantas.

According to the judging panel, which comprised 12 representatives from 10 ESG RA members, nominated ESG research this year covered a broader range of issues than last year’s, going beyond concern with emissions and other clear ‘environmental’ issues to address the ‘social’ and ‘governance’ parts of the ESG spectrum.

“This is a welcome feature that we called for in last year’s awards. Although final awards decisions were not easy to make, overall we were most impressed by reports that attempted to integrate ESG research into the mainstream,” said Amanda McCluskey Head of Responsible Investment at Colonial First State Global Asset Management and Chair of the Research Evaluation Committee of ESG RA.

In other comments, the judges welcomed the growing number of mainstream analysts getting involved in ESG research. And, while acknowledging the challenges of integrating such research into stock evaluations and macro strategy, the judges said that they were seeing a real effort to form a view on what’s material and what’s not. The days of merely ‘ticking a few ESG boxes’ are clearly long gone.

“The need to define objectively what factors are material, and how they can measurably affect investment performance one way or the other has been an ongoing issue in the development of ESG research,” said Rob Fowler, Chair ESG RA.

“In this year’s awards, it is clear that we are getting closer to research that has relevance to investment outcomes and can be applied and assessed in the same manner as other considerations that analysts look at in coming to their decisions.”

Another consistent feature of this year’s entries – which are judged against four key criteria (see below) – was increased rigour, with research becoming more thorough and detailed.

“We are extremely pleased with the breadth, quality and calibre of ESG research this year,” said McCluskey.

“While there is undeniably more work to be done, the improvements we are now seeing year on year augur well for the incorporation of ESG in to the investments made by the financial services industry to the benefit of the millions of people they are committed to supporting.”

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Mr Kirkman will be responsible for continuing to build on the strong foundation AMP Capital has set in employing the United Nations Principles of Responsible Investing (UNPRI) and ESG considerations.
He will facilitate the continued implementation of responsible investment practices in all asset classes including listed equities, infrastructure, fixed interest and credit. Mr Kirkman will engage with Australian companies on ESG issues and support the implementation of environmental targets for the broader AMP group.

AMP Capital Director, People and MD’s Office Sharon Davis said AMP Capital was one of the pioneers of sustainable investing in the Australian market and Adam’s appointment reinforces our commitment to ESG considerations.

“ESG considerations are embedded in our policies and guidelines and in 2007 we signed up to the UNPRI. ESG issues have financial implications and can affect the performance and reputation of investment portfolios so we are taking a firm position on how we meet and lead on these matters,” Mrs Davis said.

“Adam has a strong passion for sustainability issues. He is highly experienced with more than 15 years of international experience working with public and private sector organisations on business risk, sustainability, energy and climate change issues.”

Most recently Mr Kirkman was the global Director of Sustainability and Climate Change at international consulting firm Proviti where he led a team advising blue-chip clients across the sustainable development agenda including climate change and carbon risk, greenhouse gas reporting and verification, emissions trading, investment analysis and sustainability reporting. Prior to this he was Program Manager Energy & Climate Change at the World Business Council for Sustainable Development (WBSD) in Geneva. He also led the environment and sustainability practice at Ernst and Young in Sydney and has held roles at engineering consultancies WSP Group, CH2M Hill and Dames and Moore (URS).

Mr Kirkman joins AMP Capital on Monday 13 September and will report to Sharon Davis.

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The AMP Capital Sustainable Alpha Australian Equities investment approach integrates environmental,
social and governance (ESG) analysis with financial analysis.

Mr Carlsson-Sweeny will be responsible for the analysis of ESG issues and sustainability drivers for a
number of sectors, as well as regularly engaging with companies on ESG issues.

He has more than eight years experience in the investment industry including three years in ESG
research with the largest independent Scandinavian investment bank Carnegie Investment Bank. He
also has investment and business analysis experience at Macquarie Bank and Accenture in the United
Kingdom and has held the role of Equity Research Analyst at IS Intersecurities in Frankfurt. Most
recently he has provided specialist expertise to institutional investors on long term investing with an
emphasis on sustainability at the independent advisory firm Arbor Partners.

AMP Capital Investors Senior ESG Research Analyst Dr Ian Woods said Mr Carlsson-Sweeny has a
deep understanding of ESG issues.

“Mans brings with him both financial and ESG research experience which complements the team’s
strong sustainable investment expertise,” Dr Woods said.

“ESG research provides the investment team with timely and unique in-house insights which allow us to
deliver our clients competitive performance and returns.”

Mr Carlsson-Sweeny joins AMP Capital on Monday 20 September 2010 and will work with Dr Ian Woods
on ESG research. He will report to Head of Sustainable Funds Michael Anderson.

The AMP Capital Sustainable Alpha Australian Equities team comprises the following investment
professionals:

AMP Capital is one of the pioneers of the sustainable asset class in the Australian market and has been
offering sustainable equity solutions for around a decade. The team manages more than $2 billion in
funds under management for clients as at December 2009 and is a market leader with one of the largest
teams in Australia.

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