Investment quality and sustainability

We have consolidated and streamlined our disclosures in response to customer requests for simpler communications about our approach. We have set out our approach to stewardship and highlighted the commonly asked questions on this FAQ page.

No. Our approach has not changed. We review our policy every 3 years. The CSC board last reviewed policies relevant for our ESG approach in August 2025.

Our holdings in oil and gas companies typically reflect their index weights in the Australian equities benchmark, against which we are evaluated under the Your Future Your Super legislation (YFYS)¹. We consider investing part of the portfolio in that benchmark index to be a cost-effective way to achieve positive member outcomes for the purposes of the performance test.

¹Investment indices | APRA: These are the indices that CSC’s accumulation options operate under YFYS.

We do not invest in companies which we know to be involved in activities contrary to Australian government rules and regulations, for example cluster munitions and landmines. We also exclude investments where we consider it to be a cost-effective way to protect CSC portfolios from risks we believe are not justified by the returns. For example:

• We divested of tobacco producers as we considered this to be a cost-effective way to protect the portfolio in the long term against loss of value from increasing regulation.
• We divested companies that derive 70% or more of their revenue from thermal coal production because we viewed their long-term investment returns to be under pressure from cleaner-energy competition.

We implement these decisions using MSCI’s Business Involvement Screening Research methodology. This can mean some exposures to these risks are not identified, but in the context of our portfolio-level risk-management objectives, we consider these to be immaterial¹.

We do not divest (or threaten divestment) as a way to provoke companies to change.

Divestment itself neither withdraws capital from a company’s balance sheet, nor reduces the profitability of a company’s products or services; it merely transfers ownership rights to another investor.

Divestment also entails relinquishing effective channels for investor influence (e.g, ownership rights such as participating in director elections)and accepting the risk that the buyer would use the ownership rights we relinquished to pursue outcomes contrary to our customers’ financial interests.

Some divestment advocates have more recently argued that the purpose of divestment is to generate damaging publicity for the divested company. We believe our continued ownership offers greater potential to elicit desired changes than one-off action to generate publicity.

CSC recognises the risks for long term investments predicted under more severe climate change scenarios and the goal of the Paris Agreement to limit carbon concentrations in the atmosphere. CSC’s approach to managing climate-related portfolio risks distinguishes between two types of possible actions:

• Hedging customers’ portfolios against climate risks and
• Limiting atmospheric concentrations of greenhouse gases.

Hedging customer portfolios against risks means that CSC portfolios often exhibit low (and / or falling) carbon emissions and may resemble investment products described as “Net Zero,” However, we caution that lower portfolio carbon emissions does not necessarily result in reduced carbon emissions in the physical world.

Our climate risk policy recognises climate-related risk as a systematic risk across the portfolio. We use scenario analysis and stress tests to estimate what impact climate risks could have on your retirement outcome (to the best of our ability, given the available data).

Our stress testing methodology follows evolving recommendations of peak bodies globally, including the International Panel on Climate Change Assessment Report 6 (IPCC AR6)¹, and aims to integrate our assessment of:

1. Direct risks to physical assets;
2. Risks from regulatory responses to climate change;
3. Risks from climate-related litigation; and
4. Risks to the competitive position of assets risks under different rates of decarbonisation, across jurisdictions and through time.

Our proactive and rigorous approach to investigating climate-related risk can lead us to be ahead of consensus positions. For example, we were the first Australian super fund to open our portfolio to carbon footprint analysis by the Climate Institute in 2009. This enabled us to develop an early understanding of the inaccuracies and complexities that mean carbon footprints are a poor indicator of either climate risk to an investment portfolio or its contribution to climate outcomes.

¹Sixth Assessment Report — IPCC

Disruptive forces such as new technology, geopolitical trade, and social change have historically spurred innovation and industry development. We routinely monitor these to identify investment risks and opportunities that result, and apply our investment and risk-management disciplines (including hedging) to manage these.

Climate-related regulation of fossil fuels is an example of this. Our decision to exclude from the portfolio those companies that derive 70% or more of their revenue from thermal coal production was a result of this process, as was our decision to embrace early opportunities in wind farm development.

We recognise potential stranding risks for more carbon-intensive oil, gas and metallurgical coal assets, but do not believe the category as a whole is at risk of stranding, at this time. We monitor macro-economic indicators that could help identify that this risk is increasing – for example, a diminishing gap between the amount of alternative energy supply (including generation, storage and distribution capacity) and global energy demand (from consumption patterns and global development priorities).

Climate change is a system-wide risk, and our approach is accordingly rigorous. We integrate climate change considerations into our investment risk management and stewardship, and focus our efforts where they are cost effective, consistent with the customer return objectives of our core activities (investing for customer retirement incomes) and have the greatest impact potential.

We have concluded that CSC influence is most usefully directed towards supporting reduced demand for hydrocarbons. For example,

• We were one of the earliest Australian superannuation funds to invest in wind farms in September 2015, earning strong returns. Since then, we have recycled that profit into European and Australian renewable developers, growing renewable energy capacity – which now competes with fossil fuel generation.
• We selectively engage companies, directors and others regarding their companies’ contributions to demand, and support others to do the same.
• We build investor capacity to support policymakers’ efforts to reduce demand (e.g. with carbon pricing) including initiatives such as the Governance Advisory Service (later Regnan) and the Investor Group on Climate Change (IGCC).

Through our ESG integration and stewardship activities, we focus on the governance of the companies in which we invest, because we believe that boards, comprised of directors with relevant expertise, commitment and integrity, are best placed to steer company strategy and identify, manage and communicate about a company’s assets, risks, and prospects (including ESG-related externalities relevant for the company).

We do not see a standalone ESG option as offering additional benefits for customer retirement outcomes. If an ESG risk is relevant to investment outcomes, we believe it is necessary to manage this across all of our portfolios. Likewise, if attractive financial characteristics of an investment are accompanied by environmental or social benefits, we see this as advantageous for all of our portfolios.

Active ownership refers to the intentional use of the rights that accompany equity ownership.

Many investors’ involvement with companies is more transient, for example via strategies to buy a company whose share price is temporarily depressed and sell it at a higher price as soon as it recovers. Active ownership is most common among investors who expect to be invested for longer periods of time.

CSC’s active ownership activities include:

• Systematically voting at company meetings in accordance with our written voting principles;
• Systematically communicating CSC’s active owner, climate investment risk and proxy voting policies to its external investment managers;
• Selectively engaging companies directly (where we judge it to be in our customers’ best financial interests and a cost-effective way to address a risk); and
• Identifying other cost-effective opportunities to use our influence as an investor, as these arise.

Since our active ownership is aimed at achieving more dependable retirement outcomes, we engage in active ownership only where we consider such activity is both cost-effective and in our customers’ best financial interests.

Universal owners are institutions with large, long-term and extensively diversified portfolios such as CSC’s, who are exposed to many sources of risk to their investments

Risks affecting investments are managed as part of our investment risk processes, however, when our investments are considered in aggregate, the single largest risk concerns the performance of the economy as a whole. The performance of the economy can be at risk from financial issues (such as credit standards underlying the Global Financial Crisis in 2007) but also social issues (such as economic pressures that limit a population’s appetite for entrepreneurial activity) and environmental issues (such as water stress diminishing agricultural production, increasing food prices, and fuelling social unrest).

Universal owners recognise that on occasion, companies optimising for their own returns can undermine returns from the portfolio as a whole, and use active ownership to address this.

For example, regulation can reduce profits when it forces companies to bear costs associated with their carbon emissions. We have nonetheless advocated for effective carbon regulation, via several investor collaborations, including the Governance Advisory Service (later Regnan) which we established in 2001, for which we won the United Nations Royal Award for excellence in sustainability, in 2003.

CSC exercises all of its voting rights by casting a vote on every resolution put to the shareholders of every public company in our portfolio.

CSC’s voting policy provides guidance on the principles by which we cast votes. We generally support management recommendations unless these are inconsistent with our stewardship priorities.

We disclose our proxy voting results in summary form on a half yearly basis. We do not disclose the individual votes we cast at each company AGM, as such information can be misinterpreted. For example, a vote against a company’s published climate plan may signal disagreement with its premises, opposition to its climate-focussed efforts, or dissatisfaction that the actions proposed are insufficient.

In our experience, public/media commentary often neglects such context even when it is available. Such external reporting can mislead our customers and divert our staff from their primary role - looking after your retirement savings.

Our stewardship priorities guide our use of our ownership rights and related avenues. They are designed to focus our efforts.

They emphasise:

• Secure shareholder rights, such as the right to determine a company’s board of directors and make decisions on major capital transactions;
• The establishment of boards / election of directors with strong strategic competencies, governance competencies, and who are conscientious with respect to company impacts and externalities; and
• Accountability to shareholders, via transparency about all of the above.

Investors delegate the oversight of companies to boards of directors, rather than being involved in management decisions directly. These priorities reflect the important role of company directors, focusing our efforts where they can be most cost effective.

CSC collaborates with our suppliers to reduce the risks of modern slavery in our investment portfolio. See our annual Modern Slavery statement for details.

To date, we have not identified social housing opportunities that provide a compelling relative return. However we continue to monitor and review opportunities, in light of changes to policy on market structure, taxes, incentives, etc.