The Australian Council of Superannuation Investors is calling for significant reforms to Australia's framework for investment stewardship to encourage ESG integration.
ACSI is asking APRA to revise its investment guidance to specifically reflect the importance of ESG integration in the formulation of investment strategies.
ACSI chief executive Louise Davidson said: "Businesses and their boards need to rebuild trust with Australians. Investors can support this process through the responsible management of assets.
"A stronger stewardship framework would support the quality and integrity of our financial markets and contribute to sustainable, long-term value creation for beneficiaries."
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ACSI said the existing APRA guidance does not go far enough in its coverage of ESG and actually confuses ESG, which ACSI defines as a tool for managing financial risk, with ethical investing.
Davidson said: "Australia's regulatory framework lags behind other developed economies in recognising the importance of ESG factors. There is significant opportunity to bring Australia up to date by clarifying that ESG risks and opportunities are financially material and should be taken into account in risk and return analyses."
The council is also calling for a review of the regulatory framework for stewardship, which would consider a stewardship code that could apply to all institutional investors.
This comes after ACSI developed the Australian Asset Owner Stewardship Code in 2018, which it says many investors have volunteered to adopt and ACSI members have been broadly supportive of.
That code lays out a set of principles and offers guidance to promote higher stewardship standards and increased accountability to beneficiaries, consistent with global best practice.
"We think it's time to start a discussion about a framework that would apply across the market to all institutional investors, including asset owners. This would promote stronger stewardship, which in turn supports the quality and integrity of our financial markets and contributes to sustainable long-term value creation," Davidson said.