The Imperatives of Prudence and Responsible Investing: A critical analysis of the legal and ethical duties of a prudent superannuation fund manager

John Cronin

doi:10.25907/01033

This study fills a current gap in the literature by advancing a new and substantive prudential approach to investment decision-making for superannuation fund managers that considers the impact of their investing decisions on the social, political, and ecological exigencies that will shape the future of humankind and the stewardship of the biosphere that supports it. It brings together doctrinal and socio-legal analysis of the Australian superannuation system with the philosophical-ethical theory of Hans Jonas to propose an investment decisionmaking process that is consistent with the exercise of the care, skill, and diligence of a prudent superannuation fund manager acting in the best financial interests of the fund’s membership. The Australian superannuation guarantee system and its regulatory framework support a multi-trillion-dollar collective investment pool of investible capital that continues to grow at a considerable pace. Superannuation fund managers are responsible for making decisions on how their fund’s capital should be invested. In doing so, they are required to exercise the care, skill, and diligence of a prudent superannuation fund manager acting in the best financial interests of the fund’s membership. But their decisions also have the power to impact the social, political, and ecological exigencies that will shape the future of humankind and the biosphere that supports it. Hans Jonas observed that ‘[c]are for the future of [hu]mankind is the overruling duty of collective human action in the age of a technical civilisation that has become “almighty”, if not in its productive then at least in its destructive potential’. (Hans Jonas, The Imperative of Responsibility: In Search of an Ethics for the Technology Age, The University of Chicago Press, 1984, 136.) Perhaps nowhere is that destructive potential more evident than in the power afforded to superannuation fund managers to invest trillions of dollars of member entitlements on behalf of a cohort of largely conscripted superannuation fund members. At the time of the introduction of the superannuation guarantee, the esteemed British jurist Lord Browne-Wilkinson speaking at the February 1992 Australian National Conference for Lawyers on Superannuation noted that the way in which funds are invested can have ‘a critical impact not only on the members but also on the welfare of companies in whom the investments are made … and the national economy as a whole’. (Nicholas Browne-Wilkinson, Equity and its Relevance to Superannuation Schemes Today - presentation to the 1992 Superannuation Conference reprinted in M Scott Donald and Lisa Butler Beatty (Eds) The Evolving Role of Trust in Superannuation (The Federation Press, 2017) 64.) Given the now enormous and growing size of the investible pool of superannuation member entitlements, that observation can be extended to the global economy and indeed to the permanence of humankind and the biosphere that supports it. This study highlights the current state of legal indeterminacy in superannuation law in respect of what it means for a superannuation fund manager to make prudent investing decisions in the best financial interests of superannuation fund members.3 It distinguishes previous determinations of prudence and best interests. It proposes an interpretation of the role of a prudent superannuation fund manager grounded in the social purpose for which the superannuation system was introduced. It shows that, in making investing decisions, superannuation fund managers have an obligation to act in accordance with Jonas’ imperative that the effects of their actions are compatible with the permanence of genuine human life and the protection of humankind and the biosphere that supports it to that end. It endorses the application of investment ethics to propose a foundational ethical framework for an ethics of investment that is grounded in Jonas’ categorical imperative. It provides substantive guidance on how to act according to those principles and how to apply those principles to everyday investing decisions. Superannuation fund managers can, and should, adopt a new and substantive prudential approach to investment decision-making that incorporates ethical considerations and emphasises the importance of considering social and environmental impacts alongside financial returns. It argues for an ethics of investment and a supporting legal regime that acknowledges and legitimises the influence of prudent superannuation fund managers’ investing decisions on the future of humankind and the biosphere that supports it.

The Imperatives of Prudence and Responsible Investing: A critical analysis of the legal and ethical duties of a prudent superannuation fund manager

Files and links (1)

Abstract

Details

Metrics