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Who is responsible for ethical risk? Workers’ capital and dilemmas for ethical investment campaigns

by Claire Parfitt on September 22, 2014
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Pension funds are big money. Sometimes referred to as workers’ capital, these funds control around US$30 trillion globally. Australia, with its compulsory superannuation scheme, accounts for almost AU$2 trillion. By 2030, Australian superannuation funds are predicted to control some AU$6 trillion.  I presented a paper at the Historical Materialism Australasia conference in Sydney earlier this month (5-6 September 2014), raising some strategic questions about how social movements engage with workers’ capital.

The democratising potential of workers’ capital has sometimes been used as a justification for privatising retirement security and the integration of workers’ interests into financial markets. This potential has been somewhat over-stated. It is true that institutional investors, especially pension funds, have rapidly increased in size and market share over recent decades. But this shift in the ownership of capital has not resulted in a shift of control. In Australia, some superannuation funds provide scope for workers, through their unions, to have an influence on investment strategy. In practice, this influence is very limited.

There is a substantial public interest in the investment decisions of the pension / superannuation fund sector. In addition to the long-term implications for retirement security, investment strategies in this sector have an impact on workers’ immediate daily lives. The companies for which we labour, the social and physical infrastructure on which we depend, and the natural environment in which we live, are all impacted by these investment decisions.

This is increasingly a matter of popular debate in Australia. A 2013 research report by the Australia Institute found that almost half of Australian workers wanted their superannuation fund to take ethical and environmental issues into account when investing. Various trade unions, non-governmental organisations, activists and social movement organisations have sought to leverage the power of superannuation funds to advance particular political projects. These initiatives focus on a wide range of issues including environmental objectives such as fossil fuel divestment; human rights breaches in Australia’s migration policy; industrial relations and workplace health and safety; health policy and tobacco divestment. There is also some diversity in the approach to divestment. Some campaigns focus on changing individual investment decisions. The NGO Market Forces, for example, advocates action by individual superannuation fund members to promote fossil fuel divestment. By contrast, recent campaigns to encourage divestment from the mandatory detention industry take a collective approach through trade unions. Similarly, a workplace health and safety campaign against construction company Grocon was based on the exercise of collective power.

Whilst some investment and divestment campaigns result in intermediate victories, they also raise a range of dilemmas and contradictions. Some of these can be understood through the frame of financialisation.

Financialisation is an emerging, highly contested and nebulous concept. For present purposes, I limit my engagement with financialisation debates to the relationship between labour, capital and risk. Much of the financialisation literature to date has focused on the use of debt as a kind of safety valve in response to increased economic risk. This means workers’ increasing reliance on loans and credit cards to pay for basic necessities like health care and education, as labour’s share of economic output decreases. In Australia, household debt is currently most tightly linked to increases in housing costs. In May 2014, it was estimated that Australian households owed around AU$1.8 trillion to banks and other lenders—about the same amount as is held in superannuation funds.

Some of the most important research on the financialised dynamics of risk in the Australian context is by Michael Rafferty and Serena Yu in a report for the ACTU entitled “Shifting Risk”. The privatisation of retirement security is a key element of the risk shift Rafferty and Yu identified. In Australia, it is arguably the most politically and economically significant element given the size of the superannuation sector, the magnitude of the contributions made on behalf of each worker and the influence of the funds on capital markets in Australia and overseas.

Arguments in favour of ethical investment by superannuation funds often rely on the fact that workers are impacted by externalities of business activity including environmental degradation, and abuse of labour and human rights. A crucial contradiction is that workers as investors have conflicting interests. High-risk business activities which create social, political, economic and ecological instability—and externalised costs—can deliver higher investment returns.

This exposes a flaw in the individualised approach to injustice facilitated by many ethical investment initiatives. As with calls for ethical consumption, ethical investment often focuses on the notions of personal responsibility and choice, demanding that we vote with our dollars. What this approach fails to grapple with is the class character of workers’ experience of these injustices and the necessity for a collective, class-based response. Workers’ capital promises, in some ways, to alleviate conflict between capitalists and workers. Through pension fund investments workers become owners, they share in profits, workers’ interests appear to be intertwined with those of the capitalist. In fact, labour and capital cannot be on the same footing. Workers cannot be separated from the impact of business activity in the same way that capitalists can enjoy limited liability.

Many activists and progressive organisations are devoting time and energy to working on ethical investment / divestment campaigns. There may well be merit in this work. But if we are to effectively engage in it, it is crucial to understand its limitations. In particular, the question of who should bear the responsibility of managing ethical risk is fundamental to ensuring that the concept of class is central to these debates. This is one of many dilemmas for ethical investment campaigning that I look forward to exploring in pursuit of my doctorate.

Claire Parfitt
Claire Parfitt is a PhD candidate in the Department of Political Economy at the University of Sydney. Claire practised industrial and anti-discrimination law before moving to the trade union movement as a researcher and campaigner. She has worked for Australian and international trade unions and the environment movement on various campaigns related to labour rights, food sovereignty and climate change. She is writing about pension funds, ethical investment and strategic questions that arise for social movements.

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