Thanks for the opportunity to provide the perspective of the superannuation sector on the role that telework can play in building our economy.
My focus today will be on talking about why telework represents an investable opportunity for superannuation funds and, more specifically, how do we get to make that happen.
ASFA’s introduction to the world of telework has come through our engagement on infrastructure, most particularly transport infrastructure.
Superannuation funds invest about $50 billion in infrastructure. Our investments include airports, marine ports, toll roads, desalinisation plants, wind farms and gas pipelines.
Over the last 18 months we have been part of the national debate about how superannuation funds can invest more in infrastructure.
One of the core concerns of superannuation funds is that there is no shortage of capital when it comes to investing in infrastructure, but there is a shortage of good projects to invest in. Today we have the situation where some of our largest superannuation funds are actively seeking infrastructure investments overseas because there are literally no infrastructure investment opportunities here in Australia at the moment.
There is however the hope that state governments will establish infrastructure projects. In a constrained fiscal environment the role of superannuation and pension funds as an investor in these projects is critical.
ASFA has recently engaged both Federal and state governments around the challenge of investing in transport infrastructure. In particular we raised the recent experience superannuation funds have had investing in toll roads, which ultimately resulted in the funds losing millions of dollars due to traffic forecasts that proved to be way-off the actual traffic.
In examining transport infrastructure opportunities ASFA has looked at the example of Melbourne and the range of suggested transport infrastructure proposals that include new toll roads, railway extensions and addressing railway level crossings.
Melbourne has a population around 4 million. Over the last eight years the city’s population has increased by almost 10 per cent. The Committee for Melbourne has raised the prospect that Melbourne’s population would be 8 million in 2050. If we consider that some of Melbourne’s core infrastructure was laid down in the 1880s, the Frankston line, if Melbourne is to address future growth it needs to plan.
There is already congestion in Melbourne but according to the Royal Automobile Club of Victoria the cost of congestion will rise to $6 billion a year by 2020.
Superannuation funds have an interest in addressing congestion because we are universal owners.
The universal owner hypothesis is based on the idea that improvements in productivity have the capacity to improve the operating environment for other investments. So it makes sense not only for superannuation funds to invest in projects directly to achieve our investment return objectives, but also because by reducing congestion, all the other investments in a superannuation portfolio benefit through increased productivity.
From the superannuation perspective there is a lot of merit in investing in supply side investments such as toll roads. However there is a limitation of supply side projects; that is, they all involve pushing the burden of the cost of transport onto users.
One of the key attractions of telework as an investment is that it actually reduces the cost on commuters. Because the ability of people to pay is a key element in a project’s profitability, this makes the investment more sustainable in the long term.
So let me talk about how investments in telework could occur.
Just as building a toll road requires a high degree of government intervention, a shift to telework is going to require the same kind of commitment.
While there is nothing stopping commercial providers establishing smart work centres, from the superannuation perspective, they lack scale; it is in some ways easier to invest $100 million than it is to invest $500,000 on an individual centre. Establishing individual smart work centres will not create a network effect. There is no doubt that a market will develop for smart work centres, but it will occur at a rate that will not be sufficient to address congestion.
One option to address congestion is a network of smart work centres across the city. This network would need to be supported by State and Federal Government to support the early stage of operation. It will be these agreements – the equivalent to off-take agreements that exist when superannuation funds invest in wind farms for instance – that will be important in underwriting risk and unlocking superannuation capital.
As long-term investors, superannuation funds are conscious that climate change and carbon pricing can impact on the value of assets such as toll roads. A network of telework centres can offer superannuation funds the opportunity to invest in an asset that facilitates lower carbon emissions in the economy. This provides a hedge against other carbon assets such as toll roads, enabling a super fund to earn better risk adjusted investment returns over the long term.
The challenges for super funds in considering investing in a network of telework centres would be similar to the challenges of investing in a toll road project via a Public Private Partnership arrangement. The key to unlocking the potential for super funds to invest would be the willingness of Government to underwrite the future success of the network by, for instance, contracting with the network on the usage by Government employees of the network’s facilities.
Creating a network of telework centres does however require a shift in thinking, not just from investors but from policy makers, employers and employees. There is no doubt that there is some resistance to telework in some parts of the business community.
The reasons for this are complex. There may be legitimate obstacles to telework, including health and safety and data security concerns. These concerns can be removed through a professionally managed telework centre.
There is of course a great deal of investment uncertainty about building a network of telework centres. But this uncertainty is no less than investors have faced investing in other infrastructure projects such as toll roads and wind farms.
Ultimately the success of a telework network would be based on whether people use the centres. Over time, as businesses become more accustomed to teleworking as a normal part of business operations, the demand for teleworking arrangements by employees is likely to grow. Investing in a network of telework centres is therefore a long-term investment, one that is ideally suited to superannuation funds that are long term-investors.
While teleworking has the capacity to benefit workers through reduced commuting times and better family balance, to achieve the kinds of numbers that are needed to make this happen, a shift of thinking is going to be required. If we achieve that, then the benefits will flow across the economy, including to superannuation funds both through their direct investments and as investors in the real economy.