Australian business should cut less, grow more, fund manager says

The head of IFM Investors says the $140bn investment powerhouse will be pushing Australian company bosses to work on growing their businesses instead of focusing on cutting costs.

The chief executive, Brett Himbury, said IFM, which invests on behalf of Australian industry super funds and like-minded international pension outfits, also supports mining giant BHP’s new pledge to do more to curb carbon emissions.

Himbury was speaking as IFM, which is owned by union and employer group-controlled industry super funds, announced annual results which saw the retirement savings it manages surge by 31%, or $22m, after investors fled high-cost commercial operators following last year’s banking royal commission.

Over the past few years corporate Australia has cut deep in an effort to maintain its profit margins.

Telstra’s announcement last month that it would sack 10,000 contractors over the next two years followed hot on the heels of reports that the Commonwealth Bank was planning to lay off a similar number of employees.

The reports were partly denied by the CBA chief executive, Matt Comyn, but all four big banks have been cutting costs for years, and all but Westpac are now trying to shrink further by shedding the scandal-ridden wealth management and insurance businesses that sparked the Hayne royal commission.

Himbury said the balance between cost-cutting to create an immediate bump in profits and investing for long-term revenue growth would be one of the key themes IFM would be looking at as listed companies declare their full-year earnings over the next month.

“My sense is that there’s been a lot of focus on cost reduction, but in terms of optimising long-term enterprise value you’d want to make sure there are sustainable sources of profitable revenue growth that enterprises are looking at,” he said.

He said cost reduction can “only go so far”.

“We’re now the third largest equity manager, we’re investing on behalf of industry funds.

“As long-term investors, we’d probably be more focused on long-term revenue growth and less – still, but less – focused on cost, because we’re likely to be on the share register for a longer period of time.

“In that regard we’ll be encouraging and supporting – respecting the role of boards and management – but at the same time encouraging them to think long-term to improve the profitable revenue of their business.”

Himbury said IFM supported an ambitious plan announced last week by the BHP CEO, Andrew Mackenzie, to reduce carbon pollution that includes tying executive remuneration to emissions generated by its customers and setting up a US$400m fund to reduce its own impact on the climate.

“They, like us, believe that climate change is real, that carbon emissions are impacting climate change, and they like us believe we need to do more to get emissions down so that we can moderate the growth in warming and the potential significant consequences of that,” he said.

He said IFM preferred to “invest and actively manage” the carbon emissions of companies, rather than excluding enterprises from investment or dumping its shares in them.

“As long-term investors we have the capacity not just to provide capital but to influence the enterprises that that capital is going into,” he said.

“If over time our influence is not being responded to, we may well divest.”

He said it was “a bit harsh” to describe Australian business as a backwater in dealing with the climate crisis.

However, he lamented the frequent changes in federal government climate policy.

“It’d be better if we had more consistency,” he said.