Asylum seeker facilities on Manus Island. The Australian Council of Superannuation Investors, which represents 30 non-profit super funds managing about $400 billion, has been putting pressure on Transfield to justify the governance risks associated with its detention centre business for more than a year. Other major industry funds represented on the ACSI board include: Media Super, UniSuper, Hostplus, Local Government Super, LUCRF, State Super, and QSuper. Transfield's largest shareholder, funds management firm Allan Gray, also has the company under review in light of alleged human rights abuses inside the offshore asylum seeker detention centres it operates on behalf of the Australian government, on Manus Island and Nauru. Allan Gray managing director and chief investment officer Simon Mawhinney said the firm has been closely reviewing the governance risks associated with its investment in Transfield Services for at least six months, and this review was continuing. He manages an almost 19 per cent stake in Transfield of about $107 million.

HESTA chief executive Debby Blakey said: "There is also a significant quantum of evidence that there have been numerous sexual and physical assaults in the detention centres operated by Transfield Services". When asked if his firm was concerned about reports of human rights violations occurring inside the asylum seeker processing and detention centres operated by Transfield Services on Manus Island and Nauru, Mr Mawhinney said: "Over our 42-year history, we have always taken matters like this seriously. We are in regular contact with stakeholders of the companies we own, including the boards and management, and Transfield Services is no exception". Many professional investors argue they can be more effective in influencing good corporate citizenship in companies of which they are part-owners, than they could by divesting. Mr Mawhinney said shareholders could often play a role in driving positive change. "We will continue to engage constructively," he said.

Jason Beddow is the managing director of the $5 billion listed investment company Argo Investments, another significant investor in Transfield. He warned that divesting assets based on ethical grounds was fraught. "We have 80,000 shareholders and get plenty of correspondence from people who are against this or that but if you started making investment decisions based on every individual concern, we wouldn't be able to invest in anything," he said. The scrutiny on Transfield has stoked a wider debate about what price super funds should place on ethical dilemmas, and how they can balance this with their legal obligation to act in the best interest protecting the retirement savings of their members. Assistant Treasurer Josh Frydenberg weighed in to the debate on Friday. "You would hope that HESTA was making decisions based on the best economic interests of its members," Mr Frydenberg said when asked his view on HESTA's announcement this week that it had chosen to divest from Transfield Services after a long campaign by unions protesting against the company over its offshore detention centre contracts.

"They have to be accountable and transparent to their members for that, and explain their motivations," Mr Frydenberg said when asked if he thought it was a worrying trend to see more industry super funds considering divestment action. "If I was a member of HESTA I would want to know they were making decisions in my best financial interests". Mr Frydenberg said he hoped to see his reforms tabled this week to force union-aligned industry super fund boards to appoint one-third independent directors will "help protect people's hard-earned retirement savings". HESTA is a member of the Principles for Responsible Investment, an international collective of pension fund investors with a combined total of about $59 trillion in assets under management, that advocates funds are actually in breach of their fiduciary duties if they do not consider governance risks. "Maximising risk-adjusted returns is at the heart of a trustee's fiduciary duty. If funds don't analyse all long-term risk factors in the business then they are not meeting that obligation," said PRI managing director Fiona Reynolds during a visit to Australia this month.

HESTA chief executive Debby Blakey said the decision taken by the $32 billion health industry fund to exit its investment in Transfield was ultimately based on financial rather than ethical considerations and came after more than a year of engaging with the company's management team and directors on the issue. She said claims of human rights abuses inside the offshore detention camps exposed the company to a heightened risk of future litigation that could harm its long-term share-price performance. "A substantial body of evidence pointing to the negative impacts of prolonged mandatory detention of asylum seekers" and "evidence that there have been numerous sexual and physical assaults in the detention centres". "Strict confidentiality clauses in Transfield's government contracts meant the company was unable to answer questions we needed answers to," Ms Blakey said. However, a Victorian nurses union is among campaigners that have claimed victory for pressuring HESTA and First State Super, another top-10 industry fund with many nurse members, to sell out of Transfield.

Offshore asylum seeker processing is a policy that was initiated by and has the bipartisan support of the Labor opposition. Greens senator and immigration spokeswoman Sarah Hanson Young applauded HESTA for dumping Transfield. "It is encouraging to see companies who have shares with these government contractors questioning whether they can afford to be linked to the serious allegations of sexual assault, child abuse and harm," Ms Hanson-Young said. Greens leader Richard di Natale last week called for a federal police investigation into allegations Wilson Security guards employed by Transfield covertly filmed Senator Young inside her hotel room during a visit to Nauru to inspect conditions inside the asylum seeker camp. Last week, Transfield briefed analysts and investors and released a statement defending its track record and talking down the seriousness of some of the abuses alleged to have occurred inside the detention centres.

"Transfield Services has a clear code of business conduct and is committed to openness and transparency in its dealings with all stakeholders. The care and wellbeing of asylum seekers in particular is paramount," the statement said. It is expected that Transfield will now face a grilling from analysts and investors over accusations of misconduct by detention centre staff and contractors aired in the press and before a Senate inquiry over recent months when it hands down its latest full-year results on Thursday. Detention centre contracts are an increasingly important source of revenue for the company and have been a boon as the engineering and services group reshapes itself in the wake of the collapse of the mining construction boom that previously fuelled its growth. Between being awarded the $1.2 billion government contract to run the detention centres in February 2014 and February this year, the stock rocketed up 141 per cent. However ,it has pulled back 45 per cent since then, having lost more than a third in value since the first Senate hearing in May. At Friday's close the shares were fetching 98.5¢.

Of the nine financial analysts that cover Transfield Services ,three rate it a "buy", five "neutral", and one "cautious", according to Bloomberg data. Most analysts estimate the detention centre contracts contribute 15-20 per cent of the company's total revenue, which was $1.9 billion in the last half. In May, Macquarie Group analysts estimated the importance of the detention centre contracts to profitability could be as high as 50 per cent, although that was expected to eventually stabilise near 25 per cent. The biggest worry investment banking analysts have about Transfield's detention centre contracts is not the potential for social governance problems to come back to bite them, but what would happen if the company lost the work. However, consensus opinion is that it is a strong incumbent provider and will be able to regain the contract when it comes up for tender. In fact Transfield has emerged clearly as the government's detention centre contractor of choice, picking up contracts from Toll Logistics, Save the Children, G4S and the Salvation Army.

And for every super fund that decides to sell its Transfield shares citing a lack of sustainability in its detention centre division, there is likely to be a buyer delighted to pick up the stock at a discount. With Sarah Whyte and Patrick Durkin