Thirteen Australian super funds have been labelled responsible investment leaders in a report released late last week.
The report by Responsible Investment Association Australasia (RIAA) has assigned top performer status to Australian Ethical, AustralianSuper, CareSuper, Cbus, Christian Super, First State Super, Future Fund, Future Super, HESTA, Local Government Super, Unisuper, VicSuper and Vision Super. NZ Super Fund also made the list.
The report, which compared the MySuper performance of Australia’s 57 largest superannuation funds that have committed to responsible investment against those that had not, also showed that responsible funds were outperforming conventional funds.
It’s only a slight increase on the average return for one year (7.33 per cent for the responsible funds versus 7.31 per cent for the non-responsible funds) but the margins increased with longer time frames. Over five years, the responsible funds had an average return of 8.14 per cent, beating non-responsible funds with 7.70 per cent.
“The outperformance of responsible investment super funds is even more stark when we considered the performance of our Super Study leaders against the performance of the non-leaders, with outperformance of about 100 basis points over each of the three time periods,” RIAA chief executive officer Simon O’Connor said.
“This reinforces how important the consideration of environmental, social and corporate governance factors is to delivering the best possible outcomes for super fund members.”
The report found that a whopping 81 per cent of all 57 super funds included in the analysis have some form of responsible investment commitment in place, up by 11 per cent since 2016.
Negative exclusionary tactics, where investors exclude companies or industries they consider unsuitable for their responsibility goals, are on the rise.
The report found that 61 per cent of super funds screened against something across the entire fund, with fossil fuels now the third most excluded after tobacco and weapons.
There’s been a huge jump in the number of internal employees with explicit responsibility for responsible investment, with numbers quadrupling since 2016.
At the same time, 77 per cent of super funds identified external managers as having responsibility for responsible investment to some degree, up from 70 per cent in 2018.
Climate change risk is starting to infiltrate the board level, with the topic regularly on the agenda for 18 per cent of the funds surveyed.
There’s still room for improvement on reporting, with only two of the funds reporting against the Task Force on Climate-related Financial Disclosures at November 2019.
“We are encouraged to see a doubling of super fund boards systematically considering climate risk, however, there’s possibly still three-quarters of trustee boards inadequately accounting for climate in the face of increasing materiality, relevance and rising regulatory expectations,” Mr O’Connor said.
The analysis also found that quantifiable performance targets are still hard to come by, with only 25 per cent of super funds with performance targets for their responsible investment strategy. This figure has not risen since 2018.
“These targets vary from reducing carbon intensity and ensuring voting of a certain percentage of shares, to using the Principles of Responsible Investment reporting as a standard for measuring performance.”
According to the report, the failure to set targets could in part explain the gap between strong responsible investments commitments from super funds and a weaker performance record in implementation.
Company engagement is increasing, with formal engagement policies and processes in place at almost half of the investigated super funds. Unfortunately, more than half do not disclose engagement activity or outcomes.
Other key findings include:
- 39 per cent of funds report that responsible investment influences strategic asset allocation
- 65 per cent of funds employ asset consultants with responsible investment expertise, up from 55 per cent in 2018
- 26 per cent of funds task investment managers with executing voting policies in alignment with their investment beliefs and strategy
- Three funds voted independently of board and proxy voting advisers on at least 10 per cent of occasions
- 60 per cent of super funds indicate they conduct formal internal reviews to ensure that their responsible investment policy is in alignment with the fund’s overall strategies and investment beliefs
UPDATE: A previous version of this article stated the incorrect figures for the average returns of both responsible and non-responsible funds over five years. The correct figure over five years is the responsible funds had an average return of 8.14 per cent, beating non-responsible funds with 7.70 per cent.