Retirement
Super funds investing in ESG outperform peers
Australian superannuation funds engaging in environmental, social and governance strategies are outperforming their peers on a one, three and five-year time frames, new research has found.
Super funds investing in ESG outperform peers
Australian superannuation funds engaging in environmental, social and governance strategies are outperforming their peers on a one, three and five-year time frames, new research has found.
The study by the Responsible Investment Association Australasia (RIAA) has shown the results of an annual survey of Australia’s 57 largest super funds, accounting for $57 trillion in assets under management.
The study compared MySuper performance for funds employing responsible investing against the MySuper options of the funds that are not.
The 34 responsible investing funds had an average return of 7.33 per cent, slightly above the returns of non-responsible investing funds, which returned 7.31 per cent.
Over a three-year horizon, responsible investing (RI) funds outperformed non-responsible investing (non-RI) funds, 9.06 per cent compared with 8.65 per cent.
The five-year average had the greatest divergence – RI funds gave 8.14 per cent, while non-RI funds produced 7.7 per cent.
The majority (81 per cent) of funds have committed to responsible investment, up from 70 per cent three years ago. They offer a total of 88 responsible investment options – compared with 24 funds offering 54 options in 2016. Retail funds offer the largest variety of RI options per fund.
Over half (61 per cent) have at least one negative screen across the whole fund, up from a mere 34 per cent in 2016, with the most popular exclusions being tobacco and armaments, followed by fossil fuels.
Further, 72 per cent of funds report annually on their responsible investment activity, up from 44 per cent in 2016 – which the RIAA says reflects the practice being increasingly embedded in the Australian investment markets.
“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,” says CEO Simon O’Connor.
Stars of responsible investing
The report highlighted 13 funds as leaders in responsible investment: Australian Ethical, AustralianSuper, CareSuper, Cbus, Christian Super, First State Super, Future Fund, Future Super, HESTA, Local Government Super, UniSuper, VicSuper and Vision Super – alongside New Zealand Super Fund.
Their average one-year return of 8.11 per cent beat the other 41 funds’ average of 7.07 per cent and the benchmark average for the 54 funds of 7.32 per cent. For three years, they produced 9.81 per cent, compared with the others’ 8.62 per cent and the benchmark of 8.9 per cent.
The leaders’ five-year return of 8.71 per cent was almost a full percentage ahead of the others’ 7.74 per cent and above the benchmark of 7.98 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,” Mr O’Connor said.
“This reinforces how important the considerations of environmental, social and corporate governance factors are to delivering the best possible outcomes for super fund members.”
“This reinforces how important the consideration of ESG factors is to deliver the best possible outcomes for super fund members,” he continued.
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