Australia’s largest super funds have increased their financial interest in responsible and ethical investing by providing a greater number of investment options in these areas.
A new report from the Responsible Investment Association Australasia (RIAA) shows that nearly half of super funds offer a total of 75 responsible investment options, compared with 24 funds offering just 54 options in 2016.
The RIAA says responsible investors consider investment risks such as pollution or climate change, the health and safety of local communities, corporate governance and ethical issues.
The study, known as the Super Fund Responsible Investment Benchmark Australia, is in its second year. It aims to get a better view of how funds are embedding responsible investment strategies within their businesses.
RIAA chief executive Simon O’Connor says a number of recent case studies on corporate ethical behaviour have helped bring ESG issues to the fore. Several academic reports have shown how ESG investing helps improve risk-adjusted returns and, as such, more companies are realising the investment risks associated with making unethical investment choices, he adds.
“This [academic reports] have been really helpful in making the case for responsible investment at the committee level and getting trustee directors onboard with making a clear linkage to core investment risks,” O’Connor says.
He says most of the leading super funds in Australia have also been hearing regularly from their members on issues of ethics, values and sustainability.
“Many super funds we talk to will say that one of the most common enquiries they get from members now is around these ESG issues, second only to members losing their online logins,” O’Connor says. “The number of issues has stepped up, to include tobacco, fossil fuels, climate change and human rights, and the list goes on. All of the funds have had this put on their radar by their members and so that’s strengthened responsible investment practices within funds as well.”
The RIAA has further research to support the idea that Australians generally want to know that their investments are not causing harm to the world. For example, a 2017 association study showed that 9 in 10 Australians expect their super or other investments to be invested responsibly and ethically.
O’Connor says outcomes from the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry are also contributing to a greater focus on ethical business practices and investment.
“The royal commission’s focus is only going to continue to push consumer interest in where their money is banked and invested, and where their retirement savings are invested,” O’Connor argues. “We see that a responsible approach to investing is one really important part of finance rebuilding trust with consumers.”
In line with this, 81 per cent of Australia’s largest super funds stated in the responsible investment survey that they are committed to responsible investment, up from 70 per cent in 2016.
Top of mind for large funds
Some of Australia’s largest super funds are RIAA members and so are considerate of ESG investing, including AustralianSuper, Cbus, Colonial First State and Hesta.
For example, AustralianSuper has an investment option called Socially Aware that holds shares of companies that aren’t invested in fossil fuels, have not been flagged for labour rights issues, produce no tobacco and do not have boards that are all male or female, among other characteristics.
“We incorporate ESG considerations into our investment process to maximise long-term returns to members,” AustralianSuper spokesperson Stephen McMahon says. “So our focus on ESG can also influence improved ESG behaviours and outcomes for our investments.
“AustralianSuper predominantly seeks to engage and influence companies through our stewardship activities. A key stewardship activity is voting…As a large investor, it presents a significant opportunity to improve governance and other aspects of ESG performance.”
HESTA also has a long-term commitment to responsible investment across its portfolio, which it integrates into investment decision-making.
“Responsible investment plays an important role in improving the practices and performance of the companies in which we invest, which we believe will improve long-term performance for our members and support a healthy economy, environment and society,” HESTA executive of investment execution Rob Fowler says. “To see that so many funds are now recognising its important impact is positive.”