Australian super funds that employ responsible investment strategies have outperformed their competitors over one, three and five-year time frames, fresh data from Responsible Investment Association Australasia (RIAA) has confirmed.
This year, the RIAA analysis compared the MySuper performance of super funds that have committed to responsible investment against those who had not.
It found that the average return of the 34 RI fund assessed was 7.33 per cent for one year, slightly above the 20 non-RI funds’ 7.31 per cent. For the three-year average, RI funds produced 9.06 per cent, beating non-RI funds’ average of 8.65 per cent. The five-year average had the greatest divergence with RI funds achieving 8.14 per cent versus a 7.7 percent return for non-RI funds.
The report identifies 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 to the the rest of the sample which achieved 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 point higher than the 7.74 per cent. delivered by the non-leaders.
The latest study presents the results of an annual survey of Australia’s 57 largest superannuation funds – accounting for $1.75 trillion in assets under management.
“This year’s report shows that Australia’s largest superannuation funds – including industry, retail, corporate and public sector funds – are ramping up their engagement in responsible investing to drive superior financial performance, reduce risk, and deliver better outcomes for their members and beneficiaries,” said Simon O’Connor, chief executive of RIAA.
The study found that 81 per cent of Australia’s largest super funds are committed to responsible investment (up from 70 per cent three years ago) and 72 per cent report annually on responsible investment activity, up from 44 per cent.
However, more than half of the funds involved in corporate engagement are not publicly reporting on their activities. “Many of our largest super funds are still not showing clients how their money is being invested on their behalf,” said O’Connor. “Just 12 per cent of super funds publish their full equities holdings.”
The report also shows that in the face of rising public concern and increasing financial materiality of climate change, the consideration of climate risk by asset owners continues to grow. O’Connor said he was encouraged to see a big step up in super fund boards actively assessing and supporting climate-related resolutions put forward at the latest annual general meeting season.
“Super funds are increasingly using their ownership in this way, with some super funds choosing to co-file resolutions on a range of issues including the human rights of asylum seekers, the protection of workers from labour abuses, and the membership of industry associations whose advocacy is inconsistent with the Paris Agreement,” he said.
RIAA data puts Australia’s responsible investment market at almost $1 trillion in 2018, a 13 per cent jump on the previous year. Almost half of all professionally managed money in Australia is now classed as responsible investment. The RIAA chief said the prudential regulator’s strong response to ESG integration and risk mitigation in response to climate change had helped growth. However, O’Connor also said that funds were weaker this year on the social part of ESG, despite many funds increasingly reporting against the United Nation’s sustainability development goals (SDGs).
Funds are now measuring exposure to the SDGs and the leaders are translating that into impact measurement, he said.