Australian fund managers incorporate environmental, social and governance (ESG) factors to a greater degree than their global peers, Lonsec Research has found.
The company’s Responsible Investment Sector Review found that 58 per cent of active Australian equity funds rated at least ‘moderate’ on an ESG basis, with 0.6 per cent receiving the highest possible rating.
“Australian equity funds certainly look to be adopting ESG assessment into the investment decision,” said Lonsec Research Senior Analyst Steve Sweeney.
“Overall, it is an encouraging trend and supportive of the long term alpha opportunity from ESG analysis, but of course there are always opportunities for funds to improve their ESG focus.”
Global active managers did not rate as highly, with only 45.5 per cent receiving a rating of ‘moderate’ or ‘moderate/high’, and none receiving a rating of ‘high’.
Additionally, 38.1 per cent of global managers received a ‘low’ rating, compared with 21 per cent Australian active equity managers.
The ESG ratings were based on a broad number of factors, Mr Sweeney explained.
“For example, does the fund manager have an ESG Charter or Responsible Investment policy that governs the investment process? Do they implement ESG analysis and does this flow through to their conviction or valuation? Do they seek alpha opportunities based on ESG factors? These all impact on the overall rating,” he said.
Mr Sweeney also noted that responsible investment strategies have recently had better returns than the ASX300 accumulation index in recent years.
Responsible investment equity strategies returning 1 per cent over the past year, and 9.1 per cent over the previous 5, compared with the ASX300 Index’s -5.8 per cent and 5.4 per cent for 1 and 5 years respectively, he said.