Smaller superannuation funds may not have the capacity to implement environmental, social and governance (ESG) policies but early adopters could help their plight, an association chief said.
The Financial Services Institute of Australasia (Finsia) released step-by-step guidelines yesterday to eliminate super fund trustee uncertainty with ESG policy implementation in the investment decision making phase.
"For many funds, not all of them will have the scale and resources of the big industry funds to be able to implement this analysis or have the clout in the industry to ask investment managers and analysts the right questions," Finsia chief executive Russell Thomas said.
"But scale allows early movers and innovators in the space to be leaders and they also help the industry create a series of intermediaries and mezzanine providers of services that can then be accessed by smaller funds."
Successful and vocal super funds in ESG are encouraging the next step of implementation at a time where funds are facing cost pressures and also a greater scrutiny on governance broadly, Thomas said.
"We've had the debate about ESG, we understand it and have the evidence of the impact that good ESG analysis can have on investment decision making and therefore returns," he said.
"It's [now about] taking the market leaders and sharing the insights across the industry [to] both big and smaller players."
He said Australia still needs to reach the levels of insight and implementation seen in Western Europe and the United Kingdom as the scale and strength of Australia's super industry provides a compelling argument for broad-based implementation.
Finsia employs the United Nations Principles for Responsible Investment (UNPRI) and aims to thread them through on the ground level of investment decision making.
"The UNPRI is a masthead for clarity of purpose, has been an important galvanising force therefore funds and participants, both here and abroad, have come to understand the merits of ESG organically," Thomas said.
"It's been a preferential approach to the so-called 'mainstreaming' of ESG investment decision making rather than a top-down regulatory response."
