Just over 60 per cent of super funds have an exclusionary screen across their entire portfolio, with tobacco and controversial weapons the most common targets, according to RIAA.
Of the 53 super funds analysed by the Responsible Investment Association of Australasia (RIAA), 32 (60 per cent) have at least one negative screen across the whole of the fund.
That’s up from 17 out of 50 funds (34 per cent) in 2016, according to RIAA’s Super Fund Responsible Investment Benchmark Report 2018, released last night.
The number of super funds that completely screen out tobacco has doubled in two years from 14 to 28, which the RIAA credited to oncologist Dr Bronwyn King and her activist group Tobacco Free Portfolios.
Fourteen super funds are now screening out armaments/controversial weapons, up from eight in 2016’s RIAA report.
Six funds have negative screens for fossil fuels and human rights, while seven other issues are confined to two or three funds (they include animal cruelty, gambling, logging of old growth forests and uranium/nuclear power).
While divestment is gaining traction for issues like tobacco and controversial weapons (such as cluster munitions and landmines), the most popular approaches to responsible investment are ESG integration, corporate engagement and shareholder action.
According to the RIAA report, 70 per cent of the 53 funds oversee ESG risks and opportunities at the board level.
Risk associated with climate change is making it onto board agendas of super funds, with 64 per cent of fund including an explicit focus on climate risk.
But the RIAA noted that up to one-third of super funds are not actively considering climate risk in the face of “increasing materiality” – despite indications from APRA that it expects as much from trustees.
Only a handful of super funds have decarbonisation targets relating to their business and investment portfolios, according to the report.
When it comes to stewardship, 43 per cent of super funds indicate they are involved in direct company engagement – up from 30 per cent in 2016.
Only 13 of the 53 funds included in the report fully adhere to the RIAA’s ‘five pillars’ assessment framework for responsible investment.
Those 13 funds are: Australian Ethical, AustralianSuper, Cbus, Christian Super, First State Super, the Future Fund, Hesta, Local Government Super, Mercer Superannuation, NZ Super Fund, Unisuper, VicSuper and Vision Super.
Commenting on the report, RIAA chief executive and co-author Simon O’Connor said it showed Australia’s biggest super funds are flexing their muscles with companies.
“Super funds are realising that a responsible investment approach and shareholder engagement on ESG and ethical issues positively impacts financial performance, and improves accountability to their own clients,” Mr O’Connor said.
“The royal commission has highlighted the importance of financial institutions putting their clients first, and fully considering their needs and interests – a key element of a responsible investing approach,” he said.
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