New research by the Responsible Investment Association Australasia (RIAA) has pinpointed outperformance for super funds with leading responsible investment practices.
The Responsible Investment Super Study 2023 found that the MySuper products, of those deemed by the RIAA to be “responsible super fund leaders”, delivered a better average net return than “non-leaders” over three, five and eight-year timeframes.
A total of 10 responsible super fund leaders were named by RIAA in its latest study: Australian Ethical Super, AustralianSuper, Aware Super, CareSuper, Cbus Super, HESTA, Future Super, Rest, Telstra Super, and UniSuper.
Leaders had an average net return of 7.65 per cent over three years, 6.09 per cent over five years, and 6.75 per cent over eight years, versus non-leaders with a return of 7.54 per cent over three years, 5.67 per cent over five years, and 6.30 per cent over eight years.
“Aussies that are choosing to align their super with their values are not losing out on returns, demonstrating that strong financial performance and investing ethically are not mutually exclusive,” said RIAA research manager Dr Zsuzsa Banhalmi-Zakar.
According to RIAA, responsible super fund leaders commit to good governance and accountability, implement and measure responsible investment approaches through activities such as engagement, voting and ESG integration, regularly measure outcomes, and exhibit a high degree of transparency.
Responsible super fund leaders now hold a record $783 billion, $40 billion higher than in 2021. Leaders were found to have gained slightly more clients (+8 per cent) than their non-leader counterparts (+6 per cent) in the year to 30 June 2022.
Products offered by leaders were found to have a 60 per cent lower weighted average carbon intensity compared to non-leaders, when counting scope 1, 2, and 3 emissions.
Forty-two per cent of the super funds assessed by RIAA now have portfolio targets aligned with the Paris Agreement to reach net zero by 2050, up from 34 per cent in 2021.
“It is crucial for investors to be cognisant of the risks and opportunities created by the transition to a lower carbon economy, so we are encouraged that more and more Australian super funds are applying a range of climate metrics across their portfolios,” said Grover Burthey, head of ESG portfolio management at PIMCO.
“This can enable better preparation for any market repricing associated with the low carbon transition.”
RIAA identified mandatory portfolio holdings disclosure as the most significant legislative change shaping the super sector in recent times.
Due to legislation which came into effect in March 2022, 100 per cent of the super funds assessed for RIAA’s study now disclose their portfolio holdings. In comparison, 62 per cent of funds in 2021 only published their top 20 holdings or less.
“Australians are now better equipped to determine which companies and funds their super invests in and decide for themselves if it measures up to their values. Transparency of super fund portfolios is essential to monitoring potential greenwashing, although the current legislation does not include all underlying holdings,” said Dr Banhalmi-Zakar.
“There is, of course, room to improve transparency practices elsewhere. For instance, only 30 per cent of super funds publish voting records and even fewer publish their voting intentions before voting.”
In its study, RIAA also highlighted the recent consolidation within the super industry driven by the Your Future, Your Super (YFYS) regime. APRA-regulated entities amounted to 76 super funds or trustees in 2022, compared with 167 in 2020.
“The result of this shift is a leaner, more resilient landscape that positions super funds to navigate challenges,” Dr Banhalmi-Zakar said.
“RIAA is still concerned that the way the YFYS performance test is currently structured will disincentivise long-term sustainable investment approaches such as funds shifting their investments towards net zero commitments and reduced emissions. We continue to engage constructively with Treasury on a solution.”
Jon Bragg is a journalist for Momentum Media's Investor Daily, nestegg and ifa. He enjoys writing about a wide variety of financial topics and issues and exploring the many implications they have on all aspects of life.