ESG question answered: ‘green’ super funds outperform

The Responsible Investment Association of Australasia delivered an early Christmas present for ESG investors and trustees alike, confirming the long-debated question as to whether ‘green’ or ‘responsible’ super funds outperform.

The answer was a resounding yes for those funds that are categorised as leaders according to the RIAA’s extensive survey and due diligence process. The findings, reported in their Responsible Investment Super Study for 2021, suggest that ‘responsible leaders’ outperformed the masses by 87 basis points over the 12 months to June 2021 and 56 basis points per annum over the last seven years.

Whilst the one-year performance should not be surprising given the power and momentum behind investments across battery materials, electric vehicles and technology, the seven year numbers may well give pause to those still questioning whether an ESG filter will detract or improve returns.

The survey undertaken by the RIAA, which is Australia’s leading expert on all things responsible by a wide margin, covered 48 superannuation funds regulated by APRA, spanning corporate and industry, as well as some faith-based options, with a total of $1.9 trillion in assets under management assessed.

The number of responsible leaders has grown to one quarter of super funds; however, such has been the popularity of the likes of Australian Ethical and Aware Super, that these funds now hold some 42 per cent of the total superannuation assets; a significant increase from the 28 per cent recorded in 2019.

Transparency of superannuation assets has come to the fore in recent months following the Federal Government’s introduction of a law that ultimately demands it. The RIAA survey also addressed this issue, with transparency a central tenet of being a leader, they found some 77 per cent of Australia’s largest super funds still have work to do on transparency.

Commenting on the strong and positive trends occurring, Simon O’Connor, CEO of RIAA said “Australians are realising the often superior financial performance of leading responsible investment super funds, and are moving their money to reap not only the benefits for society and the environment, but their retirement savings as well”.

This is reflected in the fact that some 92 per cent of funds indicated that climate risk is now actively assessed at board level, from 64 per cent in 2018 whilst responsible investment approaches, not just leaders, are now utilised in strategic asset allocation decisions by 55 per cent of the 48 funds.

The short list of funds that exhibit ‘good governance’, implement and measure sustainability and regularly engage and vote in important board meetings is as follows:

• Active Super
• Australian Ethical Super
• AustralianSuper
• Aware Super
• BT Superannuation
• CareSuper
• Cbus
• Christian Super
• HESTA
• Mercer Superannuation (Australia) Limited
• Rest
• UniSuper
• Vision Super

Drew Meredith

Drew is publisher of the Inside Network's mastheads and a principal adviser at Wattle Partners.