Who are our best performing responsible super funds?

Australian fifty dollar banknote. The new 2019 issue bill is designed to deter counterfeiting, the note is polymer and water resistant with a clear holographic strip.

Thirteen Australian super funds have been labelled responsible investment leaders in a report released late last week.

The report by Responsible Investment Association Australasia (RIAA) has assigned top performer status to Australian Ethical, AustralianSuper, CareSuper, Cbus, Christian Super, First State Super, Future Fund, Future Super, HESTA, Local Government Super, Unisuper, VicSuper and Vision Super. NZ Super Fund also made the list.

The report, which compared the MySuper performance of Australia’s 57 largest superannuation funds that have committed to responsible investment against those that had not, also showed that responsible funds were outperforming conventional funds.

It’s only a slight increase on the average return for one year (7.33 per cent for the responsible funds versus 7.31 per cent for the non-responsible funds) but the margins increased with longer time frames. Over five years, the responsible funds had an average return of 8.14 per cent, beating non-responsible funds with 7.70 per cent.

“The outperformance of responsible investment super funds is even more stark when we considered the performance of our Super Study leaders against the performance of the non-leaders, with outperformance of about 100 basis points over each of the three time periods,” RIAA chief executive officer Simon O’Connor said.

“This reinforces how important the consideration of environmental, social and corporate governance factors is to delivering the best possible outcomes for super fund members.”

The report found that a whopping 81 per cent of all 57 super funds included in the analysis have some form of responsible investment commitment in place, up by 11 per cent since 2016. 

Negative exclusionary tactics, where investors exclude companies or industries they consider unsuitable for their responsibility goals, are on the rise. 

The report found that 61 per cent of super funds screened against something across the entire fund, with fossil fuels now the third most excluded after tobacco and weapons.

From RIAA’s Responsible Investment Super Study 2019

There’s been a huge jump in the number of internal employees with explicit responsibility for responsible investment, with numbers quadrupling since 2016. 

At the same time, 77 per cent of super funds identified external managers as having responsibility for responsible investment to some degree, up from 70 per cent in 2018. 

Climate change risk is starting to infiltrate the board level, with the topic regularly on the agenda for 18 per cent of the funds surveyed.

There’s still room for improvement on reporting, with only two of the funds reporting against the Task Force on Climate-related Financial Disclosures at November 2019.

“We are encouraged to see a doubling of super fund boards systematically considering climate risk, however, there’s possibly still three-quarters of trustee boards inadequately accounting for climate in the face of increasing materiality, relevance and rising regulatory expectations,” Mr O’Connor said.

The analysis also found that quantifiable performance targets are still hard to come by, with only 25 per cent of super funds with performance targets for their responsible investment strategy. This figure has not risen since 2018.

“These targets vary from reducing carbon intensity and ensuring voting of a certain percentage of shares, to using the Principles of Responsible Investment reporting as a standard for measuring performance.” 

According to the report, the failure to set targets could in part explain the gap between strong responsible investments commitments from super funds and a weaker performance record in implementation.

Company engagement is increasing, with formal engagement policies and processes in place at almost half of the investigated super funds. Unfortunately, more than half do not disclose engagement activity or outcomes.

Other key findings include: 

  • 39 per cent of funds report that responsible investment influences strategic asset allocation
  • 65 per cent of funds employ asset consultants with responsible investment expertise, up from 55 per cent in 2018
  • 26 per cent of funds task investment managers with executing voting policies in alignment with their investment beliefs and strategy
  • Three funds voted independently of board and proxy voting advisers on at least 10 per cent of occasions
  • 60 per cent of super funds indicate they conduct formal internal reviews to ensure that their responsible investment policy is in alignment with the fund’s overall strategies and investment beliefs

UPDATE: A previous version of this article stated the incorrect figures for the average returns of both responsible and non-responsible funds over five years. The correct figure over five years is the responsible funds had an average return of 8.14 per cent, beating non-responsible funds with 7.70 per cent.

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Comments

4 Responses to “Who are our best performing responsible super funds?”

  • B Foster says:

    Can I ask where you got this information from?
    Christian Super got “slammed” by APRA, continues to be investigated and is “bad red” – as is many of the others mentioned in this article.
    For people searching for a change, this article is “fake news” and contains many, many lies and not the truth.
    I was shocked to find this as the “go to link” for finding “the best super funds”.

  • Nigel Howard says:

    As I understand it only Future Super is 100% divested from fossil fuels and therefore investing in ways that protect our children/grandchildren and entire species from extinction. What does it take for existential threat to our entire species, crimes against humanity of genocide and ecocide by the current actions of corporations, for more than 7 funds to make this an investment priority. What does it take when the country is on fire and school kids are protesting in dust marks outside their schools. Corporate dissonance is as bad as government dissonance (and the non-existant Coal ition Lite “opposition” misnomer). its up to you readers – demand that your super is 100% fossil fuel divested or chang to a fund that is – I have no vested interest other than survivial for my kids/grandkids or even myself the way things are spiralling out of control.

  • John Millar says:

    What does it take to get removed from the ‘responsible’ list? from FutureSuper. : Some of Australia’s largest industry super funds, including Hesta and AustralianSuper, voted against a shareholder resolution that would have required Origin Energy to get consent from Traditional Owners to extract gas from land in the Beetaloo Basin, 600km south of Darwin. Their vote meant the resolution failed and Origin won’t have to get consent from the people who live in the Beetaloo Basin before mining the land. It is the most recent event in a multi-year battle between the local people and mining companies about fracking in the NT.

    Why it matters: Super funds talk a big game around issues like climate change, human rights and gender equality. Yet when it comes to backing up those words, many are all talk and no action.

    The bottom line: As corporate dealings are put into the spotlight, votes like this are increasingly risky for the reputation of industry funds. Everyday people, including those who own industry funds, are taking notice.

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