Responsible super funds bigger and better than ever before

Experts say the Australian superfund market has reached new levels of sophistication and maturity 

Australian superfunds leading the responsible investing space are taking a bigger share of the market and financially outperforming their peers, new research shows. 

The latest Responsible Investment Association Australasia’s (RIAA) Super Study found that while 25 per cent of super funds are demonstrating leading practice of responsible investment, these super funds now hold 42 per cent of total assets, compared with 28 per cent in 2019.  

This leadership is defined as demonstrating commitment to good governance and accountability; implementing and measuring responsible investment approaches through activities such as engagement and environmental, social and governance (ESG) integration; properly measuring outcomes; and having a high degree of transparency. 

The report found that products from leading responsible investment super funds performed better on average than those of non-leaders over three, five and seven-year timeframes.

Simon O’Connor, the CEO of RIAA, told Pro Bono News that it was promising to see that companies were no longer just making vague commitments to responsible investing, but were actually putting in the work. 

“We’ve reached this new point of maturity and sophistication, and I think now is the point where that is starting to translate through to helping to deliver better financial returns for members as well,” O’Connor said.

“There’s a really clear distinction there between those leaders and the returns they’re making on their average super product and the non-leaders.

“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.” 

The fight to catch-out green-washing ramps up 

As ethical and responsible investing has become increasingly popular with consumers, it has coincided with a rise in the number of companies stretching the truth around the impact they are having on the environment or other social issues.

But this has led to a bigger focus on catching out corporations greenwashing their products. 

“These days, financial regulators are looking at greenwashing, and there is consumer law around it as well,” O’Connor said.  

“So really, today more than ever, funds need to be able to really provide evidence and transparency on what they’re doing when they say they’re a responsible investor.”  

When it comes to transparency, the report showed there was still someway to go. 

Nearly 80 per cent of the country’s largest super funds still have work to do in terms of transparency if they are to meet new legislative requirements to disclose their portfolio holdings publicly, which are expected to go through in 2022. 

O’Connor said that the issue of transparency was a stain on the Australian market. 

“This is really an outlier from a global perspective. We as a market are really poor around this, and we see that transparency is really a fundamental pillar of good responsible investment,” he said. 

Read a full copy of the report here.