Super fund members increasingly want their investments have positive environmental and social outcomes, new research has shown.
A survey by financial house Franklin Templeton found that overall 88 per cent of fund members valued positive environmental, social and governance (ESG) objectives in superannuation.
There are two common types of ESG investment ‘overlays’ – negative and positive.
Negative overlays bar investment in certain activities like coal mining, gambling or armaments.
Positive overlays encourage investment in specific areas like clean energy or recycling.
A growing number of people favour positive investment by their funds, as the above table shows.
According to the Responsible Investment Association Australasia, this so-called ‘impact investing’ has experienced “an impressive growth rate of 72 per cent from 2017 to 2018 to a total of $13.8 billion in assets”.
“What’s interesting about the investor preferences uncovered in this survey is that they appear to reflect a shift in the current landscape of responsible investments in Australia,” said Matthew Harrison, managing director of Franklin Templeton in Australia.
“We’re seeing a growing appetite for responsible investments that aim to deliver a positive social or environmental impact alongside financial returns,” Mr Harrison said.
In a finding that could make a significant difference to member engagement in superannuation, a majority of respondents across all age groups (59 per cent) said they would pay closer attention to their super if their provider reported on the environmental and/or social impact of their investments.
“What these findings seem to be telling us is that people are not apathetic about their retirement finance,” Mr Harrison said.
“Communicating with people about how their investments might address environmental and social concerns may be a good avenue to strengthen member engagement.
“While there is growing discussion at the boardroom level about ESG issues and investing for impact, it is likely there is more that can be done to ‘join the dots’ for everyday Australians so they better understand the role their money can play,” Mr Harrison said.
“We believe asset managers, super fund providers and financial advisers all have a crucial role to play in this.”
The industry super fund movement adopts both approaches to ESG investing, with some using only an investment overlay across their portfolios.
Others offer the extra measure of allowing members to choose positive impact funds, while many retail funds also offer both types.
Regulators want change
“The superannuation regulator, the Australian Prudential Regulation Authority, has made it clear that super funds need to understand and assess material environmental, social and governance risks as part of their investment decision-making process,” said Eva Scheerlinck, CEO of the Australian Institute of Superannuation Trustees.
“Decisions made about ESG risks and what constitutes an ESG risk will differ with each fund, based on the fund’s investment portfolio and its membership profile,” Ms Scheerlinck said.
“But where there is evidence to suggest that an ESG issue, such as climate change or poor labour practices, could impact negatively on the financial returns of an investment , super funds need to consider this.
“Sometimes this may lead to a fund selling shares in a company but more typically funds seek to engage with the companies they invest in to improve practices and ensure there is adequate focus on long-term sustainability.
“Profit-to-member funds have a long history of out-performance and investing responsibly has helped drive this outcome.”
AustralianSuper offers a socially aware option “using strict screening based on environmental, social and governance standards as well as investing in a wide range of other asset classes”.
Another industry fund, REST, uses an ESG overlay to ensure all its investments comply with its ESG philosophy.
The New Daily is owned by Industry Super Holdings