Super Funds Move Towards Responsible Investing

Australian super funds are increasingly prioritising responsible investing but have not yet grasped how to report this to members, according to new findings which come in the wake of a damning productivity commission report into the superannuation industry.

Responsible Investment Association Australasia last week launched their Super Fund Responsible Investment Benchmark Report 2018.

The report surveyed Australia’s 53 largest superannuation funds, finding that 81 per cent were committed to responsible investment (RI), up from 70 per cent in 2016.

Almost all of these funds identified a formal process for reviewing this policy and 74 per cent stated their RI commitments in a standalone policy or in their investment beliefs.

Congratulations to all of RIAA's #superannuation fund members that are recognised as leaders in responsible investment, in our 2018 Super Fund Responsible Investment Benchmark Report https://t.co/9jeCWNp9JM pic.twitter.com/4rFqjMMqIr

— RIAA (@RIAANews) May 31, 2018

RIAA CEO Simon O’Connor told Pro Bono News that super funds were beginning to “flex their ownership muscle” around responsible investing.  

“What come across really strongly in this report is that superannuation funds in Australia have moved from just making very high level commitments to supporting responsible investing to actually being able to demonstrate what this means in practice,” O’Connor said.

“And so we see much more evidence now of how super funds are really putting into practice these commitments to consider sustainability-related issues in the way they do their investments.

“It’s been really pleasing to see how this has translated into the outcomes of superannuation funds. They seem much more willing to flex their ownership muscle to influence corporate behaviour at the companies they’re invested in around environmental and social issues in Australia.”

O’Connor said while super funds were beginning to take a shared value approach to their business strategy, there was still a way to go before shared value was embedded across the whole industry.

“I think we still see some way to go before the super funds really invest in this deeply as an organisational commitment in a consistent and coherent way,” he said.

“We see some really strong leaders who get that this makes sense from a whole-of-organisation perspective in that shared value type mindset.

“But still we see many of the funds making a distinction between the way they invest and their broader responsibility as an organisation to their members.”

The report also highlighted that RI was increasingly expected from Australian consumers in regards to their super.

Consumer research conducted for RIAA in 2017 revealed that nine in 10 Australians expected their super or other investments to be invested responsibly and ethically.

Added to this, seven in 10 Australians said they would rather invest in a responsible super fund that considered the social impact of the companies it invested in, as well as the financial returns.

O’Connor said this showed how consumer habits were a big driver of RI in the superannuation industry.

“People want their retirement savings to be invested in a way that is consistent with their own values and ethics and I think this is the message that has come through very strongly in the last two years,” he said.

“And it is really helping to empower funds to be stronger on their responsible investment commitments.”

O’Connor added that RI in the superannuation industry was something that had been on an upward trend in recent years.

“This is not entirely new for the superannuation industry in Australia. I think we have seen for the last 10 years some pretty strong commitments to RI from some of Australia’s largest super funds,” he said.

“What we are seeing now is that this is really being prioritised much more seriously. This has really become embedded deep within the investment functions of these funds and is really playing out in the way they choose to either invest in companies or divest from companies.

“Also we’ve seen a much broader section of the superannuation community is taking up this commitment to responsible investment, whereas in the past it often used to be the industry or not-for-profit funds primarily leading on this.”

He noted however, that the industry was only now really starting to grapple with how to measure the outcomes from RI, and also how this could be reported well to members.

“We see very few funds setting targets around sustainability-related issues, environmental issues or social issues and I think that will increase,” O’Connor said.

“I think we will also see much improved transparency. The need and the expectations around transparency and accountability have really grown rapidly for superannuation and with the size of growth in superannuation, scrutiny has also increased dramatically.

“This will lead to a much greater need for the funds themselves to be accountable and to be much more transparent and increase their disclosure on a lot of these issues. This is starting but I think that’s where we still have some work to do.”  

The report comes as the Productivity Commission recently released a damning draft report into Australia’s $2.6 trillion superannuation system.

It found that one in four funds have consistently fallen short of the mark over the past 10 years, meaning a 21-year-old with a $50,000 starting salary will lose out on $407,000 in retirement savings under the current system.