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Super funds that invest responsibly outperform their peers, study suggests
12 Jan 2020
A study shows funds that invest responsibly outperform their peers over one-, three- and five-year time frames.
Responsible investing – also often referred to as ethical investing – appears to be becoming more and more common, especially among super funds.
A new report from the Responsible Investment Association Australasia (RIAA) found that 81% of Australia’s largest super funds are committed to responsible investment (up from 70% in 2016). It also revealed that more than half (32 out of the 57 super funds considered) offer a total of 88 responsible investment options (compared to 24 funds offering 54 options in 2016).
And the good news is you may not necessarily have to sacrifice returns by opting for a super fund that takes a responsible approach. In its Responsible Investment Super Study 2019, which presents the results of an annual survey of Australia’s 57 largest superannuation funds, RIAA compared the MySuper performance of super funds employing responsible investment strategies with the MySuper options of those super funds that are not. It found that Australian super funds that comprehensively engage in responsible investment are outperforming their peers over one-, three- and five-year time frames.
Over five years, for example, the 34 Responsible Investment (RI) super funds that were considered returned 8.14% .a. on average over five years, while the 20 non-RI super funds returned 7.70% p.a. on average over that same period.
Responsible Investment (RI) super funds v non-RI super funds returns
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| 1-year average |
3-year average (% p.a.) |
5-year average (% p.a.) |
|
|---|---|---|---|
| Non-RI (20 funds) | 7.31% | 8.65% | 7.70% |
| RI (34 funds) | 7.33% | 9.06% | 8.14% |
| Benchmark average (54 funds) |
7.32% | 8.90% | 7.98% |
Source: RIAA Responsible Investment Super Study 2019. Financial performance of MySuper for financial years to 30 June 2019.
Responsible super leaders
The report also assessed Responsible Investment (RI) super funds based on five criteria and came up with a list of 13 Australian super funds (and one New Zealand super fund) which it identified “as leaders for articulating and demonstrating a comprehensive approach to responsible investment”.
The funds that made RIAA’s Super Study leader board are:
- Australian Ethical
- AustralianSuper
- CareSuper
- Cbus
- Christian Super
- First State Super
- Future Fund
- Future Super
- HESTA
- Local Government Super
- NZ Super
- Unisuper
- VicSuper
- Vision Super
RIAA then compared the performance of the funds that made the Super Study leader board to those that didn’t. It found the “leaders” outperformed the “non-leaders” by about 100 basis points over each of the three time periods.
“This reinforces how important the consideration of environmental, social and corporate governance factors is to delivering the best possible outcomes for super fund members,” said CEO of RIAA, Simon O’Connor.
RI Super Study 2019 leader board v non-leaders
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| 1-year average |
3-year average (% p.a.) |
5-year average (% p.a.) |
|
|---|---|---|---|
| Non leader (41 funds) | 7.07% | 8.62% | 7.74% |
| RI Super Study leader board (13 funds)* |
8.11% | 9.81% | 8.71% |
| Benchmark average (54 funds) |
7.32% | 8.90% | 7.98% |
Source: RIAA Responsible Investment Super Study 2019. Financial performance of MySuper for financial years to 30 June 2019. *Future Super data not available for time period.
“Our consumer research shows that more than 9 in 10 (92%) Australians expect their super or other investments to be invested responsibly and ethically, and 4 in 5 (78%) Australians would consider moving super or other investments to another provider if their current fund engaged in activities not consistent with their values,” said Mr O’Connor.
“If the superannuation industry is to realise its potential for delivering long-term retirement outcomes, super funds need to be demonstrating how they are fuelling a productive, prosperous and healthy future for their members. This report shows us that this responsible investment is not just something Australians want, but is a critical part of delivering stronger member outcomes.”
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Main image source: Kzenon (Shutterstock)
This article was reviewed by our Editorial Campaigns Manager Maria Bekiaris before it was updated, as part of our fact-checking process.
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