A new study detailing the nitty-gritty of responsible investment (RI) has found examples of best practice across asset owners of all shapes and sizes.
Simon O’Connor, Responsible Investment Association of Australasia (RIAA) chief, said the latest report uncovered successful RI strategies in a range of different institutions.
“We found examples of leading RI implementation in asset owners that were ethically or religious-based, industry [union] based funds, retail providers and sovereign wealth funds,” O’Connor said. “It shows there are ways of doing RI well no matter what place you are in the industry.”
The lobbyist and research body’s second review of RI practices across 50 or so of Australia’s largest superannuation funds – and including the NZ Superannuation Fund (NZS) as the sole Kiwi representative – found investors were moving beyond “commitment” to full implementation of environmental, social and governance (ESG) strategies, he said.
According to the RIAA report, over 80 per cent of the funds surveyed had made “some form of RI commitment”, representing a 10 per cent increase on the inaugural 2016 study.
“Almost all of these funds identify a formal process for reviewing this policy and 74% explicitly state RI commitments in a standalone policy or in their investment beliefs,” the 2018 report says.
O’Connor said the leading funds were using a much greater range of RI tools than just negative screening with shareholder voting policies, corporate engagement and monitoring of external managers for RI compliance more prevalent.
“The best funds are getting better at talking about and explaining their RI approaches,” he said. “But funds are still struggling to measure outcomes and setting targets around what they are aiming to achieve [with ESG strategies etc].
“There’s patchy transparency around that.”
However, O’Connor said some funds, including NZS, were setting portfolio carbon-reduction targets.
“Only a handful of super funds have decarbonisation targets relating to their business and investment portfolios, with the vast majority of funds yet to actively respond to climate risks and opportunities through portfolio decarbonisation targets,” the RIAA study says.
The report analysed the 53 funds on five RI criteria: governance and accountability; commitment; implementation; measurement and outcomes; as well as, transparency and responsiveness.
RIAA identified 13 best-in-show funds that achieved top ratings on at least four of those ‘five pillars’ with NZS, classed as a ‘public’ fund in the study, again making the grade. The remaining top RI funds include five industry (union or occupation-based) funds, five ‘public’ funds, and two retail offers (Australian Ethical and Mercer Superannuation).
NZS rated well across most factors with the report noting the almost $40 billion fund’s recent portfolio carbon-stripping project and a $5.45 million investment in a “social impact bond” last year – its first foray into the area.
The bond was “issued by the NZ Government to finance a program seeking to reduce reoffending rates amongst a cohort of youth offenders by 15% over a 6-year period”, the RIAA study says.
The report, which includes a number of case studies, would be of interest to market participants but also investors who wanted to know what RI means in practice, O’Connor said.
“There’s been so much talk and media interest in RI but we think it’s important to show it looks like in operation,” he said.