ESG super funds: They’re in hot demand, but are investors actually getting what they want?
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ESG investment options are growing in the form of superannuation funds as well as ETFs and non-listed funds.
And while there are few pure play ESG shares, growing regulatory requirements has drawn ESG issues front and centre to investors’ attention.
Research by Rainmaker Information has found ESG super funds in particular are in hot demand.
It estimates they manage $1.6 trillion in assets, yet only 60 superannuation funds (which Rainmaker estimates is one-third of all super funds) are identified by Rainmaker as ESG.
Nevertheless, there’s little consensus among investment funds about what is ethical and what issues may be most important, at least at a broad macroeconomic level.
While a number of super funds meet Rainmaker’s criteria as an ESG-focused fund, the research group found that some ESG super funds on its list still have work to do in certain areas.
The study found such funds are good at disclosing ESG-adherent stocks they invest into the most, and they also typically disclose their screening methodology to investors.
But it found less than half disclose properties they own, and only one third disclose bond holdings.
In addition, those investment screens are heavily tilted toward negative screens — what they exclude rather than what they include.
And Rainmaker Research warns it is not enough for a fund manager to label itself as ESG. It argues funds must prove it by disclosing all of their investments.
“While ESG investment principles are incredibly important, they do not override the super fund trustees’ fundamental obligation to maximise their fund members’ best interests by achieving the highest investment returns they can,” said Alex Dunnin, Rainmaker’s director of research.
“Super funds should adopt ESG principles because it makes them better super funds. Super fund trustees must always focus on the financial best interests of their members.”