Does sustainable super stack up?

Super members searching for a ‘sustainable’ investment fund are exposed to the same challenges as those in more traditional funds.

According to new research on the sustainable superannuation sector by research house SuperRatings, the sector delivers a wide range or performance outcomes and charges a range of fees.

The SuperRatings research reveals that the median performance of ‘sustainable’ investment funds is lower than the median performance of the SuperRatings SR50 Balanced (60–76) Index, which comprises traditional balanced super funds.

Furthermore, the ‘sustainable’ funds have higher median fees.

The combination of the two means that a sizeable number of ‘sustainable’ funds produce sub-optimal returns at relatively high fee levels.

‘Sustainable’ funds include funds that select their investments based on environmental, social and governance (ESG) factors.

However, there are ‘sustainable’ funds that outperform the market, while others also have lower fees than many balanced options.

The top quartile of ‘sustainable’ funds has delivered a 10-year return of 8.9 per cent or more per annum, which is in line with the SR50 Balanced (60–76) Index.

The table below shows the top returning super funds that are classified as sustainable due to the fund’s incorporation of ESG and socially responsible investing criteria.

HESTA’s Eco Pool balanced option delivered the top return over 10 years of 11.1 per cent per annum, which is considerably higher than the SR50 Balanced (60–76) Index return of 8.9 per cent per annum.

Top performing sustainable super funds

Fund

Total fee on
$50k balance

10-year return
(% p.a.)

HESTA – Eco Pool

$670

11.1%

VicSuper FutureSaver – Socially Conscious Option

$463

10.3%

AustralianSuper – Socially Aware

$448

10.0%

WA Super Super Solutions Pers – Sustainable Future

$573

9.5%

UniSuper Accum (1) – Sustainable Balanced

$281

9.3%

Sustainable Balanced option median

$662

8.5%

SR50 Balanced (60-76) Index median

$606

8.9%

There are a range of factors that must be taken into account when assessing the extent to which ESG factors affect a fund’s investment decisions, as well as the cost involved.

For example, some funds may apply a simple screen on certain industries, while others may conduct more in-depth analysis on individual businesses, which may justify a higher fee. This makes it difficult to provide a definitive ranking of sustainable fund performance.

“When considering sustainable alternatives, it is important to look at each individual fund’s mandate, their process for investing sustainably, and of course the industries and businesses they do and do not invest in,” said SuperRatings executive director Kirby Rappell.

“When we speak to financial advisers, they tell us that ESG factors are becoming more and more important for their clients.

“Advisers need the capability to examine and compare sustainable funds to ensure that the product is the best fit for their client both in terms of their risk and return preferences, as well as their social and environmental values.”

Do you invest in sustainable superannuation? Why? Why not?

Written by Ben

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