The Integration of Environmental, Social and Governance Investing by Australia Superannuation Funds: An Institutional and Member Perspective

Abstract

Environmental, social and governance (ESG) issues are becoming more material to the long-term valuation of investments. Superannuation Funds are uniquely placed to be able to embrace investing according to ESG principles. They have a long-term investment horizon, which can be matched to the often long-term benefits of integrating ESG. Also, superannuation funds are considered to be “universal owners” (Hawley and Williams, 2000), and should invest according to what is good for the economy overall and not just what is good for portfolio returns. This exploratory study seeks to determine the factors that influence superannuation funds’ use of ESG as part of standard investment analysis, also known as ESG investing. It uses a mixed methods approach consisting of an analysis of superannuation fund websites, face-to-face interviews, and an online survey, to determine the drivers and barriers to ESG integration. It then surveys superannuation fund members, arguably the most important stakeholder for funds, and finds their perceptions of superannuation funds and ESG investing. This study contributes to the literature for the emerging area of ESG integration. It provides empirical evidence for factors that are significant in influencing the take-up of ESG investing for superannuation funds, and it examines the reasons behind the low take-up of ESG investment options by fund members. This research is useful for policy makers to promote the integration of ESG into superannuation investment practices. Also, as an exploratory study, it provides the groundwork for future research into the areas of ESG investing for superannuation funds and their members.