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Super funds extend poor disclosure to ESG holdings

Superannuation funds are extending their opaque disclosure practices to their environment, social and governance commitments.

The recent Financial Standard Best Practice Forum on ESG heard that only a small subset of super funds are walking the talk when it comes to genuine ESG advocacy.

Rainmaker Information executive director of research Alex Dunnin highlighted some of the practices super funds adopt, starting with negative screens.

"Lots of funds are telling you about what they won't invest in rather than what they will invest in," he said.

"If you're going to be an ESG super fund, you have to tell people what you're investing in, otherwise we have no way of knowing."

Another way they try to demonstrate their ESG commitments, interests and alignments is by signing up to various sustainability groups.

"But signing up to these groups doesn't make them ESG, it comes back to how they demonstrate this," Dunnin said.

A Rainmaker Information study released earlier this year found that Australia's ESG super coverage ratio is among the highest in the world after analysing 57 ESG-labelled super funds that collectively oversee $1.6 trillion or 71% of the APRA-regulated sector.

"To be an ESG super fund is not as simple as just divesting away from companies in the fossil fuel sector such as coal companies and investing instead into high profile social impact or renewable energy projects or buying green bonds," the report read.

"Rainmaker does not believe whether a super fund divests from the fossil fuel sector to be a marker of its ESG credentials."

To be rated as a quality ESG fund, five criteria must be satisfied. Super funds must demonstrate a governance framework and investment transparency, publish ESG reports, as well as have proven investment processes and performance.

Citing the research, Dunnin said some of the "power hitters" in the ESG space include Australian Ethical, Cbus, AustralianSuper, Aware Super, HESTA, Active Super and UniSuper.

Further, Dunnin notes that some super funds seem to be on the sidelines waiting for the regulator to step in and dictate how to disclose their ESG holdings.

There is a "big opportunity" in funds being transparent in the ESG assets they invest in, he said, adding that the industry should not be taking a back seat but leading.

Read more: ESGRainmaker InformationAlex DunninAustralian EthicalAustralianSuperAware SuperCbusHESTAUniSuper