Australian funds rank high on ESG

Australian equity fund managers tend to rank higher than their global peers when it comes to incorporating environmental, social, and governance (ESG) factors into their investment decisions, according to Lonsec's study.

According to a report, 58 per cent of active Australian equity funds had achieved a pass mark of moderate rating or higher on an ESG basis against 46 per cent of developed market global funds.

However, the study warned, that despite relatively good performance, very few of Australian fund managers (0.6 per cent) managed to achieve the highest ESG ranking and were 21 per cent of funds were rated "low".

The research also proved that there were many funds who looked at ESG factors when selecting shares and that equity managers tended to do better in this area, than overseas managers, which proved a growing local interest in responsible investing.

VIEW ALL

View all

According to Lonsec, the responsible investment strategies also paid off as those of equity funds that were investing responsible returned on average of one per cent over the past year, and 9.1 per cent over the past five years, compared to the S&P/ASX 300 Accumulation Index returning of -5.8 per cent and 5.4 per cent, respectively.

Lonsec research senior analyst, Steve Sweeney, said: "The merits of including ESG analysis in the investment approach have gained broad acceptance among investment practitioners".

"We have reached the point where it is rare to find an Australian equities manager that completely ignores ESG factors within their investment approach," Sweeney said.

"Australian equity funds certainly look to be adopting ESG assessment into the investment decision. Overall, it is an encouraging trend and supportive of the long-term alpha opportunity from ESG analysis. But of course there are always opportunities for funds to improve their ESG focus.

Lonsec's rating took into account a number of factors to gauge how seriously the manager took ESG and how it was implemented.