There are at least a few ways in which super funds can approach responsible investment strategies, according to Parametric’s research paper.
The study, titled “Responsible Investing in a peer sensitive world”, found that not only could there be little-or-no loss even to short-term returns for super funds from embracing responsible investing, but it would also offer up some tips for return enhancement through the process.
According to Parametric’s managing director, research, Raewyn Williams, one of the ways super funds could address peer-risk concerns when embracing responsible investments approach would be to partner with a responsible investing implementation manager to help assess how much a responsible investing approach would really impact their performance.
As far as portfolio construction was concerned, risk gaps created by a responsible investing approach could be refilled by a responsible investing manager with quantitative skills.
Williams also stressed that portfolio construction was only one way that super funds could potentially promote responsible investing, with active ownership having the attraction of avoiding potential performance drag and delivering on the upside.
Further, super funds with ‘the capacity for innovative thinking and a conviction around responsible investing’ could also use their ideas to refill any potential short-term return gap left by some investing approaches.
“Fifth, our pragmatic observation is that super fund trustees who feel constrained by peer risk in relation to their default MySuper options may feel less peer-sensitive in relation to their Choice options,” Williams said.
“Longer term, there is an opportunity for super funds to consider how to free themselves altogether from peer sensitivity and short-termism, which works against true member-centricity and can constrain funds from implementing good ideas.”