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Some of Australia’s top fund managers have been given the lowest ranking in a global study for their commitment to sustainable investing, raising questions about their seriousness in tackling the risks of climate change.
Among managers popular with Australian retail investors, Colonial First State, Investors Mutual, Magellan, Platinum and Vanguard, received a “Low” rating in a global study of more than 100 fund managers.
Report card on fundies’ commitment to investing with ESG principles shows room for improvement.Credit: Photo: Getty
Only one homegrown manager, Australian Ethical, is recognised as a “leader” – the highest category – in researcher Morningstar’s assessment.
Shamir Popat, a senior analyst for Morningstar Australia, says having at least some adherence to environmental, social and governance (ESG) principles is becoming the bare minimum for fund managers worldwide.
“It used to be about governance; the G in ESG, concerning remuneration of listed company chief executives and alignment of strategy between the board and management,” Popat says.
“Now it is shifting to also include asking companies what they are doing about climate change risks and other social factors – the E and S – and how it affects their business models.”
Morningstar’s report says: “Australian Ethical’s overall philosophy is grounded in the 23 principles of its Ethical Charter, which remain unchanged since the firm’s inception in 1986.”
“This purpose-driven approach is evidenced by the robust integration of ESG research into all sustainability-focused solutions, spanning all asset classes,” the researcher says.
“[Those scored as ‘Low’] have ESG integration for some of their products’ investment processes, but it’s not yet a priority [for them], given the preferences of their investors and the broader market,” Popat says.
Australian fund managers who scored a low rating do not purport to be ESG-intentional managers. They volunteered to be assessed by Morningstar to help them gauge where they stand compared to peers, and whether they should make changes.
Morningstar says Colonial First State (CFS) tends to give free rein to the investment managers it employs with no bias toward ESG-focused strategies, though CFS does have exclusions on tobacco and controversial weapons.
“All in all, CFS’ efforts on ESG matters are at the more modest end,” Morningstar says.
Investors Mutual Limited does have some exclusions, such as tobacco, controversial weapons and small arms, but its “investible universe”, the basket of investments from which it selects, does not contain names with material exposure to these areas, the researcher says.
Its investor activism is a “commendable feature at the [funds management] firm, aiming to unlock additional investment value by resolving governance issues”, Morningstar notes.
Magellan Asset Management continues to enhance its analysis of ESG risks, but transparency of active ownership practices is lacking, the researcher says.
“The two-person ESG team is small relative to the firm’s $70 billion [Australian dollars] in assets under management,” Morningstar says.
Platinum Asset Management excludes tobacco, military contracting, and controversial weapons companies from its portfolios, but its limited ESG disclosures place it behind international best practice, Morningstar says.
Vanguard, though an “exemplary asset manager in many ways”, has inconsistent integration of ESG factors and paucity of dedicated ESG specialists [on staff], the researcher says.
Australian fund managers who score “advanced”, the second-highest tier, are mainly those whose investors comprise mostly institutional investors, such as superannuation funds, rather than retail investors.
Superannuation funds tend to have ESG as part of their selection criteria for the fund managers they employ.
AMP Capital and exchange-traded funds provider BetaShares are in the “Basic” category, which is one up from “Low”.
- Advice given in this article is general in nature and is not intended to influence readers’ decisions about investing or financial products. They should always seek their own professional advice that takes into account their own personal circumstances before making any financial decisions.
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