Glossary of key terms used in this report

The report defines several foundational concepts critical to the discussion of investment stewardship. Environmental, social and governance (ESG) factors are described as a wide range of considerations used alongside traditional financial analysis to evaluate an investment’s ability to provide risk-adjusted returns over the long term. Active ownership, also known as stewardship, refers to the use of investor rights and influence to protect and enhance long-term value for members. An asset owner is an institutional entity, such as a superannuation fund, that owns capital invested on behalf of members. Sustainable growth involves achieving consistent performance while integrating ESG considerations, while sustainable value creation involves generating long-term returns by managing material risks relating to environmental, social, or governance issues.

Executive summary

Active ownership is increasingly adopted by major investors, including Australian superannuation funds, to influence corporate behaviour for long-term financial benefit. National and international research supports the claim that active ownership can enhance company performance by managing material ESG risks. Key findings from a survey of 1,908 Australian super fund members indicate that while baseline awareness of the term is low, there is strong organic support for the practice. For instance, 79% of consumers say they would prefer their fund to engage in active ownership over divestment approaches, and 71% prefer it over limited engagement. Overall, these findings indicate a strong alignment between member expectations and active ownership principles.

Introduction

This report was commissioned by the Australian Council of Superannuation Investors (ACSI) and written by The Insight Centre, an independent social and market research agency. It combines quantitative and qualitative consumer research with an overview of existing secondary research on ESG performance and financial returns. A First Nations case study highlights that ACSI and other institutional investors initiated a Working Group in 2020 to improve corporate engagement with First Nations communities, encouraging companies to align practices with international human rights standards.

What is active ownership?

Active ownership involves using investor rights and influence to protect and enhance long-term value for clients and beneficiaries. It is an approach where asset owners encourage sustainable value creation by engaging with and influencing the companies in which they invest. Specific activities include voting at company Annual General Meetings (AGMs), holding engagement meetings with company boards and executives, and undertaking policy advocacy to align the policy environment with the interests of long-term investors.

What is ESG and how are ESG factors financially material?

Financial materiality refers to information that could influence investor decisions or impact a company’s long-term sustainability. Environmental risks, such as climate change and biodiversity loss, have measurable impacts; biodiversity losses are estimated to threaten between 40 and 50% of global GDP. Social factors are also material; the report notes that if work-related injuries or illnesses were eliminated, Australia’s economy would be on average $28.6 billion larger each year, representing 1.6% of annual Gross Domestic Product (GDP). Additionally, the lack of inclusive work cultures is estimated to cost companies US$3.7 trillion globally each year, including US$1.35 trillion in the Asia Pacific region. Governance factors, such as board diversity and oversight of material risks, correlate with performance; gender-diverse boards have been shown to enhance corporate performance. A modern slavery case study details the Investors Against Slavery and Trafficking Asia Pacific (IAST APAC) initiative, which promotes action to find, fix, and prevent labour exploitation in value chains.

Overview of relevant research

The report synthesises evidence from multiple meta-analyses. A 2021 study by Whelan et al. aggregated data from over 1,000 studies, finding a positive correlation between ESG factors and financial performance in 58% of the corporate studies reviewed. Similarly, a 2015 study by Friede, Busch and Bassen reviewed more than 2,000 empirical studies, with approximately 90% finding a nonnegative relationship. Locally, a 2024 study of ASX-listed companies found that members of the UN Global Compact Network Australia (UNGCNA) experienced an 18% growth in enterprise value from 2021 to 2024, compared to just 3% for non-member counterparts.

Attitudes of Australian superannuation fund members to active ownership practices

Research conducted in 2024 revealed that although seven in 10 members are unfamiliar with the term ‘active ownership’, they hold strong expectations regarding fund behaviour. Ninety-one per cent agree that companies doing the wrong thing by customers, employees, or the environment present a risk to investors. Furthermore, 92% of members want their fund to invest in companies that have a positive impact. Support for specific practices is high: 91% agree funds should encourage good governance, 90% want funds to address risks of unfair treatment of workers, and 81% support encouraging responsible environmental management. A case study on Climate Action 100+ illustrates how more than 700 investors engage greenhouse gas emitters to mitigate financial risk, while another on risks reporting shows that nearly 70% of the ASX200 reported against the TCFD framework by March 2023.

Conclusion

The consumer research findings demonstrate that active ownership is a strategy supported by a strong majority of Australian fund members. Members are broadly concerned about ESG risks and expect superannuation funds to use their influence to manage these risks in ways that protect returns. Given the evidence of its effectiveness in enhancing and protecting member returns, active ownership represents a valuable strategy. Australian superannuation funds have a clear opportunity to further engage with members to grow their understanding, enhance transparency, and increase trust.

Appendix A: Consumer research methodology

The survey involved a 20-minute online questionnaire with 1,908 participants aged 18 and over, recruited via an online research panel. The sample reflected the ABS population distribution for age, location, and gender. Data was weighted using the Random Iterative Method (RIM) to ensure accuracy, resulting in a reliable sample size of 1,838 people. This was followed by a qualitative phase involving six online focus groups with 36 fund members in March 2024.