Investments, Portfolio Construction

Returns not an ESG boundary for SMSFs

ESG returns SMSFs

An industry survey has shown more than half of SMSF trustees would consider investing in ESG products regardless of the returns these asset are likely to generate.

Online research has indicated more than half of SMSFs would consider environmental, social and governance (ESG) investing, even if the returns are lower than those of other investment options.

The “Vanguard/Investment Trends 2021 SMSF Investor Report” showed there was growing interest in ESG investing, with 52 per cent of respondents admitting lower returns would not deter them from making an allocation to these types of assets.

Conversely, the survey revealed 48 per cent of SMSFs would only consider ESG investing if the rate of returns was higher than other options, a finding Investment Trends head of research Irene Guiamatsia described as a positive outcome.

“That may seem like a negative mindset. However, the picture is quite positive because that means everyone, minus the 48 per cent, actually would be prepared to invest in ESG even if the returns were lower. So that’s really encouraging [for these products],” Guiamatsia said while presenting the report.

With reference to the majority of trustees in favour of ESG investing, the study showed 25 per cent said they prefer to invest in companies focused on a positive social or environmental impact, 19 per cent indicated they actively avoid investing in companies that create social and environmental harm and another 9 per cent admitted responsible investing was a top priority for them.

In terms of demographics, younger trustees were found to be more optimistic about ESG allocations, with 51 per cent of survey participants under the age of 40 believing the returns generated from these assets will improve the overall performance of their fund’s portfolio in the long term.

On the other hand, significantly fewer trustees above the age of 40 expressed this sentiment, with individuals between 50 and 59 years of age registering the highest level of positivity, with 19 per cent of this cohort saying ESG assets would boost their fund’s long-term returns.

While the popularity of ESG investing has grown among the SMSF community, the survey revealed lack of available information about this market segment was a clear boundary.

To this end, the report showed 21 per cent of those surveyed said they were unaware of the ESG product range, with a further 18 per cent of trustees indicating there is a lack of research coverage on these products.

“This year’s survey reveals that while there is certainly appetite for ESG investments, the industry still has a way to go to improve SMSFs’ awareness and understanding of such products,” Vanguard Australia head of personal investor Balaji Gopal said.

The online survey of SMSF trustees was conducted between March and April and received responses from 2523 investors.

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