The majority of major superannuation funds are not disclosing their portfolio holdings, according to research from Rainmaker Information.
Rainmaker's just completed 2020 Super Fund Portfolio Holdings Study found only 27 major super funds, about one-quarter, practice portfolio holdings disclosure (PHD). Of the superannuation funds that do disclose their portfolio holdings, most were not-for-profit (NFP) funds.
The lack of disclosure by super funds stands in contrast to the growing popularity of ESG integration by super funds, as well as funds' simultaneous claims that they are committed to transparency.
"The essence of a super fund's investment strategy is what it actually invests in, even more so for funds claiming to be ESG advocates," said Alex Dunnin, Rainmaker's executive director of research and compliance. "One of the most basic things a super fund that claims to be committed to ESG and transparency can do is tell its members what it actually invest into. Look at it in reverse, if a fund claims to be ESG but won't disclose what it invests in, it sure doesn't smell right.
The Australian Securities and Investments Commission (ASIC) last year announced that the long-deferred deadline for the first reporting date on PHD was to be 31 December of this year. However, in April ASIC said it would defer the launch again due to the impacts of COVID-19, although it has not yet clarified when that new date would be.
While highlighting the low rates of portfolio holding disclosure, Rainmaker noted "noteworthy exceptions" in the retail space - Australian Ethical and Future Super, which publish full listings of everything into which they may invest.
Rainmaker noted that low take-up PHD by super funds "contrasts to the two-thirds ratio of PHD among ESG investment managers, according to the Responsible Investment Association of Australia (RIAA).
RIAA commented on levels of disclosure in the responsible investment universe in its most recent annual benchmark for the Australian responsible investment industry.
Of the 165 investment managers in the Responsible Investment Research Universe, 36% disclose their full fund holdings and 28% disclose some holdings. The report found that disclosure of fund holdings remains a key area for improvement, with 36% of investment managers not making any public disclosure of their holdings.
"For us, it's really clear that transparency is a really critical principle to ensure consumers, our ultimate beneficiaries, know what they're invested in," O'Connor said. "In 2020, consumers are increasingly concerned about where their money is invested. The best way to respond to that is through transparency. We strongly advocate for portfolio holding disclosure, we've told ASIC that we think it's critical that comes through and it's instigated.
"We think the leaders in the industry are preparing for a future where there is portfolio holding disclosure and transparency."
RIAA requires fund managers and super funds that are pursuing accreditation under its RI Certification program to disclose their underlying portfolio holdings, O'Connor noted.
"Any fund that has a certification will have full portfolio holding disclosure, but this should go beyond RSEs and super funds to responsible investors of other investment products," he said.
Dunnin said that portfolio holdings disclosure in Australia is still "very immature," adding "[PHD] doesn't have to be done at option level. But funds should try to move towards having that capability. But for ESG investment options it's different. Their holdings should be declared as a matter of course."
According to the 2020 Super Fund Portfolio Holdings Study the most popular method of portfolio holdings disclosure was fund wide, showing the top 20 holdings on a six-monthly basis via lists on the fund's website.
"A super fund either believes in transparency or it doesn't," Dunnin said. "Disclosure of the 20 major holdings is a good start, but it is only a start."
Transparency around portfolio disclosures would also counter greenwashing by demonstrating that funds "walk the walk" when it comes to their investment decisions, and O'Connor also suggested that funds should increase their reporting of engagement activities with companies as well as proxy voting records.
"The clock is ticking as we're heading towards mandatory disclosure," he said. "We encourage funds to be on the front foot in bringing that forward. In the context of an emerging conversation around greenwashing, one of the strongest ways of responding to that is being really clear on who we're investing in. We really strongly advocate for transparency around engagement and voting practices. We do believe there are more was to influence in a responsible investment portfolio than just what you're invested in and not investing in. Divestment is not the only tool available."