ESG in Australian Superannuation Funds
Australian superannuation is a significant pool of long-term capital across the world. With total assets now beyond A$4.5 trillion and the top 24 funds accounting for around 96% of industry assets, the ESG decisions made by Australian super funds ripple across the entire domestic investment market and well beyond it. This article looks at how ESG has become embedded in Australian superannuation, how the global ESG investment story compares, and where the sector is heading.
ESG in Superannuation in Recent Years
The most significant shift in Australian superannuation’s relationship with ESG over the past decade is not the introduction of new policies or frameworks, but rather the change in status. ESG is now a business-as-usual (BAU) activity across the majority of Australian superannuation funds. It is expected to be considered and included for most investments made.
This shift into BAU has a number of practical consequences. When ESG is a standard expectation, the funds that are doing additional ESG work are not just meeting the baseline, they are also targeting a specific risk or opportunity that they have identified as material to their portfolio or their member base. That is a more sophisticated and ultimately more useful form of ESG integration than the broad adoption that characterised the earlier period (~2020-2022).
The Responsible Investment Association Australasia (RIAA) named 12 Responsible Super Fund Leaders for 2026 at its annual conference in June, recognising organisations demonstrating strong governance frameworks, systematic ESG integration and transparent reporting on long-term outcomes. RIAA co-Chief Executive Estelle Parker noted that “responsible investment is entering a more mature phase, where leadership is defined by what organisations do, not just what they say.” That observation that we agree with.
Among the funds recognised as leaders, Aware Super stands out for the scale of its ESG integration. Managing over A$170 billion in assets, Aware Super has committed more than 30% of its portfolio to renewable energy, healthcare and sustainable infrastructure. AustralianSuper, one of the largest funds in the world by assets, holds a RIAA Responsible Super Fund Leader recognition and applies exclusion screens across tobacco production. HESTA, with over A$85 billion under management and more than one million members, has built its ESG approach around the specific sustainability concerns of its member base in the health and community sector.
Why Australia Looks Different vs Rest of the World
To understand where Australian superannuation sits globally, it is worth looking at what has happened to ESG investment flows worldwide since the peak of the ESG boom in 2021.
According to Morningstar’s Global Sustainable Fund Flows data, global ESG fund inflows peaked at US$645 billion in 2021, a year when the broader fund market also enjoyed record inflows of over US$2.4 trillion. From that peak, the trajectory shifted in 2022 when global sustainable fund flows fell by 75%, though they remained positive. By 2025, global sustainable funds recorded net outflows of US$84 billion, which was the first year of net redemptions since Morningstar began tracking the segment in 2018.
The drivers of that reversal were concentrated and quite skewed to the United States. The US experienced three consecutive years of net outflows from ESG funds, driven by a sustained political backlash against ESG investing at both state and federal levels. European sustainable funds, which had consistently attracted positive flows, saw net outflows for the first time in 2025 as a result of geopolitical uncertainty, regulatory complexity under the Sustainable Finance Disclosure Regulation (SFDR) and mixed performance across some categories. The global ESG fund universe maintained assets of around US$3.7 trillion as of late 2025, as market appreciation offset much of the impact of the redemptions, but the net flow picture was clearly negative for the year.
Australia and New Zealand were among only a handful of markets globally to record positive ESG fund inflows throughout this entire period. Even in 2025, when global outflows reached their peak, Australia and New Zealand continued attracting new capital into sustainable funds. The Australian figure of A$280.5 billion in ESG assets under management at H1 2025, a record high representing a 9% increase in six months, reflects a market that has continued to grow through conditions that caused significant retrenchment elsewhere.
The Australian superannuation system creates structural conditions that support ESG integration such as long-dated investment horizons, compulsory contributions generating consistent inflows regardless of market sentiment, a trustee governance model with explicit duties to act in members’ best long-term interests, and a member base that is increasingly attentive to how their retirement savings are invested. Those structural features insulated Australian super funds from the sentiment-driven outflows that affected retail-oriented ESG products in the US and, to a lesser extent, Europe.
The Generational Shift Ahead
The current state of ESG in Australian superannuation reflects the expectations and priorities of the members and trustees who have shaped it over the past decade. What comes next will increasingly be shaped by a different generation. As Generation Z enters the workforce more fully and begins accumulating superannuation balances, the expectations they bring will likely be more specific and more demanding than those of previous generations. This cohort tends to come with higher environmental and social priorities, greater familiarity with sustainability concepts, and a lower tolerance for vague or unverified ESG claims (read: bullshit!). That combination is likely to push superannuation funds toward deeper ESG integration and not just as a risk management tool, but as a direct expression of what members want their money to do.
The practical implication is that funds which have treated ESG as a compliance baseline may find that baseline rising. The question will shift from whether a fund has an ESG policy to whether its ESG integration is specific, evidenced and aligned with what members actually care about.
The Role of AASB S2 in Shaping the Market
One of the most significant changes to the operating environment for Australian superannuation’s ESG activities over the next few years will be the progressive rollout of mandatory climate reporting under Australian Accounting Standards Board Standard S2 (AASB S2).
For super funds as asset owners, AASB S2 reporting by their investee companies will produce a level of climate risk data comparability that has not previously existed. When Group 1, 2 and 3 reporters have all produced their first AASB S2 disclosures, funds and their investment consultants will be able to compare emissions profiles, transition plans and climate risk exposures across companies within the same sector, geography or supply chain in a standardised way.
That comparability will make conversations between super funds and their investee companies more direct and more evidence-based. Where a fund’s stewardship team previously had to rely on voluntary disclosures of varying quality and comparability, or third party estimates, it will increasingly be able to point to a peer company’s disclosed data to ask whether energy efficiency opportunities are being pursued, whether transition planning is credible, or whether a capital allocation decision is consistent with stated climate commitments. The ability to use a competitor’s or neighbour’s AASB S2 data as a reference point in an engagement conversation can mean positive real world outcomes can be achieved faster.
Our View
Australian superannuation funds are in a powerful position to shape the ESG focus and reporting of Australian companies. As the largest shareholders in most ASX-listed companies, their engagement and voting behaviour directly influences corporate conduct in a way that few other actors can match. That power has been growing as the funds themselves have consolidated and as their ESG capabilities have matured.
What has been missing is the data infrastructure to use that power with full intent! But we predict that AASB S2 is beginning to provide it. The super funds, and the investment consultants who advise them, look forward to comparing apples with apples once AASB S2 reporting is more established across the market. That comparability will make the stewardship conversation more pointed, more direct and more useful for the funds, for the companies they invest in, and ultimately for the members whose retirement savings are at stake.
The global ESG fund flow story of 2021 to 2025 (the boom, the correction, and Australia’s divergence from the global trend) is in many ways a reflection of structural differences rather than differences in conviction. Australian superannuation did not avoid the global backlash because it was immune to it. It avoided the backlash because the structural conditions of compulsory superannuation, long investment horizons and trustee governance created a different set of incentives.
Sources
- KPMG, Australian Superannuation Industry Insights and Analysis 2026, kpmg.com.au
- Responsible Investment Association Australasia (RIAA), 2026 Responsible Super Fund Leaders, responsibleinvestment.org
- Morningstar, Global Sustainable Fund Flows: Q4 2025 in Review, February 2026, morningstar.com
- Morningstar, ESG Funds: 2025 Closes with Continued Outflows Amid Persistent Headwinds, February 2026, morningstar.com
- Morningstar, Global ESG Fund Flows Increase in Q4, January 2025, morningstar.com
- Obsidian Wealth, ESG and Impact Investing in Australia 2026, obsidianwealth.com.au
- Aware Super, Sustainability and ESG Overview, aware.com.au
- AustralianSuper, ESG Management and Responsible Investing, australiansuper.com
- HESTA, Responsible Investment Approach, hesta.com.au
- Australian Accounting Standards Board (AASB), AASB S2 Climate-related Disclosures, aasb.gov.au
Anabranch ESG Advisory provides independent advice on ESG strategy, climate disclosure, and sustainability reporting. The information in this article is general in nature and does not constitute legal or financial advice.
