Responsible investments hit a major milestone Down Under

Monday, 13 August, 2018

Responsible investments hit a major milestone Down Under

Environmental, social, corporate governance and ethics considerations now sit alongside financial as critical components informing the investment decisions of the majority of Australia’s professional investors.

That’s according to the Australian Responsible Investment Benchmark Report 2018, released by the Responsible Investment Association Australasia (RIAA) in conjunction with KPMG, which reveals that $866 billion are now managed as responsible investments, representing 55% of all professionally managed assets in Australia — up from $622 billion in 2016 and representing growth of 39% year on year.

“This is a major milestone to reach, with a majority of funds invested in Australia now being invested under commitments to responsible investment,” said Simon O’Connor, CEO of RIAA. “We are now at a stage whereby issues such as climate change, human rights, corporate culture, diversity and a whole range of other important sustainability issues are right at the forefront of consideration by Australia’s finance community.”

O’Connor explained the uplift in assets was largely due to mainstream investment funds making a switch to incorporate responsible investment, such as incorporating negative screening, systematically assessing environmental, social and governance (ESG) factors as well as engaging directly on these issues to influence corporate Australia.

RIAA and KPMG reviewed broad responsible investment strategies of 112 asset managers in Australia, finding 24 managers could demonstrate a leading approach to ESG integration, constituting $679.3 billion assets under management (AUM) — up by 22% year on year. Asset managers cited ESG factors positively impacting portfolio performance as now the greatest driver of growth in responsible investment, up by 20% year on year.

Other highlights are as follows:

  • Core responsible investments using negative or positive screening, sustainability-themed investments, impact investing and community finance have reached a record level of $186.7 billion, representing 12% of all professionally managed assets and more than tripling between 2015 and 2017.
  • Core responsible investment Australian share funds outperformed their benchmark over three, five and 10 years.
  • Responsibly invested international share funds outperformed the benchmark in the one- and three-year time horizons, with comparable performance over 10 years; and responsibly invested balanced portfolios outperformed their benchmark over the three-, five- and 10-year periods.

This growth in absolute and relative terms reflects both a surging demand for ethical, sustainable and impact investments as well as a further embedding of negative screens across mainstream financial products and mandates — particularly across tobacco and controversial weapons.

“Nearly two decades of progress in responsible investment has this year reached an important tipping point, which we believe will only gain further momentum in light of growing calls for transparency and accountability across finance along with a growing consumer demand for investments that align with their values,” O’Connor said.

“Our research continues to show us Australians don’t want to build their retirement savings and other investments off the back of harmful activities without compromise to financial performance. The investment industry is responding by providing more investment opportunities that align with these values, but also building these considerations into the bulk of the market.

“Our aspiration is to see this number grow as the understanding of ESG factors on positive portfolio performance increases.”

The report is available to view here.

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