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Responsible investment on a roll and it’s exponential

Believe the hype about the benefits of responsible investing.

The latest Responsible Investment Association Australasia’s 2017 Benchmark Report shows the sector is booming and out performing most conventional investments over most time horizons.

Data gathered for the 2016 calendar year showed that responsible investments have more than quadrupled over the past three years to $622 billion at the end of 2016. That’s an increase of nine per cent on 2015’s $569 billion.

Nearly half of all Australian assets under management are now being channelled through some kind of responsible investing strategy.

Strategies include:

  • negative screening
  • impact investing
  • sustainability themed funds
  • integration of environmental, social and governance considerations

More than $63 billion is now banked in “Core” responsible investments, the report found.

The 10 largest asset managers in this category are, by order of size with the largest first:

  • Lendlease Investment Management with around $13 billion
  • Investa Property Group
  • New Forests
  • AMP Capital Investors
  • BT Investment Management
  • Australian Ethical
  • Realindex Investments
  • Perpetual Investments
  • Uniting Financial Services

All these funds showed an increase in the amount of capital in the category, with the exception of AMP which showed a contraction of its stake, and Realindex, a new entrant to the top 10.

Realindex is a wholly owned investment management subsidiary of Colonial First State Group, founded in 2008.

Nearly 40 per cent a year growth at AE

Phil Vernon, managing director of Australian Ethical, said that while many superfunds are struggling to attract and engage members, AE was recently named the nation’s fastest growing superfund in 2016. It grew by 37 per cent in assets under management (AUM) compared to 2015, and 24 per cent in terms of members.

“Australian Ethical has met the evolving needs of retail and institutional investors who are coming to understand that responsible investment and strong financial returns can go hand in hand,” Mr Vernon said.

The Benchmark report also showed that investment in specifically sustainability themed investments rose by 18 per cent over the year from $23.1 billion to $27.2 billion.

And a big growth sector is property

The surge was led by large institutional investments into green-themed funds, particularly green property funds.

Impact investing and community finance also saw continuing strong growth. This category also includes climate bonds, green bonds and responsible banking products. The total AUM rose by 10 per cent on 2015 to a total of $4.1 billion.

“More and more Australians are wanting their investments and savings to align with their values, and are reaping the rewards with strong financial performance,” Simon O’Connor, RIAA chief executive said.

“The market is recognising the opportunities to create value for clients, with a surge in responsible investment products over the past year, including many focused on delivering positive social or environmental impact.”

Mr O’Connor said there is an increasing focus on investing in sectors that are becoming the “sustainable backbone of our global economy.”

“It’s this approach that will continue to deliver growth and performance for investors, and this will only build as regulatory frameworks shift to keep up with social expectations and these industries continue to grow.”

And in Oz the RI equities outperformed the average large cap stocks

In terms of performance, the analysis showed RI Australian equities funds outperformed the average large cap Australian equities over three, five and 10 year periods.

…and internationally too

International RI equities outperformed large cap international equities over three and 10 years, and RI multi-sector growth funds outperformed their mainstream equivalents over three, five and 10 years.

Only in the short one-year timeframe did mainstream investments deliver higher returns.

So what’s driving the growth?

The survey of 104 asset managers, super funds, financial advisors, banks and community investment managers also asked what they believed were the key drivers of growth in the RI space.

The most common perceived push-factors were:

  • alignment of investment strategies with underlying investors’ values and beliefs
  • ESG risks being identified as of increasing importance
  • increased demand from institutional and retail investors

“It is a long out-dated myth that financial returns must be sacrificed to invest responsibly or ethically. The performance figures and trends we are now seeing each year are telling us the opposite story,” Mr O’Connor said.

  • Read the full report here

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