Responsible investment now a major global force
Simon O’Connor, Responsible Investment Association Australasia | 10 October 2017
The theme of this year’s Ethical Investment Week is aptly titled Make an Impact.
For many Australians, conscientious decisions are made on a daily basis about the food we eat and what products we buy to bring into our homes. Paradoxically, the collective societal and environmental impacts that our superannuation and other investment accounts might have is often overlooked.
Superannuation is one of the largest personal investments we will ever make and as a collective represents $2 trillion-plus of funds in the Australian economy. This superannuation capital has the potential to encourage and support smart, innovative and clean businesses of the future.
The host of Ethical Investment Week, the Ethical Advisers’ Co-op, is seeing a growing interest in consumers who are willing to incorporate a variety of ethical and responsible investment themes into their investment plans and SMSFs.
At the same time, the Responsible Investment Association Australasia has been mapping the size and growth of ethical and responsible investments in Australia for the past 16 years in our Benchmark Report.
For most of that time, demand for core responsible investments has remained relatively low at around 1.5 per cent of all investments. However there have been encouraging signs of growth during the past two years with the funds investing in core responsible investments – including positive and negative screening, sustainability themed investments and impact investments – growing by 26 per cent to $64.9 billion, representing 4.5 per cent of total professionally-managed assets under management.
RIAA’s 2017 Report shows that nearly half (44 per cent) of Australia’s assets under management are now being invested through some form of responsible investment strategy, with environment, social and governance (ESG) integration being the primary broad responsible investment approach.
The trends are mirrored internationally, with responsible investing now constituting a major force across global financial markets. As at 2016 there were US$22.89 trillion of assets being professionally managed under responsible investment strategies, an increase of 25 per cent since 2014.
This rising consumer interest in responsible investment domestically is coinciding with the investment industry moving to more closely scrutinise the sustainability of companies, understanding that good investment relies on understanding more than just what is found in the financial statements.
In the last three years, more than 35 Australian super funds have divested of tobacco, moving over $1.5 billion out of the tobacco industry. Additionally, there’s been an increase in negative screening against fossil fuels, weapons, gambling as well as nuclear power generation and human rights violations. This tells us the market is connecting across diverse areas of concern for consumers.
Beyond divestments, we are also seeing a sizeable shift in investors putting their support behind socially and environmentally beneficial industries.
Our recent reports have showed a significant step up in sustainability-themed investments across green property funds, low carbon and renewable energy funds and sustainable agriculture, as well as a growth in impact investments, which seek to achieve positive measurable social or environmental impacts alongside financial returns.
Importantly, the myth that financial returns must be sacrificed to invest responsibly or ethically is being well and truly debunked. RIAA’s research shows that responsible investment funds are outperforming their average mainstream counterparts year on year.
In our 2017 Benchmark Report, core responsibly invested Australian share funds and balanced multi-sector funds were found to outperform their equivalent mainstream funds over three, five and 10-year horizons.
RIAA’s research also shows that most Australians would rather invest in a responsible super fund than a super fund that only considers maximising financial returns. We also know the major obstacles to people switching to responsible investment options include not enough independent information being available.
Last year RIAA launched the Responsible Returns web tool, connecting consumers who care about responsible and ethical investing with products that match their interests and concerns.
From investing positively in sustainable transport and education, to avoiding investing in companies linked with human rights abuses, fossil fuels, armaments, animal cruelty, tobacco and gambling, Responsible Returns allows users to find, compare and choose from over 150 certified banking, superannuation, and investment products that have been assessed and verified by RIAA as delivering to their responsible or ethical promise.
Australians are starting to show that they are willing to move their investments to deliver strong social and environmental impact, to ensure their second biggest investment is aligning their money with their morals.
For more information about the activities running during Ethical Investment Week see here.
Simon O’Connor is CEO, Responsible Investment Association Australasia.