More than half (55 per cent) of all professionally managed assets are now being managed as “responsible investments”, according to the latest Australian Responsible Investment Benchmark Report.
The report, conducted by KPMG for the Responsible Investment Association Australasia (RIAA), found that there was $866 billion worth of assets being managed responsibly, up from $622 billion in 2016. It is the first time that the majority of funds invested in Australia has had commitments to responsible investment.
RIAA chief executive Simon O’Connor called the results a “major milestone”.
“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,” Mr O’Connor said.
What do we mean by “responsible”?
Of the $866 billion of responsible investment, the lion’s share – $679.3 billion – was managed through a “broad investment strategy”, meaning there was strong environmental, social and corporate governance (ESG) integration, as judged by RIAA.
The remaining $186.7 billion had a “core responsible investment strategy”, meaning that strategies were employed such as negative screening (for example, avoiding fossil fuels), positive screening (the inclusion of high ESG performing companies); sustainability-themed investing (such as clean energy); impact investing and community finance.
How “responsible” some responsible investment is, however, is a topic of debate.
Earlier this year Future Super’s Mark Woodallsaid there were a number of “light green” products that were deemed “responsible” but still investing in companies such as tobacco packagers and banks that finance fossil fuel projects.
“If you really peel back the layers of that [responsible investment] onion, it is very light green… it’s not really cutting the mustard,” he said.
“Core” responsible investments growing
While there is some contention regarding how responsible some of the broad ESG investment is, greener “core” investments are growing rapidly, more than tripling between 2015 and 2017.
Core investments also outperformed the average large cap Australian share fund over three, five and 10 years.
The report said the positive impact of ESG integration on portfolio performance was a key driver of the growing sector, along with increasing demand from institutional investors.
“Our research continues to show us Australians don’t want to build their retirement savings and other investments off the back of harmful activities [but they still do not want to] compromise financial performance,” Mr O’Connor said.
“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.”
Negative screening is one strategy increasingly employed by mainstream funds, particularly negative screening for tobacco and weapons, with growth also in climate, human rights and adult content.
AMP Capital was highlighted as a key reason negative screening jumped 340 per cent, as it “in the last year implemented an ethical framework across the majority of its funds under management, which includes multiple negative screens, on top of its ESG integration approach”.
Mr O’Connor said he expected the sector to continue on its strong growth path, as mainstream investors increasingly became aware of the financial benefits.