Almost half of all professionally managed assets have been responsibly invested, according to the latest Responsible Investment Benchmark Report.
The report, the 15th created by the Responsible Investment Association Australasia, found that $633 billion, or 47 per cent of total investment, had been invested “responsibly”, with consumer demand a driving force.
It’s a huge amount of money, but just what does “responsible investment” mean?
According to the report, responsible investment considers “a broad range of risks and value drivers as part of the decision making process, beyond and in addition to reported financial risk”. However, just what environmental, social and governance issues are considered differs based on sector, asset class and company, the report said.
The report distinguishes between this broad responsible investment and more rigorous “core responsible investment”, which applies strategies including negative, positive or norms-based screening; sustainability themed investing; impact investing, community finance; or corporate engagement.
“Core responsible investment approaches are made up in large part of those funds traditionally referred to as SRI or ethical investments, as well as sustainability themed funds,” the report said.
“In contrast, the broad responsible investment market is largely comprised of institutional funds that apply ESG integration as part of a mainstream investment offering.”
Core responsible investment accounted for a much more modest figure of $51.5 billion, 3.8 per cent of total investment, though this was the highest level reached in the past 10 years, up 60 per cent from the previous year.
Within the core responsible investment category, sustainability investments saw major growth, growing from $8 billion to $23 billion – a 179 per cent increase.
“This increase was largely led by sizeable mandates to themed funds such as sustainable agriculture funds, green-themed property funds, as well as a strong emergence of low carbon funds,” the report said.
While the core responsible investment market was small, it was a lucrative area, outperforming the ASX300 and the average large cap Australian equities funds across one, three, five and 10 years.
RIAA chief executive Simon O’Connor said the report showed ethical investment was here to stay.
“In observing the significant and consistent growth in responsible investment we can say without a doubt that this isn’t just a passing trend, but an evolution of the entire sector that is now being driven strongly by consumer demand and engagement with where they invest and bank their life savings,” Mr O’Connor said.
“Years of demonstrated long-term investment benefits to investors, who consider environmental, social and governance factors, have quietly shifted around half of Australia’s investment industry to invest responsibly.”
While the divestment movement has been gathering pace, and the report showed negative screening activity was growing, Mr O’Connor said environmentally and socially positive investment was also a growing tactic, so people weren’t “just removing support from damaging industries”, but actively investing in ethical business.
Report sponsor Australian Ethical, which belongs to the core responsible investment segment, said that consumer desire to fight climate change in the face of government inaction was a key driver to the strong results.
“The RIAA report shows that investors are taking action on climate change and other ethical issues,” Australian Ethical managing director Phil Vernon said.
“Overall, there is a clear demand for the finance sector to get serious about how it responds to climate change.”