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Responsible investment in Australia record high

A new report has found responsible investments account for over half of all Australian professionally managed investments

Responsible investment in Australia has reached a new milestone, tipping to over half of all professionally managed investments.

A new report found environmental, social and corporate governance (ESG) and ethics considerations are now as critical as financial components in informing the investment decisions of the majority of Australia’s professional investors.

The 17th annual Australian Responsible Investment Benchmark Report 2018 (KPMG) has revealed that the industry has hit new heights with $866 billion in responsible investments.

Simon O’Conner, CEO of The Responsible Investment Association Australasia (RIAA), said: “This is a major milestone to reach with a majority of funds invested in Australia now being invested under commitments to responsible investment.”

The $866 billion managed as responsible investments accounts for 55 per cent of all professionally managed assets in Australia, up from $622 billion in 2016.

Core Responsible Investments, using negative or positive screening, impact investing, sustainability themed investments and community finance, have reached a record level of $186.7 billion, representing 12 per cent of all professionally managed assets.

O’Conner said: “We are now at a stage whereby issues such as climate change, human rights, corporate diversity and a whole range of other important sustainability issues are right at the forefront of consideration by Australia’s finance community.”

Responsibly invested international share funds also outperformed the benchmark in one and three-year blocks, with comparable performance over ten years. Responsibly invested balanced portfolios outperformed their benchmark over these periods.

ESG factors that have positively impacted portfolio performance are now the greatest driver of growth in responsible investment, up from 20 per cent year on year.

“While it’s hugely positive to see responsible investment now with the lion’s share, our aspiration is to see this number grow as the understanding of ESG factors on positive portfolio performance increases,” O’Conner said.

O’Conner said the uplift of assets was due to mainstream investment funds that made the switch to incorporate responsible investment, such as incorporating negative screening, systematically assessing ESG factors and engaging directly on issues.

“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 fisnance along with a growing consumer demand for investments that align with our values.”

RIAA and KPMG research reviewed Broad Responsible Investment strategies of 112 asset managers in Australia, finding 24 managers could demonstrate a leading approach to ESG integration, constituting $697.3 billion AUM.

Asset managers cited ESG factors were positively impacting portfolio performance as now the greatest driver of growth in responsible investment.

“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 outperformance,” O’Conner 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.”

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