Responsible investing matures in new decade

Companies or assets that ignore issues such as climate change, health and safety, labour rights, corruption, and lack of diversity are unlikely to thrive, says sector leader

Australian responsible investment funds once again outperformed mainstream investment funds across one, three, five and 10 year time frames in 2019, a new report finds. 

In 2019, the responsible investment market grew to $1,149 billion in assets under management, a 17 per cent increase from 2018.  

Responsible investments now represent 37 per cent of total professionally managed assets under management, which now sits at $3.14 trillion, according to the Australian Bureau of Statistics.

Read more: Responsible super funds come out on top

Published in the Responsible Investment Association Australasia’s (RIAA) benchmark report on Tuesday, the findings showed that responsible funds have continued to outperform even amidst the major market disruption brought on by COVID-19.

RIAA CEO Simon O’Connor said that it had become clear that amongst the chaos of 2020, responsible investors were “ahead of the game”.  

“They are identifying the key themes influencing markets and returns, which helps them to better navigate turbulent times, avoid the biggest risks and capture more opportunities” O’Connor said. 

“Companies or assets are unlikely to thrive if they ignore issues such as climate change, health and safety, labour rights, corruption, and lack of diversity.” 

A new era of investing

O’Connor told Pro Bono News one of the major focuses of this year’s report was how companies were actually making a difference in the world, rather than just simply avoiding harm and managing risks.

“What we’ve done is reflected on not just who’s doing responsible investment, but really who are those who can actually demonstrate that they are contributing to real world outcomes,” he said. 

“We’ve raised the bar.” 

He said that while around $2 trillion of the market (or 60 per cent) was committed to a responsible approach, around $1.15 trillion (or 37 per cent) of all professionally managed funds could actually demonstrate real social and environmental outcomes. 

“It’s pleasing to say that even when we’re applying that approach, we still see over a trillion dollars of funds they have invested in a way that we can actually demonstrate how they’re contributing positively,” he said.  

“I think this [just] reflects a broader professionalisation of the investment market, both here and globally.” 

Still room for improvement 

Of the 165 investment managers assessed in the study, just 44 (27 per cent) were found to be practising a “leading approach” to responsible investment. 

Disclosure of fund holdings also remained a key area for improvement, with 36 per cent of investment managers not making any public disclosure of their holdings.

“I think we’ve got a sector that is stepping up but it needs to be better at articulating to its clients and the public how it’s going about creating change and delivering on its theory of change,” O’Connor said. 

“So we still see a lot of room for improvement in the transparency and disclosure side.”

The growth in responsible investment domestically also reflects offshore trends, with global responsible investment assets reaching US$30.7 trillion (A$42.16 trillion) at the start of 2018, a 43 per cent increase from 2016.