Australia’s sustainable investing landscape continues to thrive

A new report says momentum for Australian sustainable funds is growing 

Experts believe the COVID-19 pandemic has accelerated investor appetite for sustainable investing in Australia, as new research reveals promising performance results from sustainable funds during the volatile start to the year. 

Researchers at financial services firm Morningstar have analysed the sustainable investing landscape for Australian fund investors, and found the pandemic has not dented confidence in the sustainable funds market.

“Investment options and assets in sustainable funds in the Australian retail marketplace continue to grow, with promising signs of performance during the volatility caused by the pandemic,” the report said.  

Report author Grant Kennaway, Morningstar’s director of manager research, told Pro Bono News that the pandemic, along with the bushfire crisis earlier in the year, has only bolstered the sustainability agenda.

“I think COVID has really accelerated people’s thinking about the social aspects and governance aspects of ESG, which may not have been front of mind for them previously,” Kennaway said.

At the end of the second quarter of 2020, Morningstar estimated that retail assets invested in sustainable investments were $19.9 billion – a 21 per cent increase compared to 30 June 2019. 

The report also said that 70 per cent of sustainable funds performed in the top half of their respective Morningstar Category peer groups during the first half of 2020.

Kennaway is confident that the sustainable funds market in Australia will continue to grow, noting that the momentum of sustainable fund launches has grown significantly since 2015. 

Morningstar’s sustainable attribute framework identified 10 new funds that have been launched between January and August this year, meaning 108 individual sustainable strategies are now available to Australasian retail investors.

Kennaway said the growing appetite for sustainable investments was driven by investors themselves.   

“We work with financial advisors and are getting calls from them every day saying more and more of their clients are telling them they would like to invest their money in a more sustainable manner,” he said.

But the report said portfolio holdings disclosure – which shows where money is being invested – was a problem in Australia, as highlighted by Morningstar’s Global Investor Experience study that benchmarks the performance of 26 global markets.

“On portfolio holdings disclosure specifically, Australia is the last country in our 26-market study without any form of regulated disclosure,” the report said. 

“It’s disconcerting, for a country that aspires to be considered a financial center, to have the world’s worst practice in regard to portfolio holdings disclosure (for investment products).”

Kennaway said if you were giving your money to a professional manager, it was more than fair that you understood how your money had been invested.

“In most other countries there’s generally half yearly reporting or quarterly reporting of what stocks a fund owns, so for Australia to have no regulation compelling fund managers to report this is a really poor outcome for Australian investors,” he said.

“If you’ve got full access to the portfolio, you have much more surety of how your money is being used and so you can feel good about the fact you’re avoiding the sectors that you might want to avoid.”