Australia’s most comprehensive report into the responsible investment sector, researched and prepared by Net Balance for the Responsible Investment Association Australasia (RIAA), has found the market is undergoing a period of huge growth.
Investments in ‘core’ responsible investment – which includes specialist ethical, socially responsible, impact, and sustainability-themed investments, as well as community finance – have grown by 51 per cent year on year to just over $25 billion in assets under management. Further, investments in ‘broad’ responsible investment – which includes mainstream funds which deeply integrate environmental, social and governance factors – have grown by 13 per cent year on year to $153 billion in assets under management (equating to 14.3 per cent of total assets under management in Australia).
And there is good reason for this growth. Core responsible investment Australian equities funds have outperformed the ASX 300 index and the large cap Australian equities fund average over one, three, five and ten-year time horizons.
The report shows that the responsible investment sector is one of huge diversity with strong growth potential. Responsible investments are delivering not only greater returns, but also positive impact through the investments themselves. The report suggests interesting times ahead, with many major investors currently divesting from tobacco, assessing their exposure to fossil fuels and pushing for change in relation to palm oil and the Bangladesh garment manufacturing industry. With responsible investments now representing a significant portion of total assets under management in Australia, companies and asset owners should strongly consider their response to issues raised by these investors.
The complete report is available for download at http://www.responsibleinvestment.org/riaa-research/.
‘Responsible investment’ is an umbrella term used to describe an investment process which takes environmental, social, governance (ESG) or ethical considerations into account. At its most basic, responsible investment represents a commitment to look at a broader array of risks and value drivers in investment decision-making than purely financial risk. This is in acknowledgement that investment value is driven by many issues that are off balance sheet. These ESG factors include company culture and management, brand value, good governance and corporate ethics, quality control, pollution control, carbon emissions, occupational health and safety, good human resources practices, stakeholder management and more.
Net Balance provides services to companies to assist in managing sustainability or ESG issues, as well as to asset owners and managers in incorporating ESG factors into their investment approach.