Growth in Responsible Investment is Backed by Better Than Average Financial Returns

Ethical, impact and environmentally sustainable investments are now outperforming mainstream investments, a new report has found.

The Responsible Investment Benchmark Report 2017 released on Tuesday revealed  ‘core’ responsibly invested Australian share funds have outperformed their equivalent mainstream funds over three, five and 10-year horizons.

Responsible Investment Association Australasia CEO Simon O’Connor told Pro Bono News there has been a “big shift” in the uptake of responsible investments not only to suit the values of investors but also as a financially savvy opportunity.

“It is a long out-dated myth that financial returns must be sacrificed to invest responsibly or ethically. The performance figures and trends we are now seeing each year are telling us the opposite story,” O’Connor said.

Now in its 16th year the report, which maps the growth of responsible investment, found that the industry had more than quadrupled over the past three years to $622 billion.

O’Connor said responsible investments, which include negative screening, impact investing, sustainability themed funds and the integration of environmental, social and governance (ESG) considerations, represent just under half of the Australian investment market.

“One in two dollars in Australia is now managed by fund managers who are engaged in some form of responsible investment,” O’Connor said.

“More and more Australians are wanting their investments and savings to align with their values, and are reaping the rewards with strong financial performance.

“The market is recognising the opportunities to create value for clients, with a surge in responsible investment products over the past year, including many focused on delivering positive social or environmental impact.”

O’Connor said negative screening, the exclusion or divestment of funds from certain industries, had doubled over the last two years.

“While recent conversations dominating this sector have been predominantly focused on fossil fuel divestment, the report shows an increase in negative screening across the market, particularly against weapons, tobacco, gambling, as well as significant increases in exclusions based on nuclear power and human rights.”

The report also found a rise in impact investing.

“We are seeing a continual growth over the last few years to a point where $4.1 billion has been invested,” O’Connor said.

O’Connor said that an ethos of “do no harm” investment had started to become “a default investment option”.

“What has been a big change in the last couple of years is that mainstream investors are starting to have an expectation that their investments are doing no harm,” he said.

O’Connor said there were two schools of thought in responsible investment, one pursuing ethical values while the other signed up because it made “pure investment sense”.

He said more and more companies were signing on to the idea of “shared value”.

“There has been a long history of ethical investment in Australia but what we are starting to see over the last 10 years is that mainstream investors have really understood that these are important considerations when you are making an investment,” O’Connor said.

“What has really accelerated that has been the consumer interest and demand from members of the public who are increasingly asking questions about how their money is saved and banked.

“Australians increasingly want to know where their money is being invested.

“The conversation is now shifting to how to invest your money in something that ensures a greener, more healthier, ethical future for Australia.”