Ethical Investing Has Come of Age With a Rise in Consumer Demand
20 November 2017 at 3:25 pm
Consumer demand for ethical investing is rising, with nine out of 10 Australians expecting their super and other investments to be invested ethically and responsibly.
New research commissioned by the Responsible Investment Association Australasia (RIAA) has revealed four out of five Australians said they would consider switching their super or other investments if their fund engaged in activities that did not align with their values.
The Australia-wide polling, conducted by Lonergan Research and launched at the Responsible Investment Australia 2017 conference, also found more than half of respondents said they would consider making ethical or responsible investments in the next one to five years.
RIAA’s CEO Simon O’Connor told Pro Bono News they had “known for a while” that Australians expected their retirement savings to be invested in a way that “did no harm”, but they wanted to test how deep that sentiment went.
“There are a couple of points that kind of blew me away with this,” O’Connor said.
“Probably the most important thing is that this has really become the expectation not just for ethical super funds or ethical funds but actually for default superannuation and their products. It really says the baseline for all products is this expectation that investors are doing no harm.
“It has led a lot of the big super funds in Australia, to divest from tobacco in the last few years, where I think you have now half of the big super funds who have sold out of tobacco, which is really a reflection of a response to this growing consumer engagement in superannuation on issues of ethics and sustainability and matters of care for most Australians. So it’s really huge.”
O’Connor said the research showed ethical investment was not just a preference but people were willing to take action.
“The high level of intention in the responses of both planning to look at and make changes in the next 12 months to five years is kind of huge too… and is also just a huge signal to the finance sector to get our house in order,” he said.
“Australians who found that their funds were invested in a way that was not consistent with their own values wanted to switch.
“It is a concern if this data is true looking at the New Zealand example from about a year ago when it was revealed in the media that a number of the default pension funds were invested in armaments and tobacco, and there was this massive public outcry and basically it forced the whole industry to switch to putting basic exclusions across some these issues within a few months.
“And it kind of showed that consumers are willing to take action when it is revealed to them that their investments are being managed in a way that is not consistent with their own values and so I think it is a bit of a warning to finance in a way to take it seriously.”
Phil Vernon, managing director of Australian Ethical, said it was pleasing to see Australians “increasingly recognise the power of money to make a positive change in our world”.
“RIAA’s research reaffirms the rise of the ‘conscious consumer’ and with four in five Australians willing to consider switching to a values-aligned super fund, it’s clear that ethical investing has come of age,” Vernon said.
“Australians, particularly millennials, are realising that they are potentially investing their hard-earned money into companies harming communities and the environment.
“Today’s conscious consumer is recognising they have a choice and the power to enact positive change, without comprising the return of their investment.”
According to the latest findings millennials are leading the charge as the most likely group to invest in a responsible super fund that considers environmental, social and governance issues in addition to maximising financial returns (75 per cent).
Millennials were also the most likely to consider making ethical and responsible investments in the future (69 per cent).
O’Connor said the rise in ethical investing was driven by a combination of factors, but a generation shift was certainly occurring.
“I think the data here really demonstrates that and in response to that we see some of the investment organisations getting much savvier in communicating in a way that is appropriate to that generation, through apps, through social media,” he said.
“I think the funds themselves are getting better at explaining what they’re doing in this area. For a long time our members have been very focused on internally talking about the investment processes their undertaking, in a very technical way and I think we’re starting to see more of them talking about what actually has been the impact of our activities, and how are we changing corporate behaviours, how are we dealing with tobacco and other issues like that. So that’s kind of helpful as well.”
O’Connor said there had also been a rise in the last three years of NGOs who were focused on the finance sector as well.
“My estimates are, there are about 25 NGOs in Australia with financial sector target campaigns and those NGOs have a membership well over 5 per cent of all Australians who are involved in those, so you’ve effectively got 5 per cent of Australians being told to get in touch with their superfund, call their banks, speak to their financial advisor and so that also really elevated this on the priority list in terms of ensuring that investors are responding to these concerns in a responsible and measured way,” he said.
“That’s really activated things as well.
“I think there is this kind of awakening that if I personally go and buy Fair Trade chocolate, and free range eggs then I can also think about these things in the way I invest and bank my money, so that’s something of a natural progression where that conscientious consumerism is really hitting finance aswell, which is great and positive and helping to drive change.”
O’Connor said the “vast majority of Australians” wanted superannuation invested responsibly, such as through investing in companies that build clean energy infrastructure or avoiding investments that can harm communities such as weapons manufacturing.
“Other key issues of concern for consumers, in terms of their investments, include animal cruelty (69 per cent), human rights violations (62 per cent), and pornography (56 per cent),” he said.
The rise in consumer demand for responsible and ethical investment comes as the responsible investment industry continues to grow in size and influence.
“Consumer sentiment mirrors the continuing growth in the sector with responsible investment more than quadrupling over the past three years and nearly half of Australia’s assets under management now being invested through responsible investments” O’Connor said.
“As more Australians show a desire for their investments and savings to align with their values, those already investing their money responsibly are enjoying strong financial performance.”
O’Connor said super funds and investors needed “to consider deeply” how they reflect these attitudes in the products they are offering to clients and the way they are managing superannuation investments.
“One of the big challenges in finance has been to get consumers to engage with how they invest their money,” he said.
“I think what is becoming clearer is that responsible and ethical investing and all these issues that we stand for, are actually a way to get really deep engagement with our clients.
“To talk about the issues that really matter to Australians is a great way to get them to start thinking more about how they are investing their retirement savings and looking after their investments and savings, and so I think this then becomes a really great means through which we can connect more deeply with Australians.”
The report highlighted that a persistent challenge for many people considering switching to an ethical super fund was access to information.
According to RIAA more than half (56 per cent) of the population believe there is not enough independent information available regarding switching to a responsible or ethical super fund, or option within a super fund.
O’Connor said it was a “huge impediment”.
“I think the whole superannuation for most Australians is still quite perplexing and we know that because many Australians either just sit in the default fund they were first allocated into or sit there with multiple superannuation funds and they have never consolidated them,” he said.
“I think we have a real challenge there in terms of just engaging people to think about how they are investing their money, and equally I think in making it much simpler for people who do have a particular desire to align their investments with their values, to find investment options that exist, credible investment options.”
In a bid to address this RIAA launched a webtool which connects Australian consumers who care about responsible and ethical investing, with products that match their values.
Vernon said the webtool was an “important step” for the industry.
“The ethical investment industry is growing exponentially, but there needs to be clearer definitions about what ethical investing is,” he said.
“There are so many ‘shades of green’ which can confuse consumers on how their money is invested.
“An important step is the work RIAA is undertaking to launch the responsible returns webtool, making ethical investing more accessible and digestible for consumers.”
O’Connor said it was an important to raise awareness and get the word out there for investors that a financial return is important, but should not run contrary to strongly held beliefs.
“If you feel deeply and passionately about certain issues, well you should really go and speak to your adviser or superfund or funds managers or wherever you invest your money and really think about how you can align that with your own values and beliefs and still deliver good financial returns,” he said.