Responsible investing in Australia reaches new heights
1 September 2021 at 8:00 am
The responsible investing market is growing rapidly, but experts say responsible investment managers need to make sure they’re transparent and backing up their claims
Responsible investment assets are growing at 15 times the rate of the overall professionally managed investment market, new research shows.
The Responsible Investment Benchmark Report 2021 Australia reveals that responsible investment assets under management (AUM) increased by $298 billion over 2020 to $1,281 billion – a 30 per cent increase.
In comparison, the overall market grew by only 2 per cent during this time (from $3,135 billion to $3,199 billion) according to the Responsible Investment Association Australasia (RIAA) report.
Responsible investments now make up 40 per cent of the total market, up from 31 per cent in 2019.
For Nicolette Boele, executive of policy and standards for RIAA, this is a major achievement for the industry.
“It just shows there’s been a massive movement of money away from the mainstream towards responsible investing,” Boele told Pro Bono News.
But the report warned that while many investment managers claimed to be practising responsible investing, only one quarter met RIAA’s definition of a “responsible investment leader”.
RIAA rates investment managers on several criteria including transparency, systematic consideration of environmental, social, and governance (ESG) factors, and being strong stewards for more sustainable assets and markets.
Boele noted Australia has probably reached a point where it’s fashionable to be making responsible investments, due to consumer pressure and the strong long-term returns being achieved.
She said that if you want to practise responsible investing though, you have to do it right.
“Whilst I’m not saying [this is] greenwashing, there are potentially managers out there, unintentionally and possibly even intentionally, making some overstatement of claims that might mislead consumers,” she said.
“The lesson is [you need to be] backing up the commitments you make by publicly reporting on progress and doing full portfolio holdings.
“Just like we have with food labelling in the supermarkets, we just need to know what’s inside those products that consumers are buying or those investments people are making.”
This research follows the release of a Global Sustainable Investment Alliance (GSIA) report in July that found industry standards were tightening to address the growing threat of greenwashing.
Boele believes this highlights that the industry is in transition, with new regulations moving investors towards best standards of practice.
She encouraged the mainstream industry to get on board and ensure investments are helping to make the world a better place.
“[All investors] need to be more comprehensively looking at what they’re doing around aligning capital with environmental and social sustainability solutions, as well as how they’re integrating [ESG] risks into their decision making,” she said.
“It’s not just about making good companies better… it’s about putting finance to work for sustainability solutions.”
The report noted that responsible investment managers were increasingly committed to considering ESG factors, with 57 per cent having at least 85 per cent of their AUM “covered by an explicit and systematic approach to ESG integration”. This figure was just 41 per cent in 2019.
Mark Spicer, head of ESG and responsible investment at KPMG – which collaborated with RIAA on the report – said ESG claims made by investment managers were coming under increased scrutiny.
“With regulation on sustainable investment on the rise both in Australia and globally, investors face increasing risks from legal action if claims made about their responsible investment products are not accurate,” Spicer said.