Investments that prioritise environmental and social responsibility perform better than their mainstream counterparts in Australia, according to new research from Responsible Investment Association Australasia (RIAA), an industry body that represents responsible and ethical investors across Australia and New Zealand.
The RIAA’s new report, the Responsible Investment Benchmark Report 2017 Australia, found that nearly half (46%) of Australia’s assets under management (valued at $622bn) are invested via some type of responsible investment strategy. This was up 9% from $569bn in 2015, and is a four-fold increase from three years ago.
Meanwhile, sustainability themed investments grew significantly to $27.2bn in 2016, from $23.1bn in 2015 – an increase of 18%. This increase was largely led by considerable institutional investment into themed funds (such as sustainable agriculture/forestry funds and green-themed property funds), as well as the strong emergence of low carbon funds.
Produced annually and now in its 16th year, the report analysed investment practices by 104 asset managers, superannuation funds, financial advisors, banks, and community investment managers in 2016.
The RIAA applied the term “responsible investment” to a variety of strategies, including negative and positive screening, impact investing, and sustainability-themed funds. It also integrated environment, social, and governance (ESG) factors into the decisions.
Responsible investment approaches can be classified as core methods when they make explicit use of screening or choose sustainability-themed funds. Alternatively, they can be classified as broad strategies when they integrate ESG factors into decisions more generally.
Core responsible investment funds outperformed their mainstream counterparts over three-, five-, and 10-year periods. The RIAA calculated average performance by using the asset-weighted returns reported by each responsible investment fund, and a similar methodology to compare the performance of mainstream funds.
It’s a long outdated myth that financial returns must be sacrificed to invest responsibly or ethically, according to Simon O’Connor, CEO of the RIAA. “The performance figures and trends we are now seeing each year are telling the opposite story,” he said.
“If you’re a business and you’re not thinking about the way you manage your employees, the community within which you operate, the environmental impact of your business, the proper governance or even your impacts through suppliers, then you won’t stack up as comprehensively as your competitors,” O’Connor said.