Responsible investments soar to $1.3 trillion

The Responsible Investment Association Australasia (RIAA), in partnership with KPMG, released a report on Wednesday revealing the exponential growth responsible investment assets experienced in 2020 — 15 times the rate that overall Australian professionally managed investments clocked.

As such, the market soared from $983 billion in 2019 to $1,281 billion in 2020.

The report differentiates between the majority of the mainstream investment market, which claims to be responsibly invested, and funds that are engaging in leading practice responsible investment.

It found that the latter had a growth of 30 per cent in 2020, this coming at a time wherein the market at large saw the value of assets shrink by 11 per cent.

“Investment managers committed to responsible investment and leading practice are seeing money moving across into their funds, while those with ineffective policies and poor processes are being left behind as the capital moves out,” said Nicolette Boele, executive, policy and standards, for RIAA.

“The message for investment managers is clear. It’s not good enough to simply claim you’re investing responsibly. If you’re not doing it well, then there’s a high risk of losing business.”

Funds that claim to be ESG-minded but do not effectively follow through on such practice were said to run the risk of regulatory and investor repercussions.

“The promises and ‘ESG claims’ made by investment managers are coming under increased scrutiny,” said Mark Spicer, head of ESG and responsible investment at KPMG on the issue of regulatory risk.

“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.”

Funds simply claiming to be responsibly invested, without adequate practice, were also found to be at risk of investor disenfranchisement.

Moreover, claims of “greenwashing” have risen as investors have become more emboldened to call out these funds as the sustainable investment space has grown.

However, more fund managers were seen to be rising to this challenge by improving accountabilities by demonstrating how they are engaging with ESG issues and communicating the real-world outcomes of the investments made.

In 2020, 31 per cent of investment managers reported on both the activities and the outcomes of their corporate engagement and shareholder action — a rise from the 21 per cent reported in 2019.

“The big challenge for the maturing Australian responsible investment market is to improve the evaluation and reporting of sustainability outcomes,” said Ms Boele.

“Increasingly, responsible investment is being defined not just by the strategies involved, but by the short and long-term social and environmental impacts that investors are targeting and generating through their responsible investment approaches.”