Commitment to ethical investing booms

The majority of professionally managed funds in Australia are committed to responsible and ethical investments - a market that is close to approaching $1 trillion.

Joint research from KPMG and Responsible Investment Association Australasia (RIAA) shows $866 billion or 55% of all professionally managed assets use an ethical and responsible investment strategy - jumping 39% compared to the prior corresponding period.

In the year to 31 December 2017, the 2018 Australian Responsible Investment Benchmark Report focused on the size, growth and performance of the Australian responsible investment market and analysed the investment strategies of 112 asset managers.

At a broad level, it found 24 managers had a strong approach to ESG integration - comprising $679.3 billion of assets under management, up by 22% year on year.

Asset managers surveyed said ESG factors positively impacting portfolio performance is the greatest driver of growth in responsible investment.

At the core responsible investment level, negative or positive screening, sustainability-themed investments, impact investing and community finance reached a record AUM level of $186.7 billion or 12% of all professionally managed assets.

This growth in absolute and relative terms reflects a surging demand for ESG investments, and that more negative screens are being embedded across mainstream financial products and mandates - particularly across tobacco and controversial weapons.

According to RIAA chief executive Simon O'Connor, the findings speak of ESG considerations sitting alongside financial returns as critical components that inform the investment decisions.

"We are now at a stage whereby issues such as climate change, human rights, corporate culture, diversity and a whole range of other important sustainability issues are right at the forefront of consideration by Australia's finance community," he said.

O'Connor explained the uplift in assets was largely due to mainstream investment funds making a switch to incorporate responsible investment, such as incorporating negative screening, systematically assessing ESG factors as well as engaging directly on these issues to influence corporate Australia.

"Nearly two decades of progress in responsible investment has this year reached an important tipping point, which we believe will only gain further momentum in light of growing calls for transparency and accountability across finance along with a growing consumer demand for investments that align with their values," he said.

In July, RIAA reported investments delivering social and environmental impact alongside financial returns have risen to $5.8 billion, representing a $4.6 billion increase since the 2014-15 financial year.

Investec Asset Management co-head of emerging markets and fixed income Werner Gey van Pittius, who recently visited Sydney from London, says some managers are scrambling to implement ESG processes.

Currently, ESG is "en vogue concept" but the challenge is if people truly believe in the concept.

Investing in an ESG index product without due process or discretion doesn't make sense, he said.

As an active investment manager, he added that Investec is "very involved" in carrying out its ESG strategies.

The UN, he said, has thoroughly put together the 17 Sustainable Development Goals. Investec treats the SDGs with a lot of respect and focuses on eight of those, he added.

One way of measuring the effectiveness of ESG is assessing the countries the money is invested in.

"That is what will attract capital to the country over time - they treat their workers better, earn better money, live longer and have higher living standards," Gey van Pittius said.

Read more: ESGInvestecRIAAInvestec Asset ManagementInvestment Association AustralasiaInvestment Benchmark ReportKPMGSimon O'ConnorWerner Gey van Pittius
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