The appeal of impact investing has declined after several years of steady growth, with new data from American Century Investments flagging Australia as showing the greatest decrease compared to global counterparts.
While over half of Australians surveyed in December 2023 agreed that impact investing appealed to them (57 per cent), this was a 6 per cent fall from the year before.
This appeared to be the case across the board, with an observable drop in interest in all countries surveyed – Singapore and the UK fell 5 per cent, Germany was down 4 per cent, while the US experienced the smallest decline of just 1 per cent between 2022 and 2023.
Australian Millennials led the shift, with appeal falling 11 per cent year on year. This was followed by Gen X (9 per cent decline) and Gen Z (8 per cent decline).
More than one-third of respondents (35 per cent) cited recent economic conditions, including rising inflation and geopolitical tensions, as negatively affecting their willingness to allocate to impact investing.
“It seems that ongoing market volatility, and persistent inflation, has investors’ minds focused on returns rather than on the impact of their investment,” commented Sarah Bratton Hughes, senior vice-president and head of sustainable investing for American Century Investments.
“Nonetheless, there is still a strong willingness to sacrifice some returns for the benefits of investing in impact funds.”
Namely, 30 per cent of Australian investors were willing to give up between 6 to 10 per cent of returns in order to create a positive impact, and a further 42 per cent said they would give up between 1 and 5 per cent.
“A willingness to give up a proportion of expected returns shows that impact investors still expect to earn competitive returns and are making rational choices to realise an impact emphasis in addition to a financial return,” Bratton Hughes explained.
“While it is positive that investors are willing to sacrifice returns in order to realise the benefits of investing in impact funds, often this is not necessary, as impact funds historically show returns in line with their non-impact counterparts.
“Identifying impact-related factors that could affect a company’s ability to stay competitive over the long term has the potential to add to returns,” she concluded.
The news comes after Australian businesses continue to face significant challenges in meeting climate targets.
Namely, a new study launched by consulting firm Kearney revealed that Australia lags behind the regional average for setting comprehensive targets across Scope 1, 2, and 3 emissions (28 per cent versus the APAC average of 41 per cent).
Meanwhile, 82 per cent of business leaders believe their decarbonisation targets to be attainable, though only 20 per cent have decarbonisation plans acutely aligned with the Paris Agreement.
This is on the back of most business leaders (77 per cent) viewing sustainability as a cost rather than a value-creating opportunity.
“The perception of sustainability as a cost instead of an opportunity is unfortunately a short-term business focus which hinders the full integration of sustainability into operations,” commented Kate Hart, partner and APAC sustainability co-lead at Kearney.
“It’s imperative that Australian enterprises accelerate their efforts and embrace regenerative practices that look beyond immediate gains, addressing the broader systemic impacts essential for sustainability.”
According to Hart, this shift is not just about environmental responsibility, but about “building true resilience for businesses in a rapidly evolving global landscape”.
