The investor community is showing a willingness to flex their ownership muscle when it comes to engagement in responsible investing.
The Responsible Investment Association Australasia (RIAA) recently released their responsible investment benchmark report and found that corporate engagement and shareholder action was the secondary strategy for most investors.
“We are finding that the investor community is more willing to flex their ownership muscle in terms of their ownership of customers. There’s a lot more proactive dialogue going on,” said Simon O’Connor, chief executive of RIAA.
While no single manager said their first strategy was engagement, 36 per cent said it was their secondary strategy, said Mr O’Connor.
“You are seeing a greater propensity to vote in favour of ESG resolutions in AGMs and we’ve seen some fairly big votes in favour of companies aligning their strategy with a two-degree future for example.
“You’re also seeing a lot of investors getting behind listed companies to really ensure they realign their strategies to be in line with Paris agreement targets in particular,” he said.
Another smaller strategy employed by investors was negative screening, despite this being a rising consumer trend.
However, the exclusions applied by investment managers were found to not align closely with what consumers wanted.
The RIAA found that controversial weapons and tobacco were the most prevalent exclusionary screens among investors yet not for consumers.
Thirty-two percent of consumers wanted to exclude fossil fuel but only 5 per cent of investment managers had that exclusions, similarly 22 per cent wanted to exclude human rights violators while only 4 percent of managers had the option.
“There’s very few listed companies that are black and white; there’s a lot of grey. Investors are going to get their exposure to renewables through an AGL or an Origin for example as opposed to a pure renewable stock.
“So there is dual stories going on and part of the challenge for us is to be able to communicate to the consumer market that engagement can have really positive outcomes and we are starting to see that flow through and fund managers reporting on their activities and commitments from large companies,” said Mr O’Connor.
The report, now in its 18th year, was overall positive for responsible investments, showing that responsible funds had higher than average returns across one, five and 10-year horizons.
“The findings of our report refute any misconception that investing responsibly comes at a cost in terms of performance and contributes to the mounting body of evidence showing that responsible and ethical investing leads to better investment outcomes, alongside benefiting people and the planet,” said Mr O’Connor.
Over five years, the amount of assets being managed in accordance with responsible investment principles has risen by 27 percentage points to represent 44 per cent of Australia’s total $2.25 trillion in assets.
“The exponential growth in responsible investing recognises the integral role it now plays in decision-making around fund allocations,” said Mr O’Connor.