The amount of capital committed to Australian responsible investing has soared from $18 billion to more than $1 trillion over the last decade – and Simon O'Connor, chief executive of the Responsible Investment Association Australasia (RIAA), said that number will continue to grow “astronomically”.
“Fundamentally the money is shifting. We’re just seeing this rapid surge in commitments across the Australian financial markets to responsible investing in many different guises and forms,” Mr O'Connor told InvestorDaily’s inaugural ESG Summit.
Mr O'Connor sees the surge in responsible investing being driven by three major forces, including competition, regulation, and increasing consumer demand. 2020 was a proving ground for responsible investment strategies, with companies that are more sustainable and that care about their stakeholders continually outperforming the market.
“What’s been fascinating over 2020 is that COVID-19 has actually enhanced that outperformance. We’ve seen these issues that traditionally don’t sit on financial statements, that don’t sit on profit and loss statements, are increasingly driving valuations in stock markets,” Mr O'Connor said.
RIAA found that nearly three-quarters of Australians would consider switching their banking and super if they discovered their current fund engaged in activities inconsistent with their values, and Millennials – who are about to become the recipients of the largest generational wealth transfer in history – are most likely to switch (82 per cent).
Domestic and international financial regulators are also now pushing companies to take ESG risks into account – a move Mr O'Connor described as “compulsion”, and which he believes will be one of the most important drivers of the switch to responsible investing.
“This is now a mainstream part of investment consideration, and APRA has now told us that considering climate change risk must now be an integral part of the RSEs of the responsible entities of super funds. ASIC has said it must be a part of what directors are considering in terms the foreseeable and actionable risks they need to undertake,” Mr O'Connor said.
