Responsible investment has cemented itself as an essential theme that is guiding fund managers, superannuation funds, financial advisers, and other investors. In 2022, this would continue to determine how capital is directed and invested in the market, and influence underlying companies, Responsible Investment Association Australasia (RIAA) CEO Simon O’Connor said.
“I think what we’re observing is responsible investment has very much become a new normal for our investment markets in Australia, and indeed, that’s a trend we’re seeing globally,” he told InvestorDaily.
Nevertheless, Mr O’Connor said that while most fund managers have public commitments to responsible investment, designing policies and declaring commitments would be insufficient moving forward.
Indeed, he urged fund managers, superannuation funds, investors and financial advisers to ensure that these policies are reflected in the composition of investment portfolios.
“The question will be, ‘what have you done differently as a responsible investor? How does your portfolio look different? How are you responding to the big environmental, social and governance (ESG), and sustainability issues in front of us as we enter 2022?’” he asked.
There are multiple issues to bear in mind for fund managers and investors alike, including climate change, human rights, health issues (including tackling the COVID-19 crisis), nature and biodiversity.
“It’s a broad cross-cutting theme that is influencing portfolios across the world right now. What we’re starting to see is that this is ultimately influencing the flow of capital towards cleaner, more sustainable companies away from dirtier, less sustainable companies,” Mr O’Connor said.
“That trend is only going to accelerate as we see the financial and investment markets increasingly pick up on this theme. We’ll see that flow through to investment strategies and products, embedded into investment and superannuation platforms. We’re seeing that rapidly accelerate right now.”
In addition to expecting tangible action on ESG and sustainability issues, fund managers could be expected to provide independent verification of their claims around the implementation of responsible investment policies.
“We are seeing globally a rise in labelling and certification of investment products to effectively prove that the claims being made by fund managers are actually being followed through in their product,” Mr O’Connor said.
“Our consumer research shows that four in five Australians want their investment product claims to be verified independently.”
The RIAA has seen a surge in demand from asset managers to certify their products, with over 200 products verified and another 100 in the pipeline, Mr O’Connor said.
The role of the financial adviser will become critical in the responsible investment landscape, with RIAA consumer research revealing that 86 per cent of Australian respondents believe that it is important for their adviser to ask clients about their interests and values in relation to their investments.
As such, Mr O’Connor suggested that during the “know your client” process, advisers could ask questions about their position, ethical beliefs and passion to gain an understanding about their clients’ expectations surrounding responsible investment.
“This is probably the biggest opportunity for advisers to outperform robo-advice platforms to really demonstrate their value proposition to the client by reflecting those values in an investment portfolio,” he said.
In addition, being abreast of the wave of sustainable products and differentiating between these will be crucial, he added.
“What does one product sustainability fund do compared to a low emissions fund, an ESG leaders fund, or a green transition fund? Advisers are going to need to stay on top of products and be able to really look through the promises to understand if those fund managers can really support the claims and deliver on those claims,” Mr O’Connor said.
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