The assets under management (AUM) of Australia's responsible investment market climbed to a record $1.54 trillion last year, up from $1.28 billion in 2020.
According to a new report from the Responsible Investment Association Australasia (RIAA), responsibly managed assets held a 43 per cent share of the total managed funds market in 2021, compared to 40 per cent in 2020, and 31 per cent in 2019.
The firm reported that the flow of funds to responsible investment approaches had increased significantly from a year earlier, including a 16 per cent increase in assets managed using the most popular approach — ESG integration — to $752 billion.
Corporate engagement was found to be the second most popular investment approach, with a 54 per cent rise in the value of assets used by investment managers to agitate for change on ESG issues to $726 billion, the largest increase of all the responsible investment strategies.
Around 45 per cent of managers reported on both their engagement activities with companies and the outcomes of these engagements versus 31 per cent in 2020, and only 21 per cent in 2019.
The growth in AUM covering sustainability-themed approaches, which more than doubled to $161 million and included $19 billion in sustainability-linked loans, was also highlighted by the RAA as a major trend.
“This year's study shows that we've hit a tipping point of the responsible investing trend. Companies can no longer tick a box by providing cursory ESG metrics. Investors are expecting real, measurable action towards environmental and social issues,” commented RIAA executive manager of programs, Estelle Parker.
“Investment managers are also getting much better at backing up their claims around the sustainability of their portfolios, as they don't want to find themselves on the wrong side of tightening greenwashing regulation and scrutiny.”
Out of the 140 investment managers in its research universe, the RIAA identified a record 74 organisations as responsible investment leaders including AustralianSuper, Aware Super, UniSuper, IFM Investors, AMP Capital, Pendal, QIC, Perpetual, Fidelity and BetaShares.
The report also found that products certified under the RIAA's Responsible Investment Certification Program achieved outperformance over the medium to long term.
Multi-sector growth funds certified by the RIAA returned an average 25.7 per cent per annum during the past 10 years, compared to 10.9 per cent per annum for the average responsible investment fund, and 8.8 per cent for Morningstar's index with no responsible investment filter.
“Investors are facing more demand and increasing scrutiny on their approach to responsible investment and the market is responding, with more funds being managed responsibly than ever before,” said EY climate change and sustainability services partner, Emma Herd.
“As a wave of mandatory reporting and product disclosure regimes come into force, understanding the current state of the market and the range of approaches being adopted by responsible investors is critical.”
As of 2021, 17 per cent of Australians held responsible investments, an increase of 28 per cent on a year earlier driven primarily by Gen X and Millennial investors.
Furthermore, four out of five expect their bank account and super to be invested responsibly and ethically and 8 per cent expect their savings to have a positive impact on the world.
Jon Bragg is a journalist for Momentum Media's Investor Daily, nestegg and ifa. He enjoys writing about a wide variety of financial topics and issues and exploring the many implications they have on all aspects of life.