More than half of respondents (53%), up from 48% in 2022, view institutional demand as a key contributor to market expansion, according to the Responsible Investment Association Australasia (RIAA).
In its annual report Responsible investment benchmark reportThe RIAA noted that while institutional demand and expectations for long-term performance improvement or risk mitigation have fueled growth, growing concerns about greenwashing have also increased. In 2023, 52 percent of respondents cited greenwashing as a major problem, compared to just 45 percent in 2022.
This is consistent with global trends, the RIAA noted, as greenwashing remains a significant barrier to responsible investment, contributing to reduced capital allocation in European sustainable investment products and net outflows to the American sustainable investment market.
Additionally, Australia’s 2023 budget allocated $4.3 million to the Australian Securities and Investments Commission (ASIC) to investigate market participants “engaging in greenwashing and other misconduct in sustainable finance.
Interestingly, performance concerns eased last year in Australia, from 52% in 2022 to 45%, suggesting greater confidence among investors in the ability of investment strategies responsible (IR) to generate competitive returns.
According to the report, the performance of responsible investment products remained strong, with RIAA-certified products growing 24 percent to $167.7 billion in assets under management (AUM).
The data showed that a 10-year return for responsible investment products generated 13.9 percent in 2023, outperforming the 9.19 percent return for the rest of the market, including equity funds. Australians.
Estelle Parker, co-CEO of the RIAA, described the growing confidence as “encouraging”, adding that responsible investment and profitability can “go hand in hand”.
“Now the focus is on proving impact, adapting to returns and consistently delivering the positive outcomes that we know responsible investing can produce,” she said.
Other concerns, such as “lack of understanding or ability to apply IR” and “risk concerns,” saw notable declines in 2023, from 26% to 17% and 21%, respectively. at 12%.
New heights
After an anomaly in 2022 and despite a general slowdown in global economic growth, Australia’s responsible investment landscape has reached new heights in 2023, both in terms of size and quality, reaching $1.6 trillion in assets under management, compared to $1.3 trillion in 2022.
“This growth reflects both an increase in the number of investment managers implementing RI strategies and an increase in average assets under management allocated to responsible investments,” the association said.
Total funds under management stood at $3.9 trillion, with the proportion of RI assets under management increasing from 36 percent to 41 percent.
The number of responsible investors increased by 26 percent and the proportion of assets under responsible investment management increased from 35 percent in 2022 to 41 percent of the market, signaling “a powerful shift towards mainstreaming responsible investment across the entire market.
There were also 291 professional investment managers actively engaged in responsible investment practices, up from 272, and fund managers meeting the RIAA’s IR threshold increased to 90, up from 77 in 2022.
Parker, who described it as “a pivotal moment for the industry”, said: “Our data shows that 99% of respondents now integrate ESG principles into their framework, embedding responsible practices into the fabric of their operations . »
She added that regulators were “rightly” pushing for greater transparency and that “the public wants proof that investment claims have a real impact”.
“The credibility of responsible investment depends on demonstrating measurable and impactful actions, not just good intentions,” she said.
Impact investing
When it comes to impact investing, clean energy remained a leading theme, attracting $3.1 billion in assets under management, followed by climate change mitigation, which managed to attract $2.03 billion. dollars.
In 2023, investor engagement on non-climate sustainability issues has increased, with the most significant increases seen in engagement on indigenous rights and cultural heritage protection (56 percent), natural capital (48 percent). percent) and education (30 percent). percent).
The RIAA attributed this to a broader commitment to addressing “various social and environmental challenges.”
