Impact investing is on the rise in Australia but are consumers willing to put their money where their mouths are? Finder polled over a thousand adults in Australia as part of its Consumer Sentiment Tracker (CST) in September 2022 to find out.
Quick summary
- 35% of Australians are willing to invest philanthropically and on average they’re prepared to earn 2.34% less p.a.
- Men are more likely than women to say they’d be willing to earn less on their investment if it meant it would have a positive social impact.
- Generation Y are the most philanthropic investors (43%) and baby boomers are the least (23%).
- 43% of the Australian investment market ($1.54 trillion) is managed using a responsible investment approach.
- Impact investing is primarily made up of green, climate or social impact bonds ($24.6 billion).
ESG or impact investing in Australia
- 35% of Australians are willing to make less of a return on their investment in order for it to have a positive social impact. That’s the equivalent of over 7 million adults.
- On average, those that are prepared to earn less are happy to see their annual returns decline by 2.34% per annum. However, 8% are only willing to cop a 0.5% reduction p.a. and 6% of philanthropic Aussies a 1% reduction.
- However, nearly 1 in 10 (9%) of respondents said they’d be prepared to sacrifice 4% or more on their annual return.
- The remaining 65% said they don’t care about investing in a company that produces a tangible social good.
Impact investing by demographic
- Men are more likely than women to accept less of a return on their investment in order to produce a tangible social good (36% vs 33%).
- Generation Y are the most philanthropic (43%), followed by generation Z (39%), generation X (34%) and baby boomers (23%).
- Those in NSW are more willing to impact invest at a personal cost to them (38%) while those in South Australia are the least (23%).
Impacting investing in Australia
- In Australia, responsible investment assets grew to $1.54 trillion, according to September 2022 data from the Responsible Investing Association of Australasia (RIAA). This is up from $1.28 trillion in 2020 and means 43% of the total market is managed using a responsible investment approach.
- The number of investment managers reporting back to investors on environmental and social outcomes achieved has more than doubled in 2 years from 21% in 2019 to 45%.
- Approximately $726 billion in assets under management is now being used by fund managers to agitate for change on ESG issues. This is up 54% from 2020.
- The total impact investment assets under management increased slightly to $30 billion in 2021, up from $29 billion in 2020.
- Impact investing is primarily made up of green, climate or social impact bonds ($24.6 billion).
- Performance concerns are the strongest deterrent to the responsible investing market, followed by a lack of trust and concerns about greenwashing.
ESG or impact investing funds in Australia
- The Australian impact investment market has undergone significant recent growth. In 2018 and 2019, the total value of impact investment products widely offered to Australian investors rose 249% to $19.9 billion, and the total number of impact investment products rose 118%.
- Of the total value of Australian impact investments, 87% comprise products targeting environmental outcomes, while the remaining 13% comprise products targeting social outcomes.
- 1 in 6 ESG funds in Australia has been retrofitted out of a pre-existing, often struggling strategy, according to Morningstar. In 2021, 25 portfolios were relaunched as sustainable funds.
- Only a third of investment funds with a focus on ESG factors outperformed their non-ESG peers in the same asset allocation category in the 2021-22 financial year.
- However, over 5 years, super funds ethical growth options have outperformed normal growth options by 1.1%. This increased to 1.3% over 10 years.
Global ESG investing
- ESG investments now account for more than 25% of the world’s professionally managed assets globally.
- The value of investments that claim to be ESG friendly has grown from US$23 trillion to US$35 trillion in 2016 and is on track to hit US$50 trillion by 2025.
- The long-term performance of a sample of 745 Europe-based sustainable funds shows that the majority of strategies have done better than non-ESG funds over 1, 3, 5 and 10 years. However, only 3 in 10 euro corporate bond funds achieved better returns than their non-ESG funds over the same period.
- Sustainable funds have greater survivorship rates than non-ESG vehicles. On average, 77% of ESG funds that were available 10 years ago still exist, compared with 46% for traditional funds.
