The rise of ethical investments in Australia

Peter Terlato 29 July 2016

Ethical investment

Asset managers are screening for responsible investments.

Australia's propensity for responsible, ethical investment has risen to record levels, with almost half of all professionally managed assets integrating environmental, social and governance (ESG) strategies.

The 2016 Responsible Investment Association Australasia (RIAA) report found 47% of Australia's investments ($633 billion) in 2015 were responsible investments, representing a 0.6% rise on the previous year.

Of this, $581.6 billion was for broad responsible investments, incorporating ESG-led approaches. Core responsible investments - the most ethical section of the market - totalled $51.5 billion, up 60% year-on-year.

The best performing core responsible investment funds for 2015 were:

  • Australian Equities: Outperformed both the ASX300 and the average large cap Australian equities funds across one, three, five and 10 years.
  • International equities: Outperformed large cap international equities funds over five and 10 years but slightly underperformed in the short term.
  • Balanced funds: Outperformed equivalent mainstream multi-sector growth funds over all time periods - one, three, five and 10 years.

The average responsible investment fund returned 8.3% in 2015. As a comparison, the Large Cap Australian Share fund average return was 3.2% and the ASX 300 Accumulation Index delivered 2.6% in returns.

Positively screened core responsible investments grew 16% to $24.7 billion, with an increasing number of asset managers ramping up screening of potentially volatile investments.

In recent years, superannuation funds have stepped up their level of ESG-driven investments, often applying multiple responsible investment strategies across their portfolios.

Many super funds continue to exclude specific industries from entire funds. Last year's Benchmark Report noted several funds screened tobacco-related investments from their portfolios.

This trend continued in 2015 and has grown to include approximately 35 superannuation funds, encompassing a broader range of industries, primarily those involved in the extraction, processing or combustion of thermal coal and other fossil fuels, as well as organisations that fail to uphold human rights.

RIAA chief executive Simon O'Connor said the desire for ethical investments is more than a passing trend, it's an "evolution of the entire sector".

"Years of demonstrated long-term investment benefits to investors, who consider ESG factors, have quietly shifted around half of Australia's investment industry to invest responsibly," he said.

You can indirectly support a sustainable environment and other causes that matter to you by choosing banks that offer ethical savings accounts.

Picture: Shutterstock

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