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Market fuelled by changing investor attitudes and growing disclosures of ESG risks
October 2019, SINGAPORE—With 44% of its A$2.24 trillion (US$1.6 trillion) in total professionally managed assets invested responsibly, Australia has made some of the biggest strides in environmental, social, and governance (ESG) investing in the Asia Pacific. This is due to the strong push of super funds and some of the largest fund managers’ commitment to responsible investments.
In 2018, responsible investment assets under management (AUM) totaled A$980 billion, up 13% over the previous year, according to the Responsible Investment Association Australasia’s (RIAA’s) 2019 benchmark report. Growth has been supported by regulatory standards, particularly in the area of disclosure. Companies offering super products, managed funds, and investment-related life insurance particularly have to comply with the Financial Services Reform Act 2002. This law requires companies providing financial products with an investment component to state in their product disclosure statements how much they consider labor standards and environmental, social, or ethical issues in their investments.
A survey by the RIAA has also found that 50% of asset managers attributed growth in responsible investment AUM to investors’ understanding that incorporating ESG factors could positively impact portfolio performance. They expect this factor to help boost the take-up rate of responsible investment strategies among mainstream investors.
Notably, interest in responsible investment is increasing among retail investors. In 2018, 42% of responsibly managed assets was on behalf of retail clients, up from 30% in 2017. In addition, RIAA’s Responsible Returns online tool shows retail investors are searching for responsible investment products.
However, Australia’s responsible investment market is not without challenges. Companies still have to improve their ESG incorporation practices and be more systematic in their approaches to responsible investment.
There also seems to be a disconnect between investor expectations and asset managers’ actions. For example, the RIAA’s 2019 benchmark report shows that only 5% of the combined AUM of surveyed managers had fossil fuel exclusions. However, 32% of consumer searches using the RIAA’s online tool to find responsible or ethical products were for asset managers which had such exclusions.
Other challenges include the perceived lack of performance of ESG options, and the lack of public awareness.
Despite these hurdles, the growing number of products means that investors now have more options to meet their expectations both in investment returns and impact. The RIAA certified 14 new funds in 2018, bringing the total number of certified Australia responsible retail funds to 88.
“Cerulli expects investors to check products more carefully as knowledge about responsible investment deepens,” said Leena Dagade, an associate director with Cerulli Associates. “This will create opportunities to provide greener products, such as those that roll a few responsible investment strategies into one product. At the same time, it will reduce greenwashing of products simply to capitalize on the popularity of responsible investments.”
NOTES TO EDITORS:
These findings and more are from: The Cerulli Edge—Asian Monthly Product Trends Edition, October 2019 Issue.
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