There are US$178.5bn of sustainable investments in Australia, representing about 18% of total assets under management, with integration of environmental, social and governance (ESG) factors being the single largest strategy employed by sustainable investors, according to the Global Sustainable Investment Review (GSIA).
Globally, at least US$13.6 trillion assets under management incorporate ESG factors into investment decision-making processes, according to the GISA report. GISA is a collaborative research report between the Global Sustainable Investment Alliance, AfricaSIF.org, and SIF-Japan, and presents results from market studies by regional sustainable investment forums from Europe, the United States, Canada, Australia, Asia, Japan, and Africa. The report measures sustainable investments across asset classes, from listed equities and fixed income to hedge funds and microfinance.
Managed sustainable investing portfolios in Australia has increased by 33% between 2010 and 2012, from US$13.2bn to US$17.5bn. The report also noted that sustainable investment portfolios also outperformed the broader market – all managed portfolios returned 1.8% between 2010 and 2012, while sustainable investments returned 7%.
“The main factor contributing to this growth is the number of new funds adopting sustainable investing policies amounting to US$1.42 billion and net inflows to existing portfolios of US$186 million,” the report said. “The average responsible investment fund delivered higher returns than the average mainstream fund across one, three, five and seven years, and for Australian, overseas and balanced funds.”
Australia represents 1.3% of total sustainable investment, smaller than Africa’s 1.7%, but larger than Asia ex-Japan, which represents 0.5% and Japan, which represents 0.1%. Europe represents 64.5% of sustainable investments, while the US comes in at 27.6% and Canada is 4.3%. However, if sustainable investments are compared as a relative proportion of total assets under management, Australia is middle range in terms of sustainable investments – the 18% of funds under management is in range with the global average of 21.8%.
GSIA found that while integration was the top strategy for institutional investors in Australia, and represented US$ 6.2 trillion globally. The second largest strategy in Australia is corporate engagement, and two specialist engagement organisations, Regnan, and F&C Management’s responsible engagement overlay, provide corporate engagement services on behalf of superannuation funds and institutional investors with total shareholdings of US$57.6bn.
Negative/exclusionary screening is globally the most popular technique, with US$ 8.3 trillion in assets. However, negative/exclusionary screening represents only a small part of Australian sustainable investing. However, negative screening has grown by 30% since 2010, mainly due to the fact that Local Government Super expanded its sustainable investing overlay to large international equities. LGS now excludes investments in companies that take in more than 10% of their revenue from areas including “armaments, gambling, nuclear/uranium, old growth logging, tobacco, poor mining practices, questionable workplace practices, and questionable ESG practices,” the report said.
“The international collaboration by our organisations on the Global Sustainable Investment Review 2012 demonstrates the growing maturity of the sustainable investment industry,” said Alexandra Boakes Tracy, chairman of ASrIA, in a statement. “Data can now be collected and analysed both regionally and globally for the benefit of industry players in both developed and emerging markets.”
The Responsible Investment Association of Australasia commissioned CAER – Corporate Analysis. Enhanced Responsibility to conduct the research on Australia and New Zealand.