20 Jul 2017
This is reshaping capital markets in a way which is bringing issues too-long considered ‘soft’ into centre stage. The logical conclusion of this is we will soon see investment markets supporting the companies who manage these issues effectively – as well as punishing those who don’t.
There are two stories at play here: some of the largest investment organisations in the world have committed to looking at environmental, social and governance issues in every investment decision they make.
These investors have not suddenly become a new cohort of ethical investors, nor are they rating sustainability issues over and above financial returns - rather experience has shown companies which manage sustainability issues well are the companies which will prosper.
" Experience has shown companies which manage sustainability issues well are the companies which will prosper." Simon O’Connor, CEO at Responsible Investment Association Australasia
Recent years have shown us only too clearly companies who ignore these so-called soft issues – mistreating their employees, not paying taxes, polluting the environment, disregarding the communities within which they operate, acting in a corrupt manner - will see these ‘non-financial’ factors come back to become very real hand brakes on their financial performance as a business.
A significant proportion of the investment industry understand this – with responsibly invested assets having quadrupled in the last three years to $US622 billion - and recognise good investable companies today know the importance of managing and looking after critical business issues.
But there is a second story at play as well: consumers are increasingly demanding their savings and investments are managed in a way which - at a minimum - do no harm.
Super funds, banks and investment managers are increasingly hearing from their clients about issues meaningful to them – from climate change, to human rights, gambling or weapons.
What has become clear is customers want their retirement savings and investments to grow but not at any cost.
Responding to these concerns in the last year we’ve seen a 36 per cent growth in investment products which put in place exclusions over certain industries, most commonly weapons, tobacco and gambling.
These exclusions are spreading far beyond just your traditional ethical investment fund, through to mainstream superannuation and funds management. Because clients are demanding it.
But these two stories are not so far apart, as there is ever greater realisation no business operates in an ethical vacuum, and a business operating unethically will be found out and will suffer financially.
The flipside is Australians have ever greater expectations of our largest businesses and expect to see ethical leadership consistent with the size of the contribution these companies make.
Business and investment are no longer seen to be operating outside of society but rather they are increasingly a critical part of the fabric of society. The way they operate shapes our society – for better or worse – and as such there are greater expectations on us all to reflect that.
Responsible and ethical investing is no longer just about avoiding ‘bad’ companies through divestment or exclusions. Rather the conversation is rapidly moving to where those invested savings are directed and what companies and assets are being supported by those investment decisions.
Capital is the fuel of the economy and how it is deployed is shaping the country we live in. With well over $US2 trillion managed in Australia’s superannuation system, where it is invested will determine the Australia we all grow old in – will it be prosperous, clean, equitable and fair? Will it remain one of the most liveable countries?
Today, when customers choose their bank and their super fund, they are looking well beyond just the returns and the product fees. They are looking for an alignment with their values.
They want to avoid their money being invested in companies or industries doing harm, but even more so they want to see their own savings having a positive impact.
Pleasingly, this growth in responsible investing is also showing itself to be delivering better investment outcomes.
As well as measuring the size and growth of responsible and ethical investment, RIAA’s recently launched Responsible Investment Benchmark Report also measured the performance of these funds compared to mainstream funds.
Again, this year, Australian share funds and balanced funds responsibly invested outperformed the average mainstream funds over three, five and 10 years.
This is good news for consumers, for responsible investors and for responsible businesses.
Simon O’Connor is CEO at Responsible Investment Association Australasia
The views and opinions expressed in this communication are those of the author and may not necessarily state or reflect those of ANZ.
20 Jul 2017
20 Jul 2017
03 Jul 2017