Responsible investment market undeterred by greenwashing fears
Responsible investment in Australia has hit a new record in assets under management (AUM), despite greenwashing concerns also intensifying.
The Responsible Investment Association Australasia’s (RIAA) annual 23rd Benchmark Report found the responsible investment market increased by 24 per cent to $1.6 trillion in AUM in 2023. In comparison, Australia’s total managed funds industry reached $3.9 trillion.
During the calendar year, the number of investment managers that actively engaged in responsible investment practices rose from 272 to a record 291.
Moreover, RIAA named 61 Australian asset managers as responsible investment leaders for 2024, up from 55 in the previous year. New entrants included Magellan Asset Management, ClearBridge Investments and UBS Asset Management.
“This is a pivotal moment for the industry. Our data shows that 99 per cent of respondents now integrate ESG principles into their framework, embedding responsible practices into the fabric of their operations,” commented Estelle Parker, co-chief executive of RIAA.
“Concurrently, regulators are rightfully pushing for greater transparency, and the public wants proof that investment claims lead to real-world impact. Credibility in responsible investment depends on demonstrating measurable, impactful action, not just good intentions.”
RIAA’s report also examined key barriers preventing further growth in the market. It noted that mistrust and concerns about greenwashing increased from 45 per cent in 2022 to 52 per cent in 2023, making it the most significant deterrent.
However, this failed to deter the responsible investment market from reaching its record AUM.
Performance concerns, which was previously the top barrier, decreased from 52 per cent to 45 per cent. This suggests a rising optimism among investors on the potential for responsible investment strategies to deliver strong returns, the report noted.
Parker continued: “It’s encouraging to see growing confidence around performance. Investors are realising that responsible investment and profitability can go hand in hand. Now, the focus is on proving impact, adapting to feedback, and consistently driving the positive outcomes we know responsible investing can achieve.”
Turning to the key drivers of market growth, demand from institutional investors led the way at 53 per cent, followed by the expectation of improved long-term performance at 33 per cent.
RIAA added that one of the most significant developments has been the improvement in transparency, with a greater number of investment managers now fully disclosing their holdings and reporting the outcome of their stewardship activities.
“This increased transparency signals the industry’s commitment to providing investors with a clear understanding into the composition of their portfolios, which enhances accountability and fosters trust.”
According to Morningstar, sustainable funds enjoyed a positive rebound in the third quarter of 2024 as Australian and New Zealand investors allocated US$640 million, reversing outflows of US$555 million in the previous quarter.
However, following the results of the recent US election, global fund managers with a US presence may be forced to revisit how they present fund offerings as political polarisation persists around ESG investing amid a Donald Trump victory.
AUTHOR
Jasmine Siljic
Recommended for you
Tribeca Investment Partners has made a distribution hire from Australian Ethical in a newly-created role focused on the national intermediary market.
Asset managers may be urged to diversify their product ranges, but investment executives have warned any M&A deal should avoid simply filling gaps and instead consider long-term value creation.
Specialist wealth platform provider Mason Stevens has become the latest target of an acquisition as it enters a binding agreement with a leading Sydney-based private equity firm.
Fund managers are entering 2025 with the most bullish sentiment since August 2021 and record high allocations to US equities, thanks to the incoming Trump administration.
