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Fund flows into ESG and other responsibly managed investments

In the US, research10 released in mid 2021 found the amount invested in listed ESG funds had increased elevenfold in just 5 years. The same study estimated that almost one in three dollars of total US assets under professional management were held in ESG funds.

Locally, data released by RIAA11 revealed that in 2020, Responsibly invested assets grew at 15 times the rate experienced by overall Australian professionally managed investments. Their Responsible Investment Benchmark Report 2021 Australia revealed that responsible investment assets under management (AUM) increased by $298 billion over 2020 to $1,281 billion – a 30 per cent increase, and a figure which represents 40 percent of the total market, up from 31% just a year earlier.

In comparison, the overall market grew by only 2 per cent during this time (from $3,135 billion to $3,199 billion).

In 2020, Responsible Investments made up 40 percent of the total market, up from 31 per cent in 2019. 

This trend continued through 2021, with Morningstar data12 revealing flows into sustainable funds in the second quarter of 2021 (two-thirds of which went into active strategies) were the highest on record.

Demand drivers

Driving the explosion of interest – and action – in responsible investment is a powerful combination of evolving demographics, social trends, regulatory intervention and high-profile natural disasters and events which have shaped experiences and attitudes and raised our collective awareness of the concept of sustainability.

Awareness of climate change

The spectre of climate change is one that is hard to ignore, and hard to avoid, featuring extensively in our media and our political discourse (Coverage about COP 26 in Glasgow being a recent example). ‘Net Zero by 2050’ may be an empty slogan to some, but for many of the world’s governments and corporations, it is a North star, the journey to which will fundamentally reshape the world we live in, the way we live, and the products we consume.

You don’t have to be a politically attuned to be aware of this issue, nor an environmental activist to want to act.

In our own backyard we see the bleaching of the Great Barrier Reef and experience – with seemingly increasing regularity – droughts, floods and of course bushfires.

201913 research found that recent weather conditions in Australia had prompted 2 in 5 Australians to think about switching financial institutions (banks, super funds etc.) to one which invests ethically or responsibly. Undoubtedly the Black summer bushfires of 2019/20 – which brought the impacts of climate change and biodiversity loss to the forefront of Australia’s consciousness – have raised these consideration levels even further.

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References

10

Fund numbers double in two years amid ESG boom, Richard Henderson, Australian Financial Review, July 2021.

11

Responsible Investment Benchmark Report Australia 2021, Responsible Investment Association of Australasia

12

Australia’s sustainable funds market is growing at a blistering pace, Christopher Franz, morningstar.com.au, August 2021.

13

From Value to Riches 2020, Charting consumer expectations and demand for responsible investing in Australia, Responsible Investment Association of Australasia

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