Australian ethical investments double to $51.5bn in two years
Ethical investments in Australia have doubled to $51.5bn over the past two years, increasing their market shares to 3.8% from 1.5%, according to the Responsible Investment Association Australasia (RIAA). At the end of last year, 47% of the country’s investment industry saw ESG as central to decision making, while there has been a 179% increase in “sustainability themed” investments relating to green property, low carbon and sustainable agriculture funds in the past year.

Most of us probably spend more time considering the origins of our coffee or the happiness of the chickens that laid our eggs than our superannuation.

But for many, super is the second biggest investment we will ever make. Only those fortunate enough to buy a house make a bigger investment.

This is a problem. The two trillion dollars in super funds slushing around the economy is shaping the social and environmental outlook of our country.

That capital is the fuel of our economy and can be put to work to support smart, innovative, clean industries of the future, or businesses that are unsustainable and damaging.

Despite this, most of us are still stuck in aisle three trying to work out which brand of chocolate to choose while the quarterly statement from our super fund remains unopened at home.

Consider this: there are very few industries that have not been shaped by the rise of the conscientious consumer. This ethical disruption caused by a conscientious consumer has shifted the way we shop.

Think about how the discovery of sweatshop workers making Nike shoes totally reshaped that industry to a point where today sustainability credentials are used to differentiate products (for instance Puma publishing environmental profit and loss accounts and Patagonia advertising “Don’t buy this jacket”).

Until recent years, these very same conscientious consumers have remained stubbornly disengaged from where their second biggest investment goes. But by ignoring super, we have ignored one of the most significant chances to influence the shape of our economy and nation.

That has all now changed. The conscientious consumer has arrived in finance land and the reverberations are being felt across the sector.

In the past two years, finance has found itself thrust into the sights of those deeply considering their consumption choices, as more awaken to the fact that they can align their money with their morals, while also getting great returns.

The fossil-fuel divestment movement has been a watershed catalyst to connect consumers to their savings. The timing has been critical in Australia when many concerned about climate change have felt let down by a lack of government action.

Many civil society groups have shifted their focus to finance, and this coupled with the rise of millennials with their preference for purpose-driven businesses, as well as social media that has made it impossible for any organisation to hide, has resulted in a perfect recipe for a surge in engagement with super.

The Responsible Investment Association Australasia (RIAA) has been mapping the size and growth of ethical and responsible investors for the past 15 years, and for most of that time demand for ethical investments has remained stubbornly low at about 1.5% of all investments.

But in the past two years, the funds flowing into ethical investments have doubled from $26bn to $51.5bn, jumping in relative terms from 1.5% of the market to 3.8% – with no signs of slowing.

Whereas super funds have traditionally rarely heard from their members, in the past two yearsthey have received calls and emails relating not to risk and return, but from members wanting to know if their super is invested in tobacco or fossil fuels, offshore detention centres or coal seam gas, and how the fund is voting in relation to climate change resolutions at some of the world’s largest companies.

Investors are responding to these concerns.

As at the end of 2015, RIAA’s report found that nearly half (47%) of the investment industry in Australia considers environmental, social and corporate governance issues as a core part of its day-to-day investment decision making.

Why? Not because the whole industry has become ethical investors but rather that it has become abundantly clear sustainable companies make better investments.

We now have a beautiful convergence where the rise of the ethical consumer comes together with the rise of the responsible investor, and we see capital being put to work to create a better outlook for Australia while delivering strong financial outcomes for investors.

In the past two years, about 35 Australian super funds have divested of tobacco, moving $1.5bn out of the industry. A number of funds sold out of Transfield (now Broadspectrum) based on human rights concerns and ever more investors are removing support for fossil fuels.

But as well as removing support from damaging industries, we are also seeing a sizeable shift in investors putting their support behind socially and environmentally beneficial industries.

Our recent report showed a significant step up by 180% in “sustainability themed” investments across green property funds, low carbon funds and sustainable agriculture, and a 75% growth in impact investments in the last year indicating billions are flowing into responsible investments.

Super funds are realising they can deliver strong returns while having a positive effect in line with member expectations.

This has reached a scale where it isn’t just a passing trend, but an evolution of the entire sector that is being driven strongly by consumer engagement.

Australians are starting to show that they are willing to move their investments to deliver strong social and environmental impact. This democratisation of capital has only just begun, but is sure to continue to shape the investment industry for years to come.