Tipping point for responsible investing

Fund managers are increasingly having to consider the social impacts of their investing decisions but there is a challenge to get enough retail products in the market, the chief executive of the Responsible Investing Association of Australasia Simon O’Connor told Good Returns TV.

Monday, September 11th 2017, 12:37PM

Over the past year, the RIAA recorded 2500% growth in screened assets under management in New Zealand, driven by public interest in the investments of KiwiSaver providers.

O’Connor said it was a shift in mindset.

“Previously, fund managers and KiwiSaver providers may not have expected their role to consider these kinds of issues. What has become really clear in the last year is that this fundamentally is the role. Most providers of financial products have to consider the values of their consumers.”

He said there had been some “weakness” in the New Zealand market in relation to environment and social elements of responsible investing.

“This is a global shift we’ve been seeing in the last couple of years, where a strong uptake is occurring, not just here but globally. We have finally reached that point where there’s an acceptance that environmental and social issues actually matter from a valuation perspective and from an investment returns perspective. This is an awakening that’s occurred here, but it’s occurred in other markets, too. It’s really shifting things dramatically.”

Responsibly invested funds in the Australian market were outperforming over three, five and 10 years, he said.

“You’re going to miss returns by ignoring RI, ESG, ethical investment... We’re actually seeing outperformance. These ESG signals are becoming some of the most important to determine future share price movement.”

But he said there were only a limited number of responsible retail investment products.

“It’s probably still a bit challenging to get good products across different asset classes. The ‘chicken-and-egg’ situation is definitely real. What we’ve seen in other markets is that we’re sort of hitting a tipping point, where there’s sufficient capital flowing into these products, and products then start coming to market.

“We’ve certainly seen that in Australia, and I would think we’re probably a year or so away from seeing much more product come through into this SRI and ethical market here in New Zealand. We’re certainly talking to a lot of managers at the moment who are thinking about product.”

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Tags: responsible investing