Investors’ eyes are on the prize with growth in impact funds

Impact funds have seen significant growth leaping from $1 billion to $5 billion of assets under management within a year.

Tuesday, December 3rd 2024, 2:16PM

by Kim Savage

The Responsible Investment Association of Australasian’s latest Benchmark Report released Tuesday shows of the impact investment products in the market, impact funds saw the strongest growth in 2023.

“More investors are identifying and allocating to funds with a specific impact focus, indicating a trend toward more targeted and intentional investment strategies in New Zealand,” the report explains.

Investors particularly targeted impact areas like climate change, clean energy and affordable quality housing. Impact investing as a whole, which is largely driven by green, social and sustainability bonds, grew by 36% to $15 billion.

Outcomes detailed by impact investors surveyed included 1.4 billion cubic metres of water saved, adding 8904MW renewable energy capacity to the grid and 17,763 new social housing homes supported by lending.

Responsible investment market share growing

The report offers a birds-eye view of responsible investment in New Zealand, showing 13% growth in the assets under management by investment managers who self-identify as practising RI, to $294 billion in 2023.

RI investment managers’ AUM makes up 56% of the market, up from 52% the previous year.

Concerns about greenwashing are the main barrier to market growth, rising to 61% in 2023 from 35% the previous year. Performance and risk concerns also feature, while consumers’ lack of awareness of responsible investment appears to be less of a deterrent for sector growth in 2023 compared to 2022.

RIAA co-chief executive Dean Hegarty says responsible investing has moved from niche to necessity and become a foundational block of the financial industry.

He says the rising demand from retail investors, risk mitigation, and regulatory requirements are all driving the push toward ESG adoption.

“Whether it’s drought affecting agricultural output, supply chain vulnerabilities during extreme weather, or the cost of reputational damage in the face of diversity issues, the financial case for ESG is undeniable,” says Dean Hegarty.

Tags: RIAA