The Responsible Investment Association Australasia (RIAA) will launch a new online tool next year to link investors with appropriate products and advisers.
Simon O’Connor, RIAA chief, told the group’s NZ conference in Auckland last week consumers were increasingly interested in ethical investing with retail demand in Australia doubling over the last two years.
O’Connor said the RIAA planned to capitalise on the surging demand with its new website tool that would allow investors to match their individual social responsible investing (SRI) parameters with relevant products and financial advisers.
“It will be channeling members to investment products,” he said. “That could be a range of options including ETFs, global equity funds, fixed income products, or themed funds.”
To date, the RIAA has verified about 1,500 products and financial advisers for inclusion on the SRI match-maker system.
O’Connor said the SRI-approved list would likely grow next year after the tool goes live.
However, the tool would offer a free introduction-only service with investors left to transact or contact advisers independently of RIAA.
According to O’Connor, the RIAA has seen a “massive” uptick in consumer visits to its website over the last year or so as SRI marched into mainstream consciousness.
He said SRI queries were increasingly coming from retail and high net worth investors, family offices, charities and foundations.
“Over the next five years it won’t be the supply-side [driving SRI growth] – the institutions are already convinced – it will be the demand side, the clients and beneficiaries,” O’Connor said.
“The best proxy is retail demand for SRI products, which has been flat in Australia for about 10 years but it has doubled over the last two years.”
While demand for SRI products in NZ has been much more subdued, he said there were “early signs” of growth here too.
For example, John Berry, Pathfinder Asset Management director, said the rapid growth of the boutique’s Global Water Fund – albeit off a low base – over the last couple of years was partly due to NZ investors developing appetite for SRI.
Berry said, after launching in 2010, the Water Fund had reached only $2.4 million four years later.
“It has since grown almost four times the size at $9.2 million,” he said, with the product’s good performance one factor.
“Our perception is another attraction for advisers has been client interest in responsible investment and higher awareness of environmental impacts from water scarcity. Managers need to build products that invest both responsibly and successfully.”
Overall, O’Connor said the level of investor engagement with SRI issues has picked up considerably in recent years, citing the example of Volkswagen, which saw its share price plummet after the car-maker was caught out fiddling engine emission data.
“ESG [environmental, social and governance] issues are increasingly driving investment outcomes and company valuations,” he said.
O’Connor said about $21 trillion – or about a third of the market – was now influenced by SRI factors ranging from “values-based” investors applying screens and the like to “value-based” investors who incorporate ESG factors into bottom-line calculations.
Following the RIAA conference last week, the New Zealand Superannuation Fund (which co-sponsored the event) released a white paper on ESG investment.
In the paper titled ‘Why we believe ESG investing pays off’, the NZS says the evidence in favour of responsible investing has stacked up considerably since the fund launched in 2003.
“The strength of the evidence is now quite compelling,” the report says. “More than 80% of studies find positive links between ESG ratings and the particular measures of performance that they are analysing.”
The NZS paper argues incorporating ESG factors into its process “helps us to find new opportunities, steer our capital towards more attractive areas, and manage long-term investment risks”.
“We expect that our returns will be higher, and downside risks lower, over the long term,” the paper says. “These benefits arise from avoiding the poor performance and enterprise failures that can arise from lax governance, and weak environmental and social practices.”