The market for responsible investment in Australia continues to grow, with total assets under management increasing by $289 billion in 2020.
However, the remainder of the market has decreased by $234 billion according to the 2021 Responsible Investment Benchmark Report by the Responsible Investment Association of Australasia.
“We have seen not a seismic, but an epochal shift into environmental, social and governance (ESG) and green strategies,” says Desiree Lucchese, head of ethics and impact at U Ethical.
“We’ve seen an exponential allocation to ESG strategies, mostly passive, but at the same time, active investors have been ramping up their capabilities, their product offerings. So I think if you're looking at what has been happening over the last 10 years, we can certainly project an upholding of this trend.”
The link between risk mitigation and strong yields is beginning to become apparent to many businesses, many of which are capitalising on the opportunity.
Lucchese believes that doing so is smart businesses, enabling portfolio companies or credit recipients to transition their business will lower risk exposure and ensure long term sustainability of operations.
“Investors are becoming more knowledgeable about diversity of risks, this means that investment decision making, portfolio construction is accounting for more considerations that might have a long term outlook,” she says.
Lucchese points to data from academic resources, broker research and data providers in order for investors to account for broader risks in their portfolio construction.
“For active investors in particular, as we build portfolios, we're also responsible on behalf of our clients for managing those portfolios to the best possible financial outcomes.”
“By actively managing and responsibly engaging with our portfolio companies, we are ensuring that we can help lead their transformations behind the scenes. So a company is in the best position to manage its position in its market, in its industry.”