ESG investing could increase fivefold over the next five years, according to new research.
Findings by the Responsible Investment Association of Australia and AXA Investment Managers - revealed at the launch of a new guide for financial advisers - comes as a new CBA report said the case for green investing was “stronger than ever”.
The free financial Adviser Guide to Responsible Investment has been launched in part to help with the new FASEA Code of Ethics and because of the growing demand from customers.
That appetite towards sustainability saw September become the busiest ever month for global green bond issuance - partly as a result of the backlog of green bond deals delayed by the Covid-19 pandemic.
AXA’s Michelle Lacey said: “RIAA’s research shows Australian investors would like to increase their allocation towards impact investments more than fivefold over the next five years.
“So we believe this should be a particular area of attention for financial advisers
“The challenge for advisers is understanding the differences between the responsible investment approaches, products, and providers available in order to provide the advice that best matches their clients’ needs.”
AXA’s head of ESG research Yo Takatsuki said: “As client demand grows, advisers need to familiarise themselves with responsible investment options to ensure they are offering clients products that are value-aligned, while also achieving strong financial returns.
“The developed world had almost started to believe infectious diseases had been overcome.
“The pandemic has highlighted that preventing and addressing such problems involves ongoing investment in entire systems – not just in the high-growth, high-return aspects.”
CBA’s latest research released last week said: “The momentum for change is there. Investors are being required to hold ESG assets and many issuers are coming to the fore with the provision of them.
“But, as we have seen in 2020, the increase in debt issuance at a time of a pandemic has not seen the pushback that the sector faced in the GFC.
“The case for building a green curve is stronger than ever, and while it is unlikely to be something that takes place in the short term in either Australia or NZ, borrowers can see the path has been lit for them.
“After the calamitous summer of 2019/20 with drought and bushfires on Australia’s east coast, funding was required for assistance and rebuilding.”
The cost of these natural disasters was put into perspective as Australia’s insurers faced paying out $5.4 billion from almost 300,000 claims related to last summer’s bushfires, floods and hailstorms, according to APRA.
Simon O’Connor, CEO of RIAA - whose 300-plus members manage $9trillion in assets, said: “The rapid growth in responsible investment has been driven by client demand and strong investment outcomes, with clear evidence that responsible investments deliver stronger risk-adjusted returns.
“The regulation of advice is also catching up.
“The new FASEA Code of Ethics requires advisers to consider the broader long-term interests of their clients, arguably requiring advisers to consider responsible and ethical investments if they are in the clients’ best interests.”
He says the guide – and educational resources from firms like AXA IM – advisers can strengthen their knowledge in this area, to deliver the best advice to clients.”
