Although recording good performance in Q4 2022, Australian equity funds with responsible investment principles were outperformed by those holding energy and materials stocks, a quarterly performance analysis has found.
Per Evergreen Consultants’ recent data of the December 2022 quarter, funds with higher scores on the Evergreen Responsible Investment Grading Index (ERIG Index) lagged behind funds with lower scores.
Alex Myers, investment consultant at Evergreen, attributed this, at least in part, to a stockmarket that was dominated by materials, energy, and financials.
Stocks such as BHP, Rio Tinto and Origin had risen 30% or more over the six months to 25 January.
“By their very nature, responsible investment (RI) focussed funds must consider smaller, growth stocks, which have suffered as interest rates have risen.
“Although Evergreen believes interest rates are likely to remain elevated for some time, we think that companies with strong RI characteristics will mature in time. This will mean that they will become less sensitive to factors such as interest rates,” he stated.
Until then, recent short-term data noted highly-scored RI managers struggled in volatile market conditions.
“This period of underperformance may make it challenging for some clients to remain invested in RI managers. However, the long-term vision for RI should consider sustainable and ethical objectives, as well as financial outcomes,” Myers affirmed.
To calculate the ERIG Index score, using the Responsible Investment Association Australasia’s (RIAA) Responsible Investment Spectrum as a foundation, Evergreen Consultants looked at seven capabilities: impact investing, active ownership, negative screening, positive screening, ESG integration, norms-based screening, and sustainability-themed investments.
Over 2,000 funds were rated with this index.
