Investors still sceptical of sustainable fund performance
Performance concerns remain the biggest deterrent to growth in sustainable funds, despite the average responsible fund outperforming the Australian share market.
In a survey by the Responsible Investment Institute of Australasia (RIAA), respondents cited the biggest deterrent that was restricting growth in assets for sustainable vehicles as being performance concerns.
Respondents’ performance concerns were usually unfounded as the average responsible fund had outperformed the ASX 300 over one, three, five and 10 years to 31 December, 2019. The biggest difference was seen over a 10-year period with the average fund returning 9% compared to index returns of 7.8%.
It also highlighted these type of funds had been more resilient during the pandemic.
“The thesis that responsible investing supports stronger outcomes for society and the environment, alongside delivering superior financial returns, has been put to one of its toughest market tests with the COVID-19 pandemic. The COVID-19 crisis has highlighted that investment managers executing responsible investment approaches are more resilient to the downside experienced during recent economic volatility.”
The RIAA noted that, while performance remained the biggest deterrent, the percentage had fallen from 45% of respondents in 2018 to 37% in 2019.
“Perceptions of responsible investment performance are beginning to align more closely with fact, with responsible investment funds on average outperforming mainstream funds,” the report said.
Other deterrents cited included lack of awareness from the public, lack of understanding and concerns about greenwashing.
These deterrents were countered by 38% of respondents who said demand from institutional investors was a key driver of growth, up from 24% in 2018.
“Survey respondents indicated that institutional investor demand is mainly driven by ESG [environmental, social and governance] integration on existing products, but not responsible investment funds/products. This confirms ESG integration is becoming a core part of mainstream portfolio decisions.”
Earlier this week, Morningstar found the pace of growth in sustainable fund launches had slowed recently with only two funds launched last year and none in the first half of 2020.
AUTHOR
Laura Dew
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