We have a long commitment to sustainable, responsible and ethical investing. Until recently, though, most of the funds that were available weren’t based on academic research and were expensive to use, and there wasn’t a lot of interest. All that has changed, and in 2019 we will be rolling out a series of state-of-the-art sustainable investment portfolios based on a low-cost approach that’s rigorously researched and focused on the top issue for our times: global warming. We’re looking forward to introducing a new approach to clients.
The US and Australia-based Dimensional Fund Advisers (DFA), one of the world’s largest fund managers, is a leader in this emerging area. Recently DFA Australia director Nigel Stewart looked at what he calls “the sustainability tipping point”: the growing interest in responsible investing meeting both more government focus and state-of-the-art investment opportunities. We thought we’d share his observations.
Once considered a fringe concern, sustainability is now a central focus of many governments and regulators. In the meantime, multiple surveys point to a groundswell of public interest in investment options that take account of our responsibilities to future generations.
For us as advisors, this is shaping up as a tipping point, an opportunity to discuss with our clients how they can build their sustainability concerns into their investment strategies.
The Australian Securities and Investments Commission (ASIC) has identified as two of its key priorities, the encouragement of strong and effective corporate governance and the disclosure by companies of material climate change risks to help investors make decisions.
ASIC also has informed a climate risk group with the Australian Prudential Regulation Authority (APRA) and the Australian Treasury to help ensure there is a coordinated response to climate risk, and its impact on financial markets.
We continue to see both internationally and in our own market an increasing focus on company matters that sit outside of traditional evaluation metrics and, in particular, those matters concerning the environment, sustainability and/or governance.
ASIC Commissioner John Price
On the demand side, surveys point to rising investor interest in strategies that accommodate their sustainability preferences. In a benchmark report last August, KPMG found funds managed in core responsible investment strategies in Australia totalled $187 billion by the end of 2017, an increase of 188% over the previous year. Core responsible investment as a proportion of total assets under management rose from 4.5% to 12% over the same period.
Some of this movement is generational. A survey by private bank US Trust found 75% of wealthy millennials consider ESG issues an important part of their investment decision-making. The same survey also estimated that $US12 trillion in assets is due to change hands in the next decade from baby boomers to subsequent generations. So a picture emerges of rapidly increasing regulatory interest in the accommodation of investor interest in ESG issues, alongside growing public awareness of sustainability and a significant generational shift toward sustainability-based strategies.
It is true that a few years ago, options around sustainable investment were limited and often unappealing — with high fees, concentrated portfolios and a lack of disclosure around impact.
But the fact is many of those trends have now reversed as the incorporation of ESG considerations into investment decisions increasingly becomes the norm and low-cost funds become available.