Sustainable investing thrives amid push for higher standards

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New research shows the global sustainable investing market has grown to US$35.3 trillion ($A47.8 trillion)

Sustainable investing has grown by 25 per cent in Australasia between 2018 and 2020, despite industry standards tightening to address the growing threat of greenwashing. 

A new report from the Global Sustainable Investment Alliance (GSIA) reveals that sustainable global assets under management have grown 15 per cent in two years to US$35.3 trillion ($A47.8 trillion). 

This equates to 36 per cent of all professionally managed assets across the regions covered in the report. 

While growth in Australasia is outpacing the global average, the rise in sustainable assets at home came at a slower pace than between 2016 and 2018 (46 per cent). 

The report said this slow down reflects a changing market “whereby industry standards on what constitutes sustainable investment… have tightened”.

An example of this is Responsible Investment Association Australasia’s (RIAA’s) Responsible Investment Standard, which is used to distinguish “quality responsible, ethical and impact investment products and services in Australia and New Zealand”.

Advocates believe a tightening of standards is needed to combat the growing threat of greenwashing and ensure financial products are actually achieving the sustainability impacts being claimed.    

Simon O’Connor, chair of the GSIA and RIAA CEO, said this push was driven not only by the industry but by regulators themselves.

“Evidence of this shift can be seen in the Australian Securities and Investments Commission (ASIC)’s review addressing the threat of greenwashing [and] the New Zealand Financial Markets Authority’s (FMA) guidance on responsible investment products,” O’Connor said.

“Increasingly, there are expectations that sustainable investment is defined not just by the strategies involved, but by the short and long term social and environmental impacts that investors are generating through their sustainable investment approaches.” 

The report detailed several policy and regulatory drivers impacting the Australian market.

It noted that the Australian Prudential Regulation Authority (APRA) has highlighted the financial nature of climate change risks, while strengthening how it monitors climate change risk disclosures in recent years.

The report said that ASIC has been working to introduce requirements for directors to consider climate change risk.

The introduction of Australia’s first Modern Slavery Act and the release of the Australian Sustainable Finance Initiative’s (ASFI) industry-led roadmap were also mentioned as significant developments for the sustainable investing landscape. 

Overall, the report characterised the industry as one in transition, with these rapid developments “reshaping sustainable investment to increasingly focus on moving the industry towards best standards of practice”.   

For O’Connor, the report demonstrates that sustainable investments are now a major force shaping global capital markets. 

But he believes it is more important than ever for investors to meet the growing expectations and standards being set for sustainable investments today.

“It is ever clearer that sustainable and responsible investors are being judged not on their commitments, but on how their investments are contributing to more sustainable outcomes, as measured by their alignment to the Paris Agreement and the SDGs,” he said.

“This will rapidly become the new benchmark for investors globally.” 

You can see the full report here.