Impact investments in Australia have more than tripled over the past two years from $5.7bn to $19.9bn, finds a new study launched by the Responsible Investment Association Australasia (RIAA) today.
The study, Benchmarking Impact, involves 125 Australian investors collectively managing $1,722bn. An overwhelming majority (92%) say that their impact investments are meeting or exceeding their financial return expectations and they’d like to increase their allocation more than fivefold to $100bn over the next five years.
Impact investment products widely offered to Australian investors are dominated by green, social and sustainability (GSS) bonds (A$17bn or 85% of the product universe). The remaining A$2.9bn in impact investments held by Australian investors comprise real assets (A$2.2bn), private debt (A$287m), public equity (A$195m), private equity (A$97m), social impact bonds (A$66m) and “others” (A$44m).
The weighted average annualised returns (net of fees) during the study period (1 January 2018 to 31 December 2019) for impact investments ranged between 3.5% for private debt and 11.3% for public equity. GSS bonds averaged 5.1% p.a., while real assets returned 7.4% p.a. and social impact bonds returned 3.9% p.a.
Simon O’Connor, CEO of RIAA, said the study shows that impact investing in Australia is shifting from a cottage industry to a sophisticated market. “Many of the investment organisations we surveyed are the largest asset owners, pension funds, banks and insurers. We’re shifting from this being a small area of focus for some family offices, foundations and high-net-worths, to a large institutional focus in the Australian market.”
In the context of Covid-19, he said the impact investment market had built an important foundation to help unlock private capital in the recovery phase of the pandemic, adding that the institutional market, especially pension funds, were thinking about how to converge on impact metrics.
“You are already seeing a lot of the largest pension funds report on climate alignment and SDG alignment.”
Overwhelmingly, investors cited access to standardised and comparable tools and frameworks as the leading challenge to measuring and managing impact.
The Australian Government, who supported the RIAA report, is currently exploring how to catalyse impact investment in the country. The Commonwealth Government’s Social Impact Investing Taskforce is expected to issue its final recommendations by the end of the year.