The pool of assets in Australia deemed to be managed responsibly has suffered a rare drop, according to the latest annual benchmark report, which found that the share of the market dedicated to such assets fell seven percentage points to 36 percent in 2022 compared with the year before.
It is only the second time in 22 years of benchmarking that there has been a drop in proportion of assets considered to be managed under the “responsible investment” (RI) designation, according to Simon O’Connor, the outgoing CEO of the Responsible Investment Association Australasia (RIAA), the body behind the annual exercise, which was published on Monday.
In 2021, A$1.54 trillion ($990 billion; €930 billion) of investments were managed under an RI strategy, but in 2022 this dropped to A$1.29 trillion.
By contrast, between 2020 to 2021 the proportion of the total assets deemed to be RI grew three percentage points to 43 percent.
The fall in 2022 is attributed in the report to “both a drop in total value (ie due to underperformance) but also outflows from funds”.
The study also suggests that Australian investment managers are “starting to refine their communication and language about the extent and coverage of ESG or responsible investment policies and practices”.
This includes being more precise about which asset classes or funds are being managed under RI strategies, “rather than claiming overall coverage of ESG or responsible investment policies”.
The observed shift in ESG communications could be a “response to Australian regulators’ crackdown on greenwashing”, the report added.
Last month, the Australian Securities and Investments Commission (ASIC) announced its third greenwashing lawsuit with a case against superfund Active Super. That action followed the launch of proceedings earlier in the year against Mercer Super and Vanguard.
These cases came after an announcement in November by the securities regulator that greenwashing was one of its main enforcement priorities for 2023. It said at the time that it would “closely monitor for misleading conduct and claims of greenwashing that cannot be sustained, and take enforcement action where necessary”.
O’Connor told Responsible Investor that the “strong push against greenwashing” by the likes of ASIC has “definitely resulted in subduing the market to be more measured in what it is claiming to be RI assets”, as has the general lifting of standards.
To be considered RI eligible assets by the RIAA, managers must be able to “substantiate a strong responsible investment approach” by achieving a score of at least 15 out of 20 against its Responsible Investment Scorecard. Seventy-seven Australian fund managers met this threshold in 2022, up from 74 in 2021.
Despite the downturn in assets considered to be managed under an RI strategy, the survey revealed that 272 investment managers – 93 percent ($3.3 trillion) of all professionally managed assets in Australia – are now engaged in RI to some extent.
“As we see regulators articulate their expectations to avoid greenwashing, we see product labelling standards strengthen, and we see global definitions clarify further, investors need to keep progressing their strategies and approaches to meet these lifting standards,” O’Connor said.