Responsible investment, also known as sustainable or ethical investment, is a broad-based approach to investing which factors in people, society and the environment, along with financial performance, when making and managing investments. According to a 2020 report by the Responsible Investment Association Australasia (RIAA), there is nearly $1,500 billion of assets under management across the two countries (over one third of overall assets under management) now managed through a responsible investment approach.

There are many reasons why investors engage in responsible investing including: to align investments with their own or their clients’ personal values and ethics; to reduce risk; and to achieve strong financial returns in the short and long term.

Investors understand that companies or assets will not thrive whilst ignoring environmental issues (pollution, climate change, water, and other resources scarcity), social issues (local communities, employees, health, and safety), corporate governance issues (prudent management, business ethics, strong boards, appropriate executive pay) or ethical issues.

The outperformance of responsible investments is backed with strong evidence. The 2019 results of an annual study conducted by RIAA in Australia show that over 1, 3, 5 and 10-year periods:

• Australian share funds that are leading the practice of responsible investment, outperformed mainstream Australian share fund benchmarks for all periods.
• Responsibly invested international share funds outperformed the Morningstar average mainstream international share fund over each time horizon except the 1-year period.
• The responsible investment multi-sector funds surveyed outperformed mainstream Australian share fund benchmarks for all periods.

In addition, the studies conducted by RIAA in 2020 for New Zealand show that New Zealand responsible investment funds match or outperform the benchmark for all time horizons except the 10-year period.

Quarterly reports by responsible investment research provider ISS MI show that responsible investment products outperform the benchmark over all time points over a 10-year period.

RIAA’s report in 2019 shows that Australian super funds comprehensively engaging in responsible investment are outperforming their peers over 1, 3 and 5-year time frames.

RIAA’s 2020 research in Australia has found that impact investments are overwhelmingly (92%) meeting or exceeding investors’ financial return expectations. In addition, the Global Impact Investment Initiative’s research reports that 70% of impact investors consider impact investments as financially attractive relative to other investment opportunities, citing this as a somewhat or very important reason for making impact investments.

During the COVID-19 pandemic, various analysis by commentators including investment managers, research houses and ratings agencies is consistently showing that more sustainable companies are performing better, and responsible investment funds are outperforming the general market during this time.

There is a growing list of international research studies demonstrating that companies with strong corporate social responsibility policies and practices are sound investments. Both empirical evidence and in-depth thoughts are included. Investors in general believe ethical or responsible banks (67%) and super funds (62%) perform better in the long-term. However, it is less clear whether investors can exploit the abnormal returns in a “sustainable” way as market participants learn and incorporate ESG (environmental, social and governance) information over time.

1. This fact sheet lists the evidence and empirical studies, showing that responsible investments outperform the benchmark over both short-term and long-term time frames, referencing the covid-19 period as well.
2. Responsible investing now constitutes a major focus of Australian and New Zealand investors, with nearly $1,500 billion of assets under management across the two countries now managed through a responsible investment approach.
3. The leading practice responsible investment Australian share funds surveyed outperformed mainstream Australian share fund benchmarks for all periods for both domestic and international cases.
4. There has been widespread market downturn during the covid-19 period. However, the various analysis by commentators including investment managers, research houses and ratings agencies is consistently showing that more sustainable companies are performing better, and responsible investment funds are outperforming the general market during this time.
5. There is a growing list of international research studies demonstrating that companies with strong corporate social responsibility policies and practices are sound investments. Studies with such findings have come from Oxford University, Harvard Business School, Morgan Stanley Institute for Sustainable Investing, and Deutsche Asset & Wealth Management, among others.
6. RIAA’s 2020 consumer research shows that in Australia, the majority of Australian consumers believe ethical or responsible banks (67%) and super funds (62%) perform better in the long term.
7. More than three-quarters (78%) of New Zealanders with KiwiSaver or other investments believe that ethical or responsible investments perform better in the long term.