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November 23, 2010
Sustainable Investment in Australia and New Zealand Outperformed Market in 2010
    by Robert Kropp

The tenth annual report on sustainable investment from Responsible Investment Association Australasia finds a 25% increase in assets in 2010, to $74 billion.

Regional trends reports on sustainable investment in 2010 continue to show growth in the industry that is outpacing the market at large. A report published by the European Sustainable Investment Forum (Eurosif) in October found that sustainable investment in Europe has nearly doubled in the last two years, reaching almost $7 trillion by the end of 2009.

According to a
report on trends in the US issued earlier this month by the Social Investment Forum (SIF), sustainable investment assets in the US have topped $3 trillion, an increase of more than 13% since 2007. During the same time period, the broader universe of professionally managed assets increased by less than one percent.

Last week,
Responsible Investment Association Australasia (RIAA) added its analysis to the increasingly global mix of assessments, and its findings further corroborate that the growth of sustainable investment has indeed become a global phenomenon.

According to Louise O’Halloran, Executive Director of RIAA, "The 2010 Benchmark report figures exemplify the disappointment experienced by more and more people about the inability of traditional financial models to recognize the inherent impact of environmental, social and governance (ESG) issues on investments."

The report is the tenth in an annual series commissioned by RIAA. As in the report on trends in the US by SIF, RIAA considers sustainable investment to be comprised of two categories. "Core responsible investment," according to the report, "Includes specifically tailored managed funds, direct share portfolios managed by financial advisers, and also microfinance, microcredit and green loan products offered by banks."

Broad responsible investment, on the other hand, includes ESG integration, corporate engagement, and shareowner activism.

The report found that core responsible investment grew to $18 billion in 2010, an increase of 13% over 2009. Reversing a two-year decline, managed sustainable investment portfolios grew by 10%, slightly more than that of the overall investment management industry. Also contributing to the growth in core responsible investment was community investment, which increased by 15%. The value of the portfolios for which financial advisors provide advice on sustainable investment grew by 50%, to $1.44 billion, indicating, according to the report, "that screened direct share portfolios are becoming a more favored means for financial advisers to meeting responsible investor needs."

Unlike SIF's report on trends in the US, RIAA has provided analysis on investment performance in its report, finding that "the average responsible investor in Australia is getting better returns for all periods of one, through three, five and seven years in two of the three major investment categories." Both Australian and overseas share funds outperformed the mainstream market. Sustainable balanced funds, while underperforming slightly over periods of one and three years, outperformed mainstream balanced funds over five and seven years.

Broad sustainable investment saw a 25% increase over 2009, with assets reaching $74 billion in 2010. The integration of ESG factors by fund managers, according to the report, "has seen continued uptake with a significant rise in the number of new Australian signatories to the United Nations
Principles for Responsible Investment (PRI)." As of August 2010, Australian signatories to the PRI numbered 112, or 14% of the 808 global signatories. Funds under management or advice of the 112 Australian signatories now total approximately $591 billion, the report found.

Seventy-two percent of companies in the ASX 100 report emissions and mitigation strategies to the
Carbon Disclosure Project (CDP), compared to a global average response rate of 55%.

The two Australian organizations that specialize in corporate engagement—
Regnan and the Responsible Engagement Overlay—reported that they provided engagement services for institutional investors with $52 billion in assets under management in 2010, an increase of 30% over 2009.

Standing in marked contrast to the practice of sustainable investors in the US is what the report describes as "the benign environment for shareholder activism" in Australia. For the past five years, no shareowner resolutions relating to environmental or social issues have been submitted at the annual general meetings of publicly owned Australian companies. In comparison, according to SIF's 2010 Trends Report, more than 200 institutions with $1.5 trillion in assets submitted resolutions between 2008 and 2010. In 2010 alone, 360 shareowner resolutions were submitted in the US; 29% of those addressing environmental or social issues received more than 30% of shares voted, "a pronounced upward spike," according to SIF.

According to RIAA, the absence of shareowner resolutions "will change in the coming year as the new
Australian Ethical Climate Advocacy Fund mounts resolutions starting in the 2010 Annual General Meeting season with a view to garnering support from other responsible investors looking to improve corporate performance on climate change issues."

RIAA's report also includes data on the performance of sustainable investment in New Zealand, where it increased by $2 billion, or 18%, to $13.4 billion in 2010.

Also included in the report is RIAA's second Cleantech Investment Benchmark Report.

Referring to the impact of ESG factors on investment performance, O’Halloran said, "Taking these issues into account is both profitable and smart."

The next regional report on sustainable investment will be that of Canada, which is scheduled for publication in February 2011.


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