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Uncertainty, greenwashing leading to significant ESG investment ‘inertia’

Patrick Buncsi19 March 2024
RIAA investor survey

Nearly nine out of 10 Australians want their superannuation and other investments to be invested ethically, results from the latest annual Responsible Investment Association Australasia (RIAA) survey have found. However, there is a considerable gap between investors’ expectations and the availability of ethical investment products as well as growing concern over potential greenwashing.

Around 88% of Australians surveyed by the RIAA for this year’s report said that they expect their investments to be responsible and ethical, up five percentage points from the previous year’s survey (83%).

Moreover, nearly two out of three surveyed investors (65%) said they would invest more if their investments made a positive impact in the world, up from 61% in the previous survey.

Over three-quarters (78%) of Australians are currently familiar with responsible investing – defined by the RIAA as a “broad-based approach to investing which factors in people, society and the environment, along with financial performance, when making and managing investments”.

However, the report also revealed a notable disconnect between consumers’ expectations of an ethically sound investment and the availability of such investment products. For instance, while animal cruelty was rated as a top concern among nearly two-thirds of those surveyed (66%), with more than half (54%) wanting to avoid animal testing in their investments, the RIAA states that only 11% of investment assets are screened to avoid animal testing.

Investors’ concerns over greenwashing have also increased to 78%, up from 72% recorded in the 2022 survey.

Commenting on the results of the survey, chief customer officer Maria Loyez of Australian Ethical, an industry backer of the survey, recognised Australians’ keenness to “invest in line with their values”.

However, the discrepancy between their “desire to invest ethically and the reality of where their money is invested is concerning,” she said.

“This fact is not lost on consumers.”

According to Australian Ethical, the report reveals a lack of confidence in identifying truly ethical financial products, adding to likely investor “inertia”.

“The discrepancy between Australians’ desire to invest ethically and the reality of where their money is invested is concerning. And this isn’t lost on consumers, with concerns about greenwashing holding back 78% of Australians, which as a planet we can little afford,” Loyez said.

“This paradox underscores the pressing need for greater transparency around responsible investment products in the market,” the firm said.

According to Australian Ethical, third-party verification may alleviate concerns about greenwashing, noting that 79% of surveyed Australians would be more inclined to invest in products labelled as responsible or ethical by an independent source.

For Estelle Parker, RIAA co-chief executive, the study shows Australians are increasingly “attuned to the important role that independent verification plays in helping ensure investments truly align with responsible practices, allowing investors to make informed choices and contribute to a sustainable future.”

Parker urged the financial sector to “listen closely” to investor demand.

“There’s a clear market for responsible investment products, but consumers need to be confident their money is truly aligned with their values. Addressing greenwashing concerns and offering a wider range of responsible options is critical.”

She added: “As consumers seek more transparency and alignment with their values, it’s crucial for financial institutions to step up and offer a wider range of responsible investment options, backed up by robust processes and third-party verification.”

According to the survey, 76% of Australians would consider moving their super or other investments to another provider if their current fund didn’t align with their own values.

Top ESG concerns

Animal welfare remains at the top of Australian investors’ concerns. Nearly three in four (74%) respondents expressed their want to avoid animal-related issues in their investments, including 66% wanting to avoid animal cruelty – up eight percentage points on the previous year.

Avoidance of environmental issues also took a “backseat” to human rights-related issues, the RIAA said, with 60% of respondents expressing concerns about human rights abuses.

However, the RIAA stressed, various environmental issues remain significant for 71% of the overall population, with 76% stating their intention to invest responsibly in the next 12 months.

Environmental damage (54%) and fossil fuel avoidance (35%) are the top sub-categories among environmental issues.

More than half (52%) of Australians want to avoid investment in armed conflict.

“The increase in importance Australians place on human rights in 2024 does nothing to dilute the importance they continue to give to climate change,” the RIAA said in its report. “With more than two-thirds of Australians thinking that their investment in super funds, banks and other investments can impact climate change (68%), Australians expect their financial service providers to make commitments.”

A number of unrelated concerns were singled out as topline concerns amongst investors, including gambling, corporate tax avoidance, tobacco, and weapons and firearms, rated by at least 55% of respondents as something to avoid in their investments.

On a demographic split, younger Australians led the way with responsible investment awareness, increasing to 87% of those aged under 40 years, compared to 77% among 40-59-year-olds and 69% of those 60 years and above.

 

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