The $726b reasons ESG just keeps on growing

Some $705 billion in assets under management is subject to “negative screening”, where sectors, activities or companies that are deemed to fail certain ethical criteria are excluded from portfolios.

Investors’ increasing willingness to actively push companies to protect the environment coincided with Woolworths’ decision to spin off its liquor, hotels and poker machines business in 2021 following heavy criticism of its plan to open a Dan Murphy’s in Darwin, despite overwhelming community opposition. The company had faced sustained shareholder questioning since unveiling plans to open a branch of the liquor giant in 2019.

“The study is showing that on a daily basis, investors are trying to achieve change in the companies they’re invested in through that kind of engagement and those voting practices,” said executive programs manager at RIAA, Estelle Parker.

She also noted super fund HESTA was vocal in its condemnation of the Rio Tinto Juukan Gorge scandal.

This year Atlassian co-founder Mike Cannon-Brookes thwarted AGL Energy’s demerger plans.

“It is really interesting to see, with that example, how shareholder action can really change how the landscape’s looking. That, as a high-profile case, has certainly been noticed,” Ms Parker said.

The RIAA research found the growth in shareholder engagement came as many managers improved or formulated stewardship policies and disclosed their practices in a more comprehensive manner. That was partly due to the revised UK Stewardship Code which requires signatories report on how ESG issues are factored into investment decisions.

The RIAA said this change would have scooped up a significant proportion of investment managers active internationally, and in Australia.

At $1.54 trillion, responsible assets under management now make up 43 per cent of the total market. Managers and organisations included in that total figure use a scorecard to self-assess, which the RIAA then checks.

The RIAA only includes the assets under management that respondents declare as responsibly invested assets, which can be as much as 100 per cent of respondents’ total assets under management.

Groups that score 15 out of 20 or more are considered responsible investment leaders, the number of whom has doubled to 45 per cent of investment managers in 2021 since 2019.

“We’re constantly talking about whether our scorecard remains fit-for-purpose,” said Ms Parker.

“But as we’re seeing these kinds of processes being embedded, of course there will come a point in the future – I hope – when so many have reached that 15 out of 20 in the scorecard that we’ll have to look at revising our scorecard.”