More than half of respondents (53 percent), up from 48 percent in 2022, believe institutional demand is a key driver of market expansion, according to the Responsible Investment Association of Australia (RIAA).

In your yearbook Responsible Investment Benchmark ReportThe RIAA emphasized that while institutional demand and expectations of improved long-term performance or risk mitigation fueled growth, escalating concerns about greenwashing also increased. In 2023 52 percent of respondents cited greenwashing as a major problem, compared to just 45 percent in 2022.

This is in line with global trends, the RIAA noted, as greenwashing remains a significant barrier to responsible investing, contributing to reduced capital allocation in European sustainable investment products and net outflows in the US sustainable investment market.

In addition, Australia's 2023 budget awarded $4.3 million to the Australian Securities and Investments Commission (ASIC) to investigate market participants "engaging in greenwashing and other sustainable finance abuses".

Interestingly, performance concerns fell last year in Australia to 45% from 52% in 2022, suggesting higher confidence among investors that responsible investment (RI) strategies can deliver competitive returns.

"While the decline is welcome, it still shows that concerns about returns remain a drag," the report said.

According to the report, the performance of responsible investment products remained strong, with 24% growth for RIAA-certified products to $167.7 billion in assets under management (AUM).

The data showed the 10-year return for responsible investment products delivered 13.9 per cent in 2023, beating the 9.19 per cent return for the rest of the market, including Australian share funds.

Estelle Parker, co-chief executive of the RIAA, described the growing confidence as "encouraging", adding that responsible investment and profitability can "go hand in hand".

"The focus is now on proving impact, adapting to feedback and consistently delivering the positive results we know responsible investing can achieve," she said.

Other concerns, such as “lack of understanding or capacity to implement RI” and “concern about risk” saw a significant decline in 2023. to 17 percent from 26 percent and to 12 percent from 21 percent, respectively.

New highs

After an anomaly in 2022. and despite a general slowdown in global economic growth, Australia's responsible investment landscape reached new heights in 2023. both in size and quality, reaching $1.6 trillion in AUM, up from $1.3 trillion in 2022.

"This growth reflects both an increase in the number of investment managers implementing RI strategies and an increase in the average AUM allocated to responsible investments," the association said.

Total assets under management totaled $3.9 trillion, with RI's share of AUM rising from 36 percent to 41 percent.

The number of responsible investors grew by 26 percent, and the share of responsible investment AUM rose from 35 percent in 2022. up to 41 percent of the market, signaling a "powerful shift toward mainstreaming responsible investment across the market."

Additionally, there were 291 professional investment managers actively engaged in responsible investment practices, up from 272, and fund managers meeting the RIAA's threshold increased to 90, up from 77 in 2022.

Parker, who described it as a "pivotal moment for the industry", said: "Our data shows that 99 per cent of respondents are already integrating ESG principles into their framework, embedding responsible practices into the fabric of their operations."

She added that regulators "rightly" want more transparency and that "the public wants proof that investment claims lead to real-world impact."

"Confidence in responsible investment depends on demonstrating measurable, impactful action, not just good intentions," she said.

Impact investing

In impact investing, clean energy remained the leading theme, attracting $3.1 billion in AUM, followed by climate change mitigation, which managed to attract $2.03 billion.

In 2023 there was an increase in investor engagement on non-climate resilience issues, with the most significant increases seen in engagement on indigenous rights and cultural heritage conservation (56 percent), natural capital (48 percent) and education (30 percent).

The RIAA attributes this to a broader commitment to addressing "various social and environmental challenges."