Sarah Bratton-Hughes

Nearly three-quarters (71 per cent) of Australian investors are willing to sacrifice between 1-10 per cent in returns in order to create a positive impact, according to the seventh global impact investing survey by American Century Investments, a US$240 billion^[1] global asset manager.

The survey, undertaken in December 2023, measured how attitudes to impact investing have changed over time. Survey results go back to 2016 in the US, 2019 in the UK, 2020 in Germany, 2021 in Australia and 2022 in Singapore.

The latest survey found almost one-third of Australians (30 per cent) were willing to give up between 6 to 10 per cent of returns in order to create a positive impact, and a further 42 per cent said they would give up between 1 and 5 per cent.

However, the appeal of impact investing overall has declined after several years of steady growth, with Australia showing the biggest decline compared to the other countries surveyed.

While over half of Australians surveyed agreed that impact investing appealed to them (57 per cent), this is a fall from last year’s survey (63 per cent).

Across the board, there was a drop in interest in impact investing in all countries surveyed. In Australia interest was down 6 per cent, while in Singapore and the UK it fell 5 per cent. In Germany it was down 4 per cent. The US experienced the smallest decline of just 1 per cent between 2022 and 2023.

This decline is also seen across generations. In Australia, appeal has fallen by 8 per cent between 2022 and 2023 for Gen Z, 11 per cent for Millennials and 9 per cent for Gen X. Perhaps surprisingly, for Baby Boomers it has stayed the same.

Health care was the top impact concern for Australian investors in 2023 at 33 per cent, followed by the environment at 26 per cent and education at 12 per cent.

Australian investors are feeling the impact of the current market environment

More than one-third of Australians surveyed (35 per cent) cited recent economic conditions, including rising inflation and geopolitical tensions, as negatively affecting their willingness to allocate to impact investing.

Greenwashing did not influence most investors: fewer than one-third of respondents in the UK, Germany and Australia said greenwashing had affected their interest in impact investing, a smaller share of respondents than in last year’s survey. Only the US has seen an increase in the influence of greenwashing and a sustainability backlash.

“It seems that ongoing market volatility, and persistent inflation, has investors’ minds focused on returns rather than on the impact of their investment,” says senior vice president and head of sustainable investing for American Century Investments, Sarah Bratton Hughes.

“Nonetheless, there is still a strong willingness to sacrifice some returns for the benefits of investing in impact funds.

“A willingness to give up a proportion of expected returns shows that impact investors still expect to earn competitive returns and are making rational choices to realise an impact emphasis in addition to a financial return.

“While it is positive that investors are willing to sacrifice returns in order to realise the benefits of investing in impact funds, often this is not necessary, as impact funds historically show returns in line with their non-impact counterparts.

“Identifying impact-related factors that could affect a company’s ability to stay competitive over the long term has the potential to add to returns,” Bratton Hughes added.

More than 40 per cent of American Century dividends go to the Stowers Institute for Medical Research, a world-class biomedical research organization with an equity stake in American Century. American Century Investments has generated more than $2 billion in dividends for the Stowers Institute since 2000.

Survey methodology

The 2023 survey was conducted with representative samples of adults 18 years of age and older. There were 1,007 participants in the U.S. survey, 1,004 in the U.K. survey, 1,003 in Germany, 1,005 in Australia and 1,002 in Singapore. The study was fielded using Big Village’s Online CARAVAN Omnibus Survey, with the results weighted by age, sex, geographic region, race and education to ensure reliable and accurate representations of the adult populations in each country. For the purposes of this survey, millennials were defined as those aged 25 to 40, Gen Xers were defined as those aged 41 to 56, and baby boomers were defined as those aged 57 to 75.

——–

Notes:
[1] Assets under supervision as of 3/8/2024.

The post Impact investing appeal declines but greenwashing not a concern appeared first on AdviserVoice.

Sarah Bratton-Hughes

A stocktake of the goals set out under the Paris Agreement show the world is not on track to reach the objectives of the international treaty, according to American Century Investments head of sustainable investing, Sarah Bratton Hughes.

Ms Bratton Hughes believes global climate leaders should use the upcoming United Nations Climate Change Conference – COP28 –to recalibrate the approach to achieving a low-carbon transition given the lack of progress.

“Given the economic costs and frequency of extreme weather events are at global highs, it seems appropriate to ask whether COP28 will pass a reality check.

“Despite being 20 years into the energy transition – and with a growing number of countries having committed to net zero – little, if any, progress has been made.

“Much of this can be attributed to divestment, with carbon-heavy businesses simply passing the reins to other willing buyers. The best example of this are moves to divest from the oil and gas sector and the fact this has had little impact on the cost of capital for so-called dirty companies,” she said.

She said the role of policy-makers in decarbonising the global economy should not be understated. The combination of increasing geopolitical conflicts, climate change-driven inflation and increased energy demand in developing countries is intensifying the need for appropriate policy measures.

“We urge governments to take a holistic view in establishing policies that work in concert with investors’ ability to direct capital towards innovative climate solutions.

“That holistic approach should include concrete actions that uphold a just transition to a cleaner energy future,” she said.

Ms Bratton Hughes points to the US which has recently announced it will invest $1.2 billion to help develop two commercial-scale direct air capture facilities that absorb more than two million metric tons of CO2 emissions annually to jumpstart a network of carbon removal sites. The development is expected create 4,800 jobs.

“Initiatives such as this are a step in the right direction, however I would caution that large economies, such as the US, can more easily use subsidies to attract green investment than emerging market and developing economies. This puts the latter at a disadvantage in terms of developing clean energy jobs.

“Making a just transition to a greener world will not be easy, but it is essential to long-term sustainability, and despite the challenges, we can motivate action by focusing on potential solutions, not just problems.

“While the COP28 stocktake is likely to report that urgent action is needed, recent history has shown we cannot simply shut down high-carbon energy production overnight – nor would doing so achieve optimal real-world outcomes,” she said.

The post COP28 set to highlight lack of progress on Paris Agreement appeared first on AdviserVoice.

Sarah Bratton Hughes

Australian men are more interested in impact investing than Australian women, with 69 per cent of men finding it appealing in 2022, compared to 57 per cent of women, according to the impact investing study released by the $218 billion^[1] global asset manager American Century Investments.

The sixth impact investing survey surveyed retail investors across the US, UK, Germany, Australia and, for the first time, Singapore. Respondents were weighted according to age, sex, country, race, and education, with the results showing both Australian men and women find impact investing more appealing than they did just a year ago.

According to American Century Investments’ head of sustainable investing, Sarah Bratton Hughes, unfortunately that also means the gender gap in Australia has grown over the past year from five per cent in 2021 to 12 per cent in 2022.

“This result may be a factor of men’s overall familiarity with investments and their propensity to invest. Our survey found over half of Australian men surveyed (51 per cent) already invest in stocks, bonds, or managed funds, compared to just 28 per cent of women, which is quite a disparity.

“We believe closing the gender-related investing education gap will lead to more women finding impact investing to be increasingly appealing as they understand it can lead to more informed decision-making and better long-term risk-adjusted returns,” she said.

The study also revealed younger generations find the concept of impact investing more appealing, with almost three quarters of Australian Gen Zs and millennials (74 per cent) indicating this style of investing is of interest. That compared to 63 per cent of Gen Xers and 48 per cent of Baby Boomers who consider impact investing appealing.

In total, 63 per cent of Australians found the concept of impact investing appealing, which was an increase on the 57 per cent recorded the year prior.

“While our impact investing surveys show the appeal has increased over the years across all age groups, perhaps it should come as no surprise that the younger generations – those who stand to lose most from investments that do not consider a wider impact on society and the environment – find impact investing more appealing,” said Bratton Hughes.

Gen Z is also more willing to sacrifice returns in order to create a positive impact (56 per cent), compared to just 17 per cent for Baby Boomers.

Health care, disease prevention and cures top causes for Australian investors

The study also found that healthcare/ disease prevention was the cause that mattered most to Australians at 33 per cent, closely followed by environment/ climate change at 30 per cent.

When split by gender, Australian men were more likely to choose improved education (13 per cent), mitigating poverty (11 per cent), or racial equity and social justice (seven per cent) as their top cause, while women were more likely to pick healthcare/ disease prevention and cures as their top cause at 39 per cent.

Geographic rankings shift with addition of Singapore and declining interest in US

Australia now ranks third in terms of interest in impact investing, after overall interest rose six points over the past year. Singapore, a new addition to the survey, took the top spot in global rankings (69 per cent), displacing the UK (65 per cent) to number two, while Australia (63 per cent) displaced the US (56 per cent) from the next spot. German investors were the least interested in the concept of impact investing, with just over half of respondents – 51 per cent – indicating they find it of interest.

“Despite a challenging global economy, an evolving regulatory environment, and political pushback over the last year, interest in sustainable investing not only endures but has grown in most jurisdictions,” said Bratton Hughes.

——–

[1] Assets under supervision as of 3/02/2023.

The post Impact investing divides on gender lines appeared first on AdviserVoice.

The fifth impact investing study assesses the role of impact investing on society as well as perceived financial returns, with respondents from the US, UK, Germany and, for the first time, Australia, participating in this year’s study. Results were weighted by age, sex, geographic region, race and education to ensure reliable and accurate representation of the adult population in these jurisdictions.

The majority of respondents in the US (61 per cent), UK (63 per cent) and Australia (57 per cent) found impact investing appealing. Appeal was even higher among millennials and Gen Xers in the US (66 per cent and 64 per cent respectively); millennials in the UK (67 per cent); and millennials and Gen Xers in Australia (68 per cent and 60 per cent) in Australia.

While baby boomers generally found impact investing less appealing than the overall population, their interest has increased over consecutive years of running the study.

According to American Century’s head of ESG and sustainable investing, Sarah Bratton Hughes, there is a rising demand for impact investing across geography, generation and gender, along with favourable economics.

“This demand is further backed by a supportive political and regulatory environment that will help drive changes and advances in sustainable investing over the coming year.

“The combination of regulatory pressure, investor demand and industry cooperation will also help with consistency and transparency across sustainable investing, including alleviating any investor concerns around greenwashing,” she said.

The practice of greenwashing refers to inaccurate information or a lack of information, relating to a company’s sustainability practices, including its environmental credentials.

“We expect greenwashing not only to remain a concern, but to expand beyond environmental or climate claims to claims related to all Sustainable Development Goals, including those more aligned to social values such as diversity and inclusion,” she said.

The study also revealed the leading catalyst for a third of impact investors in the UK (34 per cent), Germany (34 per cent) and Australia (30 per cent) is the environment and climate change. As well, 30 per cent of Australian respondents cited health care/disease prevention and cures as a catalyst. In the US, 25 per cent of respondents cited the top impact investing concern as health care and disease prevention and cures.

American Century has a unique perspective on sustainable investing. More than 40 per cent of American Century dividends go to the Stowers Institute for Medical Research, a biomedical research organisation with an equity stake in American Century.

Other concerns for Australian investors include improved education (10 per cent), racial equality and social justice (8 per cent), mitigating poverty (8 per cent) and gender equality (7 per cent).

Of particular significance is the increasing share of investors willing to sacrifice financial returns for a positive impact. In all, 38 per cent of US respondents reported a willingness to sacrifice returns for a positive impact, up from 33 per cent in 2020. Further, 50 per cent of US millennials are willing to sacrifice returns for a positive impact, with similar numbers in the UK (49 per cent) and Australia (45 per cent).

“This trade off isn’t necessary and it is not the future of sustainable investing. Sustainable investing is more than just a risk mitigator; we believe it’s also an alpha generator. Sustainable and impact strategies have the potential to provide market-beating returns coupled with societal and environmental alpha.

“This alpha-plus approach will soon appeal to the majority of people who are either unsure or unwilling to sacrifice returns for a positive impact,” she said.

American Century Investments has identified five key themes which frame its approach to ESG and sustainable investing, and informs investment decisions across all funds and strategies. These include empowerment, sustainable living, environment, digitalization and health care to innovate solutions.

“These important themes shape our research agenda, engagement and proxy voting activities to not only contribute to transforming society but doing so while striving to deliver superior, long-term, risk-adjusted returns,” said Ms Bratton Hughes.

The post Millennials and Generation X leading impact investing charge appeared first on AdviserVoice.