Responsible investment in line with ASX 200 funds in June quarter

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Responsible investment (RI) fund managers are performing just as well as mainstream funds, despite missing out on surging prices of energy stocks, says a new report from Evergreen consultancy.

The top performing 25 per cent of RI funds are tracking a whisker ahead of S&P/ASX 200 fund managers, according to research issued this week.  

The Responsible Investment Grading (ERIG) Index for the June quarter, produced by Evergreen Consultants, shows that despite a market-wide swing towards energy stocks, the top 25 green funds assessed by the firm beat the index by 0.1 percentage points.

The Australian reported this week that ESG funds in America and Europe are “quietly moving their funds into oil and gas stocks”, though it acknowledges this was primarily taking place in Europe. Director of Evergreen Consultancy Michael Ohlsson declined to say if Australian funds are doing the same.

He did say Australian RI funds have performed in-line with traditional funds over a three year period, adding that fund managers with an RI focus tend to favour technology stocks and avoid materials and energy stocks.

Responsible investment is based on compliance with Environment, Sustainability and Governance (ESG) Integration, negative/exclusionary screening, norms-based screening, corporate engagement and shareholder action, sustainability themed investing and impact investing, as set out by the Responsible Investment Association of Australasia (RIAA).

“If you look at results over the past three years, IR funds have almost always done just as well or better than S&P/ASX 200 funds, showing that it is not true you cannot invest ethically and enjoy good returns,” he told Pro Bono News.

“Despite short-term performance issues, we are starting to see evidence that over the long term RI investing does not cost you performance.”

Ohlsson said an important issue underlying recent performance is that RI investing in Australia is still relatively new and there is a lack of depth in the stocks available to RI managers.

Australian RI equity managers in the Evergreen Responsible Investment Grading (ERIG) Index returned negative 11.8 per cent in the June quarter, compared with a 11.9 per cent fall in the index.

“We do expect some volatility in terms of performance, compared with the Index. In the short term there will be some growing pains for the sector,” he said.

“Leaving aside the big swing back to energy this year, funds with high responsible investment scores have performed in line with the index over the past three years.”