flowering canola, central alberta, canada

When it comes to responsible investment (RI) assets, Australia and Canada exhibit both differences and similarities.

According to data from the Responsible Investment Association Australasia (RIAA), the land down under had A$980 billion (roughly C$875 billion) in RI assets under management as of 2018 — up 13% from a year earlier. In comparison, the domestic Responsible Investment Association (RIA) said in its most recent trends report that Canada boasted $2.13 trillion in RI assets under management as of December 2017. (Canada’s population is roughly one-and-a-half times that of Australia.)

Yet, looking at the percentage of each country’s assets dedicated to retail investors, Canada falls short. An October release from Cerulli Associates that cites the RIAA data said 42% in Australian RI assets (or approximately A$411 billion; roughly C$367 billion) are invested for retail customers, up from 30% a year earlier. That compares to less than one-quarter in Canada ($435.7 billion out of $2.13 trillion), according to the RIA report.

There are a few drivers behind Australia’s RI asset growth for retail investors.

First, there’s been a strong push for so-called super funds (tax-deferred pension programs for company employees). This matters, the release said, because the regulatory standards for companies offering super funds and managed funds, for example, require that they comply with investment disclosure rules that mandate ESG reporting.

Second, Australia has seen continued growth in the number of certified responsible funds for retail customers; 14 were added in 2018, bringing the total to 88, according to the RIAA.

The RIA, in its Canadian report, didn’t state the number of domestic RI retail funds available but said growth in the retail RI area, while significant, was mainly the result of large asset management firms integrating environmental, social and governance (ESG) analysis across all assets, including funds that aren’t labelled as RI, and not necessarily due to client demand.

Third, the Australian RIAA survey found that 50% of those surveyed attributed RI growth to investors’ increased understanding of the positive impact of incorporating ESG factors. The press release said the organization expects this factor to “help boost the take-up rate of responsible investment strategies among mainstream investors.”

Canada has a strong base of institutional investors. The RIA report said there’s a “rise of ESG integration among institutions that are strengthening their commitments” and that the number of Canadian asset manager signatories to the Priniciples of Responsible Investment had grown to 56 by the end of 2017. Separately, a 2019 poll of more than 800 institutional investors by RBC Global Asset Management (RBC GAM) indicated 80% of respondents from Canada use ESG analysis.

Nonetheless, the RIA data identified a knowledge gap among retailer investors. While 77% were “somewhat interested” or “very interested” in RI options, almost the same percentage (73%) knew very little about them.

Canada and Australia share common ground when it comes to barriers to future RI growth.

The Cerulli release noted that “Australia’s responsible investment market is not without challenges,” saying companies have to improve their RI processes and better reflect investors’ goals in their products. For example, “the RIAA’s 2019 benchmark report shows that only 5% of the combined AUM of surveyed managers had fossil fuel exclusions,” while more than 30% of consumers using an RIAA online tool desire such exclusions.

Further, there’s a “perceived lack of performance of ESG options” and a “lack of public awareness,” the release said. There’s also concern over greenwashing as a way to “capitalize on the popularity of responsible investments,” Cerulli said.

The RIA’s report on Canada also listed RI fund performance concerns as a main hurdle, with 70% of respondents choosing the option. The second and third most popular barriers were lack of qualified advice and concerns about greenwashing. In comparison, the top two growth drivers were responsibility to client/fiduciary duty and risk management, two concerns mainly of institutional players.

Helping clients overcome these hurdles by offering education about the RI market is one way to encourage enduring RI asset growth. As the RBC GAM research indicated, growth is occurring in Canada but people’s expectations should be managed.