Responsible investing is quickly gaining more ground in both the retail and institutional sectors of the financial industry, according to a biennial report by the Responsible Investment Association (RIA) released on Thursday.
Assets under management (AUM) using RI strategies rose by 68% in Canada between Dec. 31, 2011 and Dec. 31, 2013 when they reached $1.01 trillion, according to the 2014 Canadian Responsible Investment Trends Report. The report is sponsored by Royal Bank of Canada. The growth over the past two years is such that RI AUM now accounts for 31% of the Canadian investment industry.
“There’s momentum building in Canada and globally and it’s very exciting,” says Deb Abbey, CEO of the RIA. For example, RIA research indicates that RI AUM in the U.S. grew by about 76% between 2011 and 201, and by roughly 55% in Europe.
Institutional investors still make up the lion’s share of responsible investments in Canada accounting for about $949 billion of total assets. However, interest from retail investors has grown steadily over the past two years. According to the report, retail investors account for roughly $62 billion of RI AUM in Canada or 6%. While small, RI investments funds have grown 30% since 2011 — including RI mutual funds and retail venture capital funds.
The RIA report states the growing interest largely stems from an increased awareness of ESG risks, personal values and generational wealth transfers. Abbey also notes that advisors are starting to take more notice of responsible investing.
Looking more specifically at RI mutual funds, these products grew by 52%, according to the report, compared to non-RI funds which saw a 30% increase over the same period of time.
“Seeing RI funds outpacing the growth of traditional funds, that’s really a great thing from an investor perspective,” says Abbey. “I think we’re going to see a lot of new product and a lot of new growth … over the next couple of years.”
Most RI asset managers and owners hold equities, according to the report. Equities make up 43% of the overall asset allocation in RI compared to bonds, which make up 33%. Real estate is the third highest asset class choice for RI investors and makes up 11% of the market.
Looking to the future, responses from investors surveyed for the report suggest respondents are feeling optimistic about their responsible investments. Fifty-nine percent of respondents expect either moderate to high levels of growth in the RI industry over the next two years. Another 22% expect low growth over the same time period, 16% anticipate flat growth while 3% believe the RI industry will contract.
Data for the report was gathered from 170 investment managers and asset owners. The primary research for the report was supplemented by secondary sources including annual report.
The complete report is available here.