Sector heavily invested in impact investing

Posted on 07 May 2024

By Greg Thom, journalist, Institute of Community Directors Australia

More than 60% of not-for-profits, charities and philanthropic foundations believe that responsible investing has increased in importance for their organisation over the past five years, according to a new report.

A study by investment advisors Koda Capital also found that the majority of for-purpose investors don’t believe responsible investing compromises their financial goals, with 76% agreeing their organisation isn’t forced to choose between investing responsibly and achieving financial objectives.

The first-of-its-kind survey was designed to provide insights into the for-purpose sector’s attitude to responsible and impact investment.

The survey polled more than 126 NFPs, charities and foundations on their attitudes toward responsible and impact investing.

Key findings from the report Rising Tide: How Non-Profit Philanthropic Investors Approach Responsible Investing include these:

43% of surveyed organisations said they expected their commitment to responsible investing to increase in the next 12 months
39% acknowledged that the belief that financial returns would be negatively affected by responsible investment was a challenge
The majority of for-purpose investors (58%) believed investing responsibly reduced reputational risk and was a motivation for increasing their efforts in this area
44% of all survey respondents had at least one impact investment in their portfolio.
Just 2% of all organisations surveyed said they had reduced their focus on responsible investment over the past five years.

Koda partner David Knowles, whose Philanthropy & Social Capital team produced the report, said responsible investing is here to stay.

“The message from some of Australia’s most respected and influential for-purpose investors is that investing responsibly matters, is becoming more important over time and need not involve accepting lower returns.”

“Get serious about responsible investing, or risk becoming irrelevant to Australia’s growing philanthropic and non-profit investment community."

Koda Capital CEO Paul Heath.

The release of the report comes amid increasing societal pressure on organisations to ensure the investments they make not only have a positive impact but are ethical, sustainable and responsible.

Koda said the goal of the survey was to produce a benchmarking report designed to highlight the opportunities for growth – and barriers to success –for purpose-led organisations when it comes to making the right decisions about how to invest.

The report said the survey results suggested that investing responsibly is commonplace among the NFP sector in Australia and that organisations don’t believe there is a need to choose between investing responsibly and achieving financial objectives.

It found the sector appeared to be hungry to learn more about how to access responsible investing opportunities and was seeking out data and education in relation to this style of investing.

Responsible investment is defined as investment that considers people, society, governance and the environment along with financial performance.

Impact investment is that made with the intention to generate positive measurable social and environmental impact alongside a financial return.

The report found that the top motivations for responsible investing were alignment with mission and values (72%), avoiding social or environmental harm (57%) and enhancing financial outcomes (51%).

The report also revealed that the most common responsible investment approach in the sector is to apply “negative screens” to investment portfolios in a bid to limit investment in areas such as tobacco (90%), armaments (81%), gambling (81%), adult entertainment (65%) and alcohol (65%).

Koda Capital CEO Paul Heath said, “The report contains a clear message to the investment advice and funds management industry.

“Get serious about responsible investing, or risk becoming irrelevant to Australia’s growing philanthropic and non-profit investment community.

“For-purpose investors want help, education and access to good investments. Firms will better serve this important client segment if they focus on delivering these three things.”

Despite the good news story, the survey also showed that there is still room for development. 39% of all respondents expressed the view that their organisation was challenged by the belief that responsible investment negatively affected financial returns.

One in four for-purpose organisations said their financial decision-makers lacked knowledge of responsible investing.

Koda Capital plans to conduct the survey and report bi-annually to help for-purpose investors to benchmark themselves against their peers and help track the progress of responsible investment in Australia.