Responsible investing is growing up, not winding down

Responsible investing is moving beyond what has been a challenging time as the sector adopts a more pragmatic position, according to Dugald Higgins, head of responsible investment & real assets at Zenith Investment Partners.

Mr Higgins says the sector has faced a difficult period but is now showing signs of a recovery.

“After a period of what I’d describe as a spiritual recession, we are seeing responsible investment start to turn around,” Mr Higgins says.

“Returns are coming back into line with traditional funds across many asset classes. It reinforces that integrating ESG factors is about solid investment analysis and risk management, not just ideology.”

Mr Higgins says ESG has experienced a cycle of hype, political pushback, macroeconomic pressures and higher interest rates, which all impacted the sector heavily.  

“We initially saw strong commitments and sometimes aspirational targets from governments and regulators, but as the conversation matures, what we are seeing now is the broader landscape evolving,” Mr Higgins says.

“In Australia, we are in a holding pattern of sorts, awaiting final rules such as the government’s sustainability fund labelling scheme and the ongoing implementation of climate reporting standards.

“But broadly, this is a sign of a market growing up, not winding down.”

Mr Higgins says despite global political noise about rolling back reporting requirements, the economic case for sustainability is clear.

“More than 70 per cent of Australia’s export partners are in jurisdictions working to implement sustainability reporting standards,” Mr Higgins says.

“Companies have invested heavily in building this capability, and investor demand for quality data on material risks isn’t going anywhere.”

Looking ahead, Mr Higgins says the future of responsible investing will be defined by resilience.

“The managers who will lead the next phase will be those who can demonstrate how their ESG expertise provides a tangible investment edge,” Mr Higgins says.

“This could be through avoiding risk, capitalising on transition opportunities, or engaging with companies to drive better returns.

“The spiritual recession was a period of correction and reflection. Coming out of it, responsible investment is stronger and more-performance oriented.”