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Responsible Investing: a decade of progress in the for-purpose sector

In the last decade, responsible investing (RI) has undergone a remarkable transformation, especially within the for-purpose sector. Koda Capital’s 2024 For-Purpose Responsible Investment Survey sheds light on this evolution, revealing how non-profit organisations and foundations have embraced RI as a core component of their investment strategies.

The Shift in Attitudes Towards Responsible Investing

Ten years ago, the concept of responsible investing was met with skepticism and often misunderstood among for-purpose investors. While some non-profit organisations (NPCs) and foundations avoided investments in harmful industries, a comprehensive understanding and acceptance of RI were lacking. Many viewed RI as a potential threat to financial returns or as a secondary concern to their primary mission.

Today, the narrative has shifted dramatically. According to Koda Capital’s survey, a staggering 96% of respondents now focus on responsible investing, indicating that it has become integral to their investment approaches. This shift is not just a change in attitude but reflects a broader understanding that responsible investing aligns with both ethical values and financial goals.

Key Findings from the Survey

The survey results highlight several critical trends and insights:

Increased Importance of RI: Over the past five years, 60% of respondents reported a significant increase in the importance and focus on RI within their organisations. Only a negligible 2% saw a decline in emphasis on RI.

Future Growth: There is a strong expectation for further growth, with 43% of respondents anticipating an increase in their commitment to RI over the next 12 months.

Financial and Ethical Alignment: A majority of for-purpose investors (76%) believe that they can invest responsibly without compromising their financial goals. However, 39% still express concerns that RI might negatively impact returns, reflecting an area where more education and evidence-based advocacy are needed.

Reputational Benefits: 58% of respondents believe that RI helps in reducing reputational risk, a significant motivator for many organizations to adopt RI practices.

Portfolio Diversification: 51% of for-purpose investors see RI as a means to enhance diversification and discover new financial returns, demonstrating that responsible investing is not just about ethics but also about strategic financial management.

Negative screening remains a prevalent strategy, with tobacco, armaments, and gambling topping the list of excluded industries. This approach ensures that investments do not contradict the core values of these organisations.

Impact investing, where investments are made with the intention to generate positive, measurable social and environmental impact alongside a financial return, is gaining traction. 44% of respondents have at least one impact investment in their portfolio. However, barriers such as lack of awareness and inadequate advice from fund managers still exist.

Interestingly, 39% of for-purpose impact investors allocate a specific portion of their portfolio to impact investments, with a significant bias towards Australian projects. This focus on local impact indicates a preference for tangible, community-level outcomes.

Despite the progress, challenges remain. A significant proportion of respondents (39%) are still concerned about the potential negative impact of RI on financial returns. Additionally, there is a need for better education and professional advice, as many organisations feel their financial decision-makers lack sufficient knowledge about RI.

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