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FAQs: RIAA Responsible Investment Certification

The Responsible Investment Association Australasia (RIAA) is a not-for-profit organisation dedicated to ensuring capital is aligned with achieving a healthy society, environment and economy. This FAQ page aims to answer common questions about our certification and how consumers can be better informed when starting their ethical investment journey.

 

 

What is RIAA’s Certification Program?

 

The Responsible Investment Association Australasia’s (RIAA) Responsible Investment Certification Program is the leading initiative for distinguishing quality responsible, ethical and impact investment products and services in Australia and Aotearoa New Zealand.

 

When an investor sees RIAA’s Certification Symbol, they know the product or service has implemented an investment style and process that systematically takes into account environmental, social, governance or ethical considerations, and this investment process reliability has been verified by an external party. It also meets the operational and disclosure practices of Certification Program requirements.

 

 

What are the key requirements for a product to be certified?

 

There are eight broad requirements for investment Products under the Certification Program:

 

1. Responsible investment strategies are formal, disclosed, consistent, auditable and fit for purpose
2. Product labels are clear, honest and not misleading
3. Product avoids significant harm – as a minimum requirement excludes tobacco, nicotine alternatives, nuclear and controversial weapons producers
4. Investment process accounts for environmental, social and governance factors
5. Product discloses full holdings (including holdings by fund of funds), performance, sustainability outcomes and engagement and voting practices
6. Product is managed by active stewards and managers can detail the stewardship practices, such as engagement and voting and the improved outcomes of these practices
7. Managing organisation has a formal commitment to responsible investment
8. Managing organisation provides educational information to members and customers about the responsible investment strategies and investment outcomes

 

 

What does the certification process look like?

 

Our certification process involves several key steps including:

 

 

 

• Review of the product’s application against the Responsible Investment Standard (approximately 140 application questions) conducted by the RIAA Certification Team, as well as documentary and web disclosure evidence to substantiate claims made.
• Use of external ESG research databases by the RIAA Certification Team to examine portfolio holdings for alignment with product claims.
• Preparation of assessment recommendations to the Certification Assessment Panel.
• Certification Assessment Panel: Two committees of industry experts (independent of the product under assessment) scrutinise the product and make an ultimate determination of its compliance against the Responsible Investment Standard.
• Independent Verification Panel: Six to twelve months following the successful certification of the product, an Independent Verifier tests the product for conformity with the Responsible Investment Standard on an Agreed Upon Procedures basis.
• At 18 months following certification (6 months prior to recertification), the product undergoes a spot check for compliance of its most current portfolio holdings against the product’s claims and the Responsible Investment Standard.
• Recertification: All products must undertake the process again after two years to remain certified.

 

 

What do you look for in certifying products?

 

When certifying products, we ensure that the investment decision-making process is consistent, auditable, and fit-for-purpose. ESG considerations must be integrated into the process for deciding which companies to invest in. The fund is required to engage with companies to improve their behaviour and vote in accordance with the objective and claims of the fund. Full portfolio holdings disclosure and high levels of transparency are mandatory aspects of our certification.

 

If a product issuer applies the research or index methodology of a particular research provider, e.g. MSCI, ISS ESG, Morningstar Sustainalytics to screen its holdings against its exclusions thresholds, the methodology applied must be accessible, consistent, and transparently searchable through the products’ collaterals.

 

This ensures that consumers and retail investors are able to understand what is in the fund and why, and exercise informed choice.

 

 

Why should consumers and retail investors trust a RIAA certified investment product?

 

Our research shows that 88% of Australians expect their superannuation and banking to be invested responsibly and ethically. In fact, 65% would invest more if their investments made a positive impact in the world. Furthermore, 79% of Australians would be more inclined to invest in financial products labelled as responsible or ethical by an independent source. The robust governance and rigorous processes undertaken by our Certification Program offer the market reassurance that certified products have met the requirements of the Responsible Investment Standard.

 

We strive to continuously provide transparency, accountability and consistency in our conduct of the Program, so that when a consumer or retail investor sees our Certification or Classification Symbol against a product, this serves as a valuable starting point to investigate a product further for alignment with their interests and values.

 

 

How stringent is your certification?

 

We pride ourselves in lifting standards in the industry. In 2023, 70% of products seeking certification were stopped at the front gate and needed to make changes, including divesting stocks to meet the requirements of the Responsible Investment Standard.

 

 

What happens if there is a breach of your standard?

 

If it becomes apparent that a certified product is not meeting the Responsible Investment Standard, we act swiftly. We conduct a thorough investigation, require correction of the issue, and demonstration of measures to prevent future occurrences. We may also decertify products and require them to cease using our certification symbol. Our commitment to transparency includes spot checks and independent confirmation by a qualified third party.

 

 

What are your ‘Avoid Significant Harm’ requirements?

 

RIAA certified funds must comply with RIAA’s ‘avoid significant harm’ principle. It is expected that, at a minimum, products exclude producers of tobacco, manufacture of nicotine alternatives and tobacco-based products, controversial weapons and nuclear weapons from their portfolio. Further information on what this means in practice, can be found here.

 

 

Is the lack of consistency in the definition of terms such as controversial weapons a problem?

 

RIAA strongly supports clear and consistent definitions in sustainable finance, including the term ‘controversial weapons.’ A consistent definition helps consumers navigate the various investment options available. In the absence of a universal definition, RIAA anchors its definition of controversial weapons in UN conventions and treaties.

 

 

How does RIAA lift standards in the market?

 

We apply a locally fit-for-purpose approach to our government and industry engagements and certify financial products against the Responsible Investment Standard for our region.

 

We also recognise that a rising tide lifts all boats. In tandem with our local efforts, we collaborate with international peer organisations for meaningful harmonisation of industry definitions and standards across sustainable finance.

 

Last year, we played an integral part in the launch of the industry-standard “Definitions for Responsible Investment Approaches” (https://responsibleinvestment.org/wp-content/uploads/2023/11/Definitions-for-Responsible-Investment-Approaches-Nov-2023.pdf), ensuring global consistency and contributing to efforts to eliminate greenwashing.

 

We wholeheartedly support the Australian Government’s efforts to implement an internationally-aligned sustainable investment product labelling regime, which will establish consistent labels and disclosure requirements for investment products marketed as ‘sustainable’ or similar, including for superannuation options.

 

RIAA recently launched our Sustainability Classifications initiative building on RIAA’s Responsible Investment Certification Program. The initiative introduces three classifications for certified funds: Responsible, Sustainable, and Sustainable Plus. For a comprehensive definition and assessment methodology, see here (https://responsibleinvestment.org/ri-certification/sustainability-classifications/).

 

The classifications differentiate RIAA certified funds based on their responsible investment approaches, claims, processes, stewardship programs and disclosures. They focus on the approach that funds take in considering ESG factors and the degree to which sustainability is addressed or targeted.

 

 

Why do some funds have materiality thresholds?

 

Materiality thresholds are set limits for exposure to certain industries, recognising that no business exists in isolation and global commerce is interconnected. It is crucial that product providers ensure all information about the fund is transparent and easily accessible to consumers so they can make informed decisions based on their own values.

 

There are several reasons for implementing materiality thresholds:

 

• Companies often don’t disclose all their revenue lines, making it difficult to know if there might be a customer from the offending industry especially several links down the customer chain.
• Mergers and acquisitions happen often, which means funds may be exposed for a short period of time, even if the newly merged company planned to divest or retire that activity.
• Changes in companies’ activities may take a while to show up in company reporting, leaving a temporary gap in accurate information.
• Some funds may prefer to stick with a company while it transitions away from undesirable activities, supporting positive change through engagement.
• Many companies are involved in various activities. For example, global chip manufacturers might supply renewable energy companies for a significant part of their revenue but derive a very small portion, e.g. less than 1%, from an activity like weapons sales.

 

 

How does RIAA ensure good governance of its Certification Program when it only certifies funds that are issued by its members?

 

The RIAA Certification process includes two specific steps that reflect its robust governance arrangements in practice.

 

1. The convening of a Certification Assessment Panel: Two committees of experts (independent of the product under assessment) scrutinise the product and make an ultimate determination of its compliance against the Responsible Investment Standard.
2. The conduct of independent confirmation by a qualified third-party: Six to twelve months following the successful certification of the product, an Independent Verifier tests the product for conformity with the Responsible Investment Standard on an Agreed Upon Procedures basis.

 

In May 2024, RIAA obtained an Australian financial services (AFS) licence issued by the Australian Securities and Investments Commission (ASIC) covering both the Australia and Aotearoa New Zealand markets. Becoming a license-holder has required demonstration of our robust governance arrangements and conflicts of interest safeguards.

 

RIAA’s AFSL is valid only for the provision of general financial product advice to consumers and retail investors covering the factual information provided through our Sustainability Classifications Initiative (https://responsibleinvestment.org/ri-certification/sustainability-classifications/).

 

We are not remunerated for your use of our Responsible Returns online tool available at https://responsiblereturns.com.au.

 

To find out more about how we and any other relevant parties are remunerated, our associations or relationships and potential conflicts of interest, please refer to our Financial Services Guide (https://responsibleinvestment.org/wp-content/uploads/2024/04/RIAA-FSG-18-April-2024.pdf).

 

 

What should consumers and retail investors do?

 

Consumers and retail investors should engage with their super funds and ask questions to understand their investment approach and commitment to responsible investment principles. Utilising resources like the Responsible Returns website can help consumers search for RIAA certified funds. Researching a fund’s investment practices can help consumers understand their investment strategies. By making informed choices about their investments, consumers and retail investors can create a positive impact and align their financial goals with their values, contributing to a more sustainable future.

 

To read more, visit our blog – Investing with your values: A guide for consumers and retail investors

 

 

Disclaimer:

 

The above content is provided by Responsible Investment Association Australasia (ACN 641 046 666, AFSL 554110) for information purposes and is not an offer to buy or sell a financial product, and is not warranted to be correct, complete or accurate. For more information refer to our Financial Services Guide on the RIAA website. Any general advice has been provided without reference to your investment objectives, financial situation or needs. If the advice relates to the acquisition of a particular financial product for which an offer document (such as a product disclosure document) is available, you should obtain the offer document relating to the particular financial product and consider it before making any decision whether to acquire the product. Past performance does not necessarily indicate a financial products’ future performance. To obtain information tailored to your situation, contact a financial adviser.