New research by Australia’s original responsible investment manager and super fund Australian Ethical and research company Investment Trends shows that climate change and environmental factors have been, and will continue to be, the number one driver of investment decisions by those who consider ESG factors when making investment decisions (“ESG investors”).
According to the survey of 2,854 Australian investors and 321 financial advisers, 78 per cent of ESG investors intend to invest based on environmental factors in the next 12 months, compared to corporate governance (46 per cent), ethical beliefs (43 per cent), social issues (34 per cent), and indigenous issues (31 per cent).
This has increased over the last year, when actual purchases of an investment or stock based on environmental factors was 58 per cent, compared to 34 per cent for ethical beliefs, 25 per cent for corporate governance, 20 per cent for social issues, and 11 per cent for indigenous issues.
Despite these trends, however, advisers are more cautious: just 40 per cent said they discussed ESG investing with their clients in the last 12 months, despite the overwhelming demand from investors.
It is also investors, not advisers, who predominantly initiate ESG investment decisions: 55 per cent of new inflows allocated by advisers to ESG-aligned investments in the last 12 months were driven by investors.
When it came to choosing the right ESG product provider, ESG investors cited the provider’s reputation as the most important factor (87 per cent), encompassing investment track record, distribution network, brand name recognition, and stated ESG values.
Across generations, the number one action thought to positively impact the environment and society was “clean and renewable energy sources” according to millennials (25-39 years), “energy consumption reduction” to Zoomers (18-24 years), and “recycling of non-biodegradable waste” to all other age groups.
Accumulators were most likely (35 per cent) to say they would invest in companies focused on creating a positive social or environmental impact, while Zoomers were most likely (32 per cent) to actively avoid companies that create social and environmental harm.
In the last 12 months, 74 per cent of Zoomers (18-24 years) also said they had bought an investment or stock based on environmental factors.
John McMurdo, CEO and MD of Australian Ethical, said: “At Australian Ethical, we’ve known for many years that climate change would and should become a key driver of private investment decisions.
“This is why we’ve ensured climate-friendly frameworks are integral to our investment philosophy, which has driven a 34-year track record of above-market returns in our premium products.
“But not all Australians have the time, energy, or experience to invest in and generate positive sustainable returns from these thematics, which is where Australian Ethical can help. We offer a range of options in our managed funds and superannuation that enable investors to gain exposure to climate-positive investments via one of Australia’s most experienced responsible investment managers.”
Sarah Brennan, CEO of Investment Trends, said: “ESG will further become a key component of the investing landscape, and this is set to continue to grow. Licensees, platforms and product issuers who ignore it do so at their peril. Our new research shows that not only are investors living their ESG values and partaking in a range of climate-conscious activities, the vast majority want to tackle climate change issues as they build wealth.
“The climate activities and themes which Australian investors are most interested in are new technologies such as for clean and renewable energy, carbon emission reduction, as well as initiatives to reduce energy usage, and recycling.
“When it comes to their views of how ESG investing impacts long-term returns, Australians have different perceptions depending on how they are currently invested. 82 per cent of consumers who are invested in ESG believe returns will either be better or about the same than other investment strategies. In contrast, 43 per cent of non-ESG investors believe they will be worse off,” explained Brennan.
“Importantly, ESG managers have an opportunity to help educate investors about areas such as performance and assist them access information more easily to alleviate any concerns about investment returns.”
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When asked what super funds could do to encourage a greater proportion of investment in ESG options, one respondent explained: “Bring awareness and benefits to new technologies like renewable energies, as opposed to fossil fuels. Sustainability in agriculture, land, animal welfare, water, health, education, affordable housing, and protection of the biosphere leads to a better future for all, both environmentally and economically.”
When asked how their adviser could help to better align their investments with their ESG needs, another respondent said: “Ethical advisers need to constantly refresh on the environmental and social and other (e.g. nuclear disarmament and demilitarization) perils we are facing and positive alternative scenario possibilities. Ethical advisers need to have an element of ‘activist’ in their DNA.”
Another said: “Financial organisations across the board will need radically new and innovative strategies to deal with the impacts of Covid and climate change emergency inaction globally.”
A third said: “I want to know exactly what ESG investing means in terms of the sustainability projects I am supporting: where in Australia is that project, how much of a difference will that project make (e.g. how many trees planted, how many jobs created, how this battles climate change, how this is an action forward for our future), along with the expected financial benefits of this type of investment, e.g 20 per cent more growth when supporting renewable over fossil fuels, plus this 10 year project creates 50 jobs in Australia in NSW, how much carbon is offset, etc.
“The more transparent the details are, the more I will feel personally attached to this investment and want it to succeed and invest more. If I can see that ESG aligns with my values in sustainability and ethics, I would want to continue supporting it even if it is at a lower profit than if I were supporting fossil fuels. Voting with my wallet so to speak.”
Australian Ethical (www.australianethical.com.au) is Australia’s original responsible investment and fastest-growing super fund manager, with a 34-year track record, over $5 billion in Funds Under Management (FUM), and above-market returns in its premium products.
Australian Ethical offers eight managed funds and 13 investment options in its superannuation fund. These are managed by an in-house team of investment professionals consisting of sector specialists with an average of over 16 years’ experience, and an internal ethics team with a separate reporting line. Every decision made by both teams is guided by the Australian Ethical Charter and its responsible investment philosophy. The investment team combines the most comprehensive ethical assessment process in the market with fundamental bottom-up stock analysis that goes far deeper than generic ESG investing.
Australian Ethical is rated as one of the top-performing super fund and investment managers by Super Ratings, Chant West, Morningstar, Money Magazine, Rainmaker, Forbes, and Financial Standard.
Recently, Australian Ethical was awarded:
- 1 of just 6 global leaders for ESG commitment, and the only Australian asset manager, by Morningstar
- Australian Ethical Super’s Australian Shares option ranks no.1 over 5 years, 7 years and 10 years according to the SuperRatings Fund Crediting Rate Survey as at 31 December 2020
- Australian Ethical Super’s Balanced option was ranked no.2 in the SuperRatings Fund Crediting Rate Survey – SR50 Balanced (60-76) Index over 1 and 3 years as at 31 December 2020
- Emerging Companies Fund (Wholesale) and the Diversified Shares Fund (Wholesale) 5-star rating by Canstar
- Money Magazine Best of the Best Award: ESG Trailblazer
- Finder.com.au Green Superannuation Fund of the Year
- SuperRatings Infinity Award for best sustainable super fund
- Financial Standard Investment Leadership Award: ESG - Australian Equities