Responsible investment has had a resurgence in popularity over recent years as more investor’s link investing in a sustainable society with stronger, sustainable returns.
Through responsible investing, there is reduced exposure to risks from environmental, social and governance (ESG) factors. Nine in 10 Australians expect their investments are managed ethically and responsibly, driving the momentum within companies.
Daniel Nelson, Senior Research Analyst for Direct Australian Equities at Perpetual Private, said not-for-profit boards are more aware than ever of the impacts and optics of the companies in which they choose to buy stock.
Nelson added: “There’s a growing desire to avoid potential conflicts of interest with an organisation’s core mandate, and investors and philanthropists want to ensure their investments are not negating the good work they do day-to-day.”
A recent report from Perpetual found that advised Australians care about investing in a company that cares about protecting the environment, with most leaning towards sustaining global warming measures, protecting nature and driving world peace.
Perpetual Private looked at competitors and the United Nations-supported Principals of Responsible Investment (PRI) to develop the framework. It also considered what investing in a world with changing climates, significant demographic shifts and resource constraints would demand of a responsible investor.
Nelson said that through an economic lens, “investments are more considered and investors are less exposed to risks they don’t understand”.
“It means companies who practice good ESG are increasingly likely to gain investment and sell stock. This is beneficial for both the economy and society, as businesses are realising the material cost of poor governance or unethical practices on their value.”
The increasing momentum can be attributed to concern that short term thinking from senior management within key companies is having long term, negative impacts on the performance of those companies, the financial services sector and on society.
Nelson said it is not just investors driving this momentum, as the financial community takes into account ESG factors when valuing and investing in companies.
“It is a competitive industry and companies are constantly looking for ways they can differentiate themselves from their competitors. This change in sentiment is creating opportunities for firms to differentiate, and we’re seeing a lot more transparency around how organisations are approaching ESG,” Nelson said.
He said the advantages of responsible investment is significant, beyond the economic and social bonuses. To an investor, Nelson said it means more factors are considered in investment decisions which protects against risks that would have been overlooked.
“It also means investors don’t inadvertently contribute to businesses activities they do not agree with, such as business activities that can damage the environment or companies that provide capital to weapon manufacturers and researchers.”