Frequent Disasters Push ‘Social Investing’ Demand in Australia
CANBERRA, Australia — Financial investment in an Australian company is no longer just about profits, but the greater good, as environment and humanity are among the latest drivers for those with enough cash to invest.
Shareholder activists are increasingly influencing corporate Australia’s decision-making on matters such as executive pay and returns.
Rio Tinto’s chief executive was last year forced to step down following an investor backlash after the global miner company blasted some of the world’s oldest Indigenous heritage sites in Western Australia.
Financial services giant AMP faced a similar situation, losing its chairman and two top executives after criticism from major shareholders over its handling of a sexual harassment claim.
More investors focus on ventures that generate positive social outcomes and avoid those that harm the environment or community.
“Taking the approach of long-term shareholders, we find systemic risks like climate change will have a negative impact on the performance of companies in your portfolio over time,” says Brynn O’Brien, executive director, at a shareholder advocacy group Australasian Centre for Corporate Responsibility.
“We’re trying to use our power as shareholders to mitigate these risks. We think that is the best approach to ensuring financial stability and long-term shareholder value.”
Financial imperatives drive much of this behavior. Analysts cite the declining performance of fossil fuel stocks over the past seven years as an example of how environmental risks impact companies’ market value.
In a broad study last year, global fund manager Fidelity International measured investment returns of more than 2,600 companies between January and September — at the peak of the Covid-19 pandemic.
It found companies at the top of the ESG rating scale easily outperformed those with weaker ratings, particularly during periods of sharp volatility.
An ESG Rating is designed to measure a company’s resilience to long-term, industry material environmental, social, and governance risks.
The precise stronger performance has helped fuel the growth of socially responsible investing in Australia.
Industry body Responsible Investment Association Australasia (RIAA) estimates responsible investment funds account for 37 percent of AUD 3.155 trillion in professionally-managed assets in Australia, nearly doubling in value in five years.
Last year, ESG-focused fund manager Australian Ethical Investment was among the best performers on the Australian Stock Exchange, lifting its value by 40 percent. Other strong performers in the segment included exchange-traded funds by Vanguard, Betashares, and Van Eck.
Sustainable investing is also finding its way into other segments of financial markets as investors seek companies that align more closely with their values.
Rising demand from their members has pushed some of Australia’s largest superannuation funds such as HESTA, Australian Super, Cbus, and REST Super to the forefront of seeking change at companies, especially on matters related to climate change and sustainability.
The trend has spread to the private equity sector as well, with large fund managers and wealthy sophisticated investors looking to invest in start-ups that target significant unmet environmental and social needs.
“Recent disasters such as the pandemic and New South Wales floods and bushfires have led more investors even further towards socially responsible investing,” says Geoff Waring, partner at Stoic Venture Capital, which funds early-stage businesses arising from university research.
“Investors want to know that their money is working towards positive social goals and are seeking more rigorous reporting from companies about how they achieve those goals.”
(Edited by Vaibhav Vishwanath Pawar and Pallavi Mehra.)