INSIGHTS WITH EVALESCO
Sustainable investing is not new, but in recent years it’s moved from the green fringes into the mainstream. From climate change to animal rights and gender diversity, more people are interested in aligning their money with their values.
Who is Sustainable Investing suitable for?
Sustainable, or responsible, investing is an excellent option for anyone looking to have an investment portfolio that is tailored to your personal values and beliefs. Sustainable investing can be applied throughout the investment universe to active managed funds, passive exchange traded funds (ETF’s) and a type of investment vehicle we regularly use, Separately Managed Accounts (or SMA’s). For those of you that would like to consider excluding a business or even an industry you are not comfortable with, there is scope to do so across some of the portfolios we manage, however should you want a more complete solution, one of our Sustainable Models might be more appropriate.
Our ESG investment fund model has a strategic allocation of 90% to growth assets and 10% to defensive assets. It includes both Australian and international shares, implemented through active and passive management styles, listed property assets, and fixed income and cash. This ensures that you have a diversified investment portfolio with a substantial allocation to growth investments (shares and property) and is most appropriate for those that are wanting to invest over the medium to long term.
Our ESG investment fund model is suitable for a total portfolio allocation or allocation within a broader portfolio, with a suggested minimum investment of $50,000 over a minimum 7-year time frame.
It excludes companies whose primary business purpose is associated with:
- Tobacco and tobacco products
- Armaments manufacture or distribution
- High-impact fossil fuels
- Predatory lending
Within the AAN Sustainable Growth Model, a company with a minor or indirect exposure to an excluded sector (representing less than 10% of business activity) will not be automatically excluded, although it may be subject to ongoing review.
If sustainable investing piques your interest, and you want to invest ethically, get in touch with your adviser.
Sustainable Investment Fund Benefits
- You’re rewarding ethical companies.
- Major investment companies look to sustainable investing as the future.
- Sustainable funds are being launched at a record rate.
- Companies with a good ESG rating usually have lower risk exposure.
- The theory is that companies that don’t impact the environment, have a social conscience and are well governed will out-perform other companies in the long-run.
- Sustainable investing can help to manage risk in uncertain times.
- Performance results speak for themselves.
Last year alone, Australia’s sustainable investment market increased 20 per cent to a record $1.5 trillion. According to its 2022 benchmark report, the Responsible Investment Association Australasia (RIAA) found sustainable investments now represent 43 per cent of total professionally-managed funds.
In addition to traditional shares and fixed interest, you can buy sustainable investments in a wide range of assets, including property, alternatives such as forestry and farmland, infrastructure, private equity and cash.
These days, most big super funds offer a sustainable investment option and some even offer this as their default option. You can also buy sustainable managed funds, including a growing list of exchange-traded funds (ETFs).
So what are sustainable investments and how can you tell?
Focus on people and planet
A key part of sustainable investing is ethical, responsible and ESG (environmental, social, governance) investing. But whatever the name, the focus is on people, society and/or the environment instead of an exclusive focus on financial returns.
Sustainable investments are selected using a variety of screening methods, including:
- Positive screening selects the best investments in their class
- Negative screening excludes harmful sectors, companies or activities such as arms, gambling, animal testing, tobacco and fossil fuels
- Norms-based investing screens for minimum standards of relevant business practices
- Impact investing has the explicit intention of generating positive social or environment impacts.(i)
Increasingly, the term ESG investing is used when a fund or company commits to investing with these areas considered:
- Environmental, including air and water pollution, biodiversity and climate change.
- Social, including child labour and labour standards, ethical product sourcing, gambling and human rights
- Governance, including board diversity, corruption, business ethics, corporate culture and whistle-blower schemes.
While climate change is a strong theme these days, the RIAA report found gender diversity and women’s empowerment are gaining popularity. Yet despite the focus on making the world a better place, sustainable investing is not all warm and fuzzy. Performance still matters.
Watch out for greenwashing
Not surprisingly, increased investor demand for sustainable investments has led to a rapid increase in the number of products available. The rush to cash-in on the trend has sometimes led to what is known as ‘’greenwashing”.
The Australian Securities and Investments Commission (ASIC) describes greenwashing as the practice of misrepresenting the extent to which a financial product or investment strategy is environmentally friendly, sustainable or ethical.
ASIC warns investors to look beneath the green label at the fine print. For example, a fund might describe itself as ‘’no gambling” but the product terms say it may invest in companies that earn less than 30 per cent of revenue from gambling.
It’s also important not to rely on vague language such as “considers”, “integrates” or “takes into account” sustainability-related factors, but to look for a clear explanation of how the product will achieve its aims.
Australian companies lifting their game
It’s not just super funds and managed funds taking sustainable investing more seriously. For investors who like to invest directly in shares, Australian listed companies are also adapting to changing investor preferences and regulatory environment.
In a recent analysis of ESG reporting by Australia’s top 200 listed companies, PwC found the bar has been raised following the formation of the International Sustainability Standards Board (ISSB) in 2021, but there is still work to be done.
PwC found a 13 per cent increase in companies declaring a commitment to net zero emissions. However, only 55 per cent of those disclosed a transition plan or activities that will enable them to reach net zero.
There was also a 10 per cent increase in companies disclosing climate risks and opportunities, and a 30 per cent increase to 77 per cent of companies now disclosing a gender diversity policy.
For investors seeking sustainability along with financial returns from their investments, momentum and choice is growing. So please get in touch with your adviser if you would like to discuss your investment options.
SHARE OUR INSIGHTS
Share on Facebook
Share on Email
Share on Linkedin
Sign up to get the latest insights with our newsletter delivered straight to your inbox
We believe the true value of financial advice isn’t found in dollars and cents (although this is important too!) but in the peace of mind a financial plan can provide. It’s knowing where you want to go and how to get there, with a dedicated team behind you every step of the way.
We know the impact of good holistic financial advice can make and we have the life experience, technical capability and quality support team that can make that difference for you. We’ve empowered over 1000 families through the delivery of great financial advice, to be healthy, wealthy and happy.
The amount of super you’ll need when you retire depends on your big costs in retirement and the lifestyle you want. The Associate of Superannuation Funds of Australia (ASFA) estimates for a single $44,224 a year and for couples $62,562 a year is how much you may need. This is only an indicator and our advisers assess everyone’s individual circumstances.
The fees we charge for financial advice is only a fraction of the value we derive for our clients, meaning our clients are always better off after seeing us. Rarely do we encounter a new client invested appropriately for their needs, with adequate risk protection, structuring and estate planning provisions in place. Even small tweaks to a financial plan over a long period of time can result in drastically better outcomes for our clients which eclipses the fees of the financial advice. Additionally, you can opt-out of an ongoing fee arrangement at any time.
In our discovery meeting with you our advisers discuss the initial advice fee and the ongoing fees associated with our services.
After our initial phone call to discuss why you are seeking a financial adviser, we arrange a discovery meeting that outlines what is important to you, your current position, our areas of advice, our approach. We then present a Statement of Advice (SoA) to discuss your goals and our recommendations and go through the steps of how to proceed to the implementation stage. After signing the SoA, we discuss your questions, get you to sign the authority to proceed and complete any application forms before implementing the recommendations detailed in the SoA.
One thing to consider is the interest rate on your home loan in comparison to the rate of return on your super fund. Before making a decision, it’s also important to weigh up your stage in life, particularly your age and your appetite for risk. Whatever strategy you choose you’ll need to regularly review your options if you’re making regular voluntary super contributions or extra mortgage repayments. As bank interest rates move and markets fluctuate, the strategy you choose today may be different from the one that is right for you in the future
The information provided on and made available through this website does not constitute financial product advice. The information is of a general nature only and does not take into account your individual objectives, financial situation or needs. It should not be used, relied upon, or treated as a substitute for specific professional advice. We recommend that you obtain your own independent professional advice before making any decision in relation to your particular requirements or circumstances. Evalesco Financial Services do not warrant the accuracy, completeness or currency of the information provided on and made available through this website. Past performance of any product discussed on this website is not indicative of future performance. Copyright © 2019 Evalesco Financial Services. All rights reserved