Investing sustainably, also known as ESG investing, is a growing trend within Australia. ESG stands for Environmental, Social and Governance, and represents the non-financial factors that define how responsible an investment is – and therefore how risky or appealing a prospect is to an investor.
Examples of ESG criteria might include
Environmental – total carbon emissions, water and air pollution levels.
Social – diversity within the organisation, commitment to equitable labour or dedication to social justice.
Governance – which, if any, political parties the company is associated with or how often they are audited.
In some cases, individuals might use their personal preferences or principles to negatively screen investments, refusing to buy into problematic industries like tobacco, arms or alcohol.
How do sustainable investments perform?
In short, these investments generally perform well. In fact, sustainable investments in Australia have been shown to outperform multi-sector funds over the short and mid-term, and to significantly outperform the mainstream Australian share fund benchmarks over a ten-year period. You can find out more in the recent report by the Responsible Investment Association of Australasia.
The average responsible investment fund in Australia will outperform the ASX total return over a five or ten year period.
How can I invest sustainably?
Your financial adviser can work with you to create a strategy that invests either wholly or partly in ESGs. Generally, people with a responsible investment strategy opt in for a strategy that integrates ESG assets into their existing portfolio.
When considering the wide variety of sustainable investment options, it is crucial to decide on what is non-negotiable from your perspective – for example, do you want to champion the environment, increase diversity or promote growth in developing sectors?
Having this direction and the guidance of an expert will help you to narrow down choices and put together a portfolio that works for you. We can help, so please reach out if you have any questions of would like to discuss this further.
