How the election’s “greenslide’ is influencing how progressive women invest
In the wake of the Federal Election the female vote saw a massive swing to the progressive agenda, which will not just impact the policy of leaders but of our investments.?
As campaigning advanced in recent months, mounting anger towards gender and climate issues rose and resulted in a historic move away from Australia’s two major parties. The Greens Leader Adam Bandt called it a ‘greenslide’ off the back of the party’s best ever election result.?
The landmark results were underpinned by predictions that it was indeed the women’s vote that was up for grabs and women who would decide the outcome of the election, according to analysis by the Australian National University (ANU). ANU also suggested women were more likely to vote for the Greens than men.?
With parliament shaping up to look very different to what Australians are used to, the finance world could well be next. Elected officials and company executives are sitting up and taking notice: “Embrace the new expectations or face a revolt from dissatisfied female shareholders you represent”.
Women voters and investors go green?
The election highlighted a move towards independent and Greens candidates who put forward campaigns focused on stronger action on the climate crisis. When it comes to investments, the same trend is echoed.
In the investment world, it’s all about ESG. ESG means Environmental, Social, and Governance – the non-financial factors that are impacting how investors make decisions. Interest and adoption of these factors continues to grow among investors, but understanding how to measure ESG remains challenging.
Nearly 80 percent of institutional investors expect to make ESG investment central to their portfolio, according to BNP Paribas ESG Global Survey. Emerging investors are also jumping on board, with Morgan Stanley reporting 52 percent of the general population and 67 percent of millennials take part in at least one sustainable investing activity.?
When it comes to women, interest in ESG is surging with 79 percent of women investors expressing interest, according to a new study by Northern Trust’s FlexShares ETFs. The same study cited that 1 in 5 women are particularly focused on aligning their investments with their ESG-related values. But despite the interest, finding companies that align with your exact ESG investment preferences isn’t straight-forward.
Aussie investors demanding ESG standards?
In the same way progressive Australian women voted for equality alongside economic security, investing with an ESG, sustainable or ethical mindset considers how purpose and profit can co-exist. In a survey released from The Australian Shareholders’ Association?(ASA) this month reveals more than two thirds of Aussie investors will not invest in a company if it doesn’t meet the ethical test. It’s confirmation that investing is not just about the financial trade-off, ethical conviction is paramount.
ASA, the not-for-profit voice of Australian retail shareholders, reports 69% of respondents avoid investment in certain industry sectors due to ethical or sustainability concerns. The top three exclusions for investors who exclude sectors being gambling (42% ), coal/fossil fuels (25%) and tobacco (25%). Investors know what they don’t like, but the question remains, “How can they easily identify what they do like?”.
Caring about an issue is one thing, having the ability to understand it and making an informed investment decision about it is another. In response to rising demand from retail investors ASA has published an ESG & Climate Change Policy statement to drive long-term sustainable business practices which support and enhance the environment, social and economic performance for both Australian listed companies, their stakeholders and the wider community.
You can’t manage what you can’t measure
As the ESG industry matures, investors are becoming better at measuring, and managing their companies’ ESG standards. Even as we await International Standards due for release later this year, investors are clamouring for understanding and clarification on what constitutes “best practice ESG” standards. Unlike financial reports, it’s not as black and white as the paper it was originally printed on. ESG requires reporting, analysis, comparison and a verdict.
Investors today rely on the standards at which a company conducts its ESG reporting, such as the Task Force on Climate-related Financial Disclosures (TCFD) or Global Reporting Initiative. ASA’s key expectations for companies include:
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? Commit to net zero by 2050 in line with the Paris Agreement
? Commit to sustainability practices across Environment, Social and Governance areas
? Define a pathway to achieve these goal
? Measure the progress towards them
? Report that progress to all stakeholders
? Directors to set and implement corporate governance practices that oversee the business on behalf of all stakeholders.
All that glitters is not gold
While the Greens may have rejoiced in a ‘greenslide’ election result, when it comes to investing Australia’s corporate regulator has sounded its own alarm on the rapidly evolving ESG landscape and “greenwashing”.
The Australian Securities and Investment Commission (ASIC) this month warned of “greenwashing” – a form of marketing that deceptively persuades the public of environmental benefits. The Australasian Centre for Corporate Responsibility is suing an Australian energy company in the Federal Court amid claims of misleading and deceptive conduct.
In addition, despite a pandemic-led surge in ethical investments, this year has not been kind to sustainable funds as the impact of inflation and threat of higher rates hit growth stocks. The Nasdaq Future Global Sustainability Leaders Index is down 18% this year, compared to a near 30% fall for the technology-heavy Nasdaq index. Sustainable focused stocks may be under pressure in the short term but the outlook hasn’t dimmed for their rising prominence.?
Morgan Stanley has?predicted for the year ahead, “We expect regulators, corporations and investors to place greater emphasis on ESG factors in investment decision-making.” Just last week ASIC commissioner Sean Hughes highlighted greenwashing as an issue and said the regular would be looking into company disclosures around climate change and environmental, social and governance.?
Making your money do good
As the new climate focused elected officials take their place in Canberra, financial regulators will be clamouring to keep up with the evolving ESG reporting landscape. Keep your eyes out for International Standards due later this year and remember public companies are required to release corporate annual reports and sustainability reports – read them! For a quick look, Yahoo Finance offers a total ESG risk score with a simple search. Responsible Investment Association Australasia (RIAA) also hosts a directory of companies.
Against the backdrop of evolving regulation, a commitment to research will put you in good stead to navigate the industry and put your money to good use. For, despite the uncertainties that ESG reporting may still carry, there is no doubt the financial materiality of ESG factors is a significant factor impacting investment decisions now, and increasingly in the future.