DGGF aims to provide exposure to a cost-effective, multi-asset class portfolio, for investors whose priority is investing in a way that aligns with their values. DGGF offers the potential for growth over the long term, and targets an allocation of 70% growth assets (Australian and international shares), 30% defensive assets (Australian and international bonds).
ETHI aims to track the performance of an index (before fees and expenses) that includes a portfolio of large global stocks identified as “Climate Leaders” that have also passed screens to exclude companies with direct or significant exposure to fossil fuels or engaged in activities deemed inconsistent with responsible investment considerations.
MCCL.ASX is a concentrated portfolio of global companies enabling or benefiting from the transition to decarbonise the planet. The Munro Climate Change Leaders Fund Active ETF was quoted on the ASX on 20 January 2022 with ticker MCCL.
HETH aims to track the performance of an index (before fees and expenses) that includes a portfolio of large global stocks identified as “Climate Leaders” that have also passed screens to exclude companies with direct or significant indirect exposure to fossil fuels or engaged in activities deemed inconsistent with responsible investment considerations. HETH currently obtains its investment exposure by investing in the Betashares Global Sustainability Leaders ETF (ASX: ETHI), with the currency exposure hedged back to the Australian dollar.
The Fund invests in a highly concentrated portfolio of global equities aiming to deliver returns greater than the RBA Cash Rate + 3% and MSCI World Total Return Index over the long term.
ESGI gives investors exposure to a diversified portfolio of sustainable international companies listed on exchanges in developed markets around the world (ex Australia)
The Morphic Ethical Equities Fund Limited (MEC) seeks to provide investors a way to grow their wealth and feel confident they do so without investing in businesses that harm the environment, people, and society.
The Fund aims to provide investors with the performance of the Bloomberg MSCI Global Aggregate and Green Bond ESG SRI Index (Hedged to AUD), before fees and expenses. The index is designed to measure the AUD hedged performance of global investment grade ESG (environmental, social and governance) screened bonds.
The Fund is an actively managed fund that invests predominantly in a broad range of international shares and equity-related securities that are listed on stock exchanges in developed and emerging international markets. At least 80% of the Fund’s NAV will be invested in shares and equity-related securities selected by Russell Investments based on advice received from investment managers pursuing a Sustainable Strategy.
Vanguard Ethically Conscious Australian Shares ETF seeks to track the return of the FTSE Australia 300 Choice Index before taking into account fees, expenses and tax.
The SPDR® S&P® World ex Australia Carbon Aware ETF seeks to closely track, before fees and expenses, the returns of the S&P Developed Ex-Australia LargeMidCap Carbon Aware Index.
The Fund aims to outperform the MSCI All World Index in Australian Dollars (Benchmark) on a net of fees basis, by investing in companies that are striving for positive change and delivering social and environmental outcomes.
AEBD is designed to serve as a core fixed income allocation for investors seeking a true-to-label ethical fixed income solution. It aims to track the performance of an index (before fees and expenses) that provides exposure to a diversified portfolio of high-quality Australian corporate and government bonds. The bonds are screened to exclude issuers (other than sovereign bond issuers) with material exposure to fossil fuels or engaged in activities considered inconsistent with responsible investment considerations.
A diversified portfolio of leading global sustainable companies that have a net positive alignment to the United Nations Sustainable Development Goals, exceed Alphinity’s minimum ESG criteria and offer attractive prospective returns. The strategy aims to provide consistently strong risk-adjusted returns across different market cycles by applying a disciplined and repeatable investment process to our global sustainable universe.
As the world grapples with environmental and social challenges, investors are increasingly turning their attention to strategies that not only deliver financial returns but also promote positive change. Environmental, Social, and Governance (ESG) investing has emerged as a powerful tool that aligns financial interests with ethical and sustainable values.
Below we'll explore the concept of ESG investing, its principles, benefits, and its growing importance in the world of finance.
Definition: What is ESG investing?
ESG investing involves the integration of environmental, social, and governance factors into investment decision-making. It goes beyond traditional financial analysis by considering a company's impact on the environment, its social practices, and the quality of its corporate governance. ESG investing seeks to generate sustainable long-term returns while creating positive impacts on society and the planet.
The primary factors of ESG investing:
Environmental: This factor evaluates a company's impact on the environment, including its carbon footprint, resource usage, waste management, and efforts to reduce pollution. Companies that prioritize sustainability, energy efficiency, and responsible resource management are favored in ESG portfolios.
Social: The social aspect focuses on how a company manages relationships with its employees, customers, suppliers, and the communities it operates in. ESG investors look for companies that promote diversity, labor rights, safe working conditions, and community engagement.
Governance: Governance assesses a company's internal policies and practices, including its board structure, executive compensation, and shareholder rights. Companies with strong governance practices are often seen as more transparent and accountable.
ESG investment strategies
Environmental, Social, and Governance (ESG) strategies are investment approaches that take into account a company's ESG factors when making investment decisions. These strategies aim to align financial returns with ethical and sustainable considerations. There are several different ESG strategies that investors can utilise:
ESG Integration: This approach involves incorporating ESG factors into traditional investment analysis, enabling investors to assess a company's financial prospects alongside its ESG performance.
Thematic Investing: This strategy allows investors to align their portfolios with specific ESG-related themes, such as:
Impact Investing: This approach specifically targets investments with the intention of generating measurable positive social or environmental impacts, alongside financial returns.
Exclusionary Screening: This strategy excludes certain industries or companies based on specific ESG criteria, such as tobacco, weapons, or fossil fuels.
Key ESG Investment Themes
There are several common ESG investment themes:
Renewable Energy Investments
This category includes investments in companies and projects involved in renewable energy sources like wind, solar, hydropower, and geothermal. Examples of renewable energy investments may include stocks of solar panel manufacturers, wind farm operators, or renewable energy infrastructure funds.
Clean Technology
Clean technology investments focus on companies and technologies that promote environmental sustainability and resource efficiency. This can encompass areas like energy efficiency, waste reduction, and emissions reduction. Examples include investments in companies developing electric vehicles, energy-efficient appliances, or advanced recycling technologies.
Sustainable Agriculture and Food
Investments in sustainable agriculture and food production aim to support practices that reduce environmental impact, promote responsible land use, and improve food security. This can include investments in organic farming, sustainable fisheries, or plant-based food companies.
Water and Wastewater Management
Companies involved in efficient water management and wastewater treatment are integral to sustainability efforts. Investors can support such initiatives by investing in water technology firms, water utilities, or companies specializing in wastewater treatment solutions.
Features of ESG investments
The main features and reasons for investing in ESG include:
Ethical alignment: ESG investing allows individuals to align their investments with their personal beliefs and values, contributing to positive change.
Long-term value: Potential for long-term sustainable returns: ESG investments aim to identify companies that are well-positioned to navigate environmental and social challenges, offering potential long-term value.
Risk Mitigation: Companies with strong ESG performance often exhibit better risk management practices. Investing in such companies can potentially reduce long-term investment risks as they may be better prepared to weather crises, regulatory changes, and environmental challenges.
Access to Capital: Companies with strong ESG credentials often find it easier to raise capital, as they are more attractive to investors who prioritise sustainability. This can lead to lower borrowing costs and greater access to financing.
Risks of ESG investments
There are three main types of risks to consider when investing in ESG:
Lack of standardised metrics: ESG data and ratings can vary across providers, making it challenging to compare and evaluate investments consistently.
Greenwashing: Some companies may claim ESG credentials without substantiating their commitment to sustainability, posing a risk of misleading investors.
Potential underperformance: Investors may need to balance financial returns with their ethical objectives. Some ESG investments may underperform traditional options in the short term
How to compare ESG investments
When comparing Environmental, Social, and Governance (ESG) investments, it's essential to assess the key factors to make informed investment decisions that align with your values, financial goals, and risk tolerance. Here are the main factors to consider:
ESG integration and criteria: Understand how ESG factors are integrated into the investment process. Understand the specific ESG criteria used for selection and screening. The depth and quality of ESG integration can significantly impact the investment's alignment with sustainability goals.
Performance track record: Evaluate historical performance against relevant benchmarks. A strong track record can provide confidence that ESG considerations are not hindering financial returns and may even enhance them.
Transparency and reporting: Assess the quality and depth of ESG reporting by companies in the investment portfolio. Clear and comprehensive reporting helps investors understand how ESG data is collected, verified, and utilised in the investment process. Transparent reporting is essential for assessing the authenticity of ESG claims.
ESG ratings and research: Consult third-party ESG ratings and research providers to gain insights into the investment's ESG performance and to validate its claims. Also consider the credibility and methodology of these ESG ratings providers.
Ways to invest in ESG
Investing in ESG assets in Australia can be done through various methods and investment vehicles, depending on your preferences, financial goals, and risk tolerance. Here are the main ways to invest in ESG:
Exchange-Traded Funds (ETFs)
ESG-focused ETFs track indices or benchmarks composed of companies that meet specific ESG criteria. Investing in ESG ETFs provides diversification across multiple ESG-focused companies within a particular theme or region.
Managed Funds
ESG funds are actively managed and include a selection of stocks and/or bonds that adhere to ESG principles. Professional fund managers make investment decisions based on ESG criteria, aiming to achieve ESG goals while delivering competitive returns.
Impact Investment Funds
These funds are dedicated to generating measurable positive social or environmental impacts, alongside financial returns. These funds prioritise achieving specific, quantifiable outcomes, such as reducing carbon emissions, improving access to clean water, or advancing gender equality.
Direct Stock Ownership
Investors can build their own ESG portfolio by purchasing individual stocks of companies that align with their ESG preferences.
Summary
ESG investing has emerged as a powerful tool for aligning investments with sustainable and ethical considerations. By understanding the different types of ESG investments, their features, risks, and how to compare and invest in them, investors can make informed decisions to drive positive change while pursuing financial goals.
FAQ
ESG investing allows investors to align their financial goals with their values. It can also help mitigate risks associated with environmental and social issues, as companies with strong ESG performance tend to be more resilient in the long term.
There are various ways to identify ESG investments. Investors can look for companies that are part of ESG indexes or funds, review ESG ratings and reports, or consider investment managers who specialize in ESG strategies.
While financial returns vary, research suggests that companies with strong ESG performance tend to outperform their counterparts over the long term. By integrating ESG factors, investors can potentially identify companies with sustainable business models and strong growth prospects.
Yes, ESG investing can influence corporate behaviour. As investors increasingly prioritize ESG factors, companies are incentivised to improve their ESG practices to attract and retain investors. This can lead to positive changes in corporate behaviour and sustainability efforts.
ESG ratings assess a company's performance on environmental, social, and governance factors. Ratings agencies evaluate companies based on specific criteria, such as carbon emissions, labour practices, board diversity, and transparency. These ratings provide investors with a standardised measure of a company's ESG performance.
This article contains information of a general nature only, and should not be regarded as advice, either general or personal. Anybody considering investing in managed funds should seek professional financial and legal advice prior to making investment decisions.
