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Can ESG investing boost performance

Can ESG investing boost performance?

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By John McMurdo
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3 minute read

Investing in line with environmental, social and governance (ESG) principles is rapidly becoming mainstream within funds management. Increasingly, investors expect their money to be managed in a way that doesn’t harm the planet, people and animals. What’s more, they want their investments to help shape a better future for themselves and future generations. 

Beyond traditional ESG analysis

At Australian Ethical we go much deeper than traditional ESG analysis. Our approach to investing starts with the positive and negative principles of the Australian Ethical Charter, which has been in place since our establishment in 1986. First, we assess investments according to our ethical frameworks to construct our investable universe. All of our investments must align with at least one of the 12 positive principles of the charter, and we screen out investments that breach any of the 11 negative principles. In other words, because of our unique investment process we don’t just avoid companies that are doing the wrong thing – we proactively seek out companies that do good. Once a company is assessed as having passed the charter, our experienced investment team analyse the stock and determine whether it is suitable for portfolio inclusion.

Our ethical work doesn’t end there. Once we’ve invested in a company, we continue to monitor its practices to ensure it still aligns with our charter. If a company engages in behaviour that is contrary to our ethical principles, we’ll engage with management to encourage positive change. And if we’re not satisfied enough is being done, we’ll take the ultimate decision to divest. Divestment is just one way we take action as an investor and shareholder; we may also undertake company engagement, shareholder volting and advocacy activities.

A force for good

We also know how important it is for investors to understand the tangible impact their investments are having. That’s why we quantify the impact of our investment portfolios by measuring them against the UN’s Sustainable Impact Goals (SDGs). In our 2020 Sustainability Report we used the MSCI Sustainable Impact Metrics framework to evaluate the impact of our share portfolios versus the broader stock market. For SDG 4, which relates to quality education, we had 16.1 times as much impact as the overall share market – with investments in companies like Australian childcare provider G8 Education. When it came to pollution prevention (SDG 12) we had an impact that was 12.7 times greater than the overall market, thanks to investments like metals and electronics recycler Sims Metal Management.

Our performance proves that ethical investing is good for investors as well as the planet. In the 12 months to 30 November 2020 the Australian Shares Fund (wholesale) returned investors 18.6 per cent, outperforming its benchmark (the S&P/ASX 300 Accumulation Index) by 20.2 percentage points. Over the longer-term, the fund has returned 15.8 per cent per annum since its inception in 2012. The investment options of our super funds have also delivered strong long-term returns. Our MySuper Balanced option ranked first in the SuperRatings SR50 MySuper Index over the 12-month and three-year periods ending 30 November 2020, delivering a 6.3 per cent and 8.3 per cent return, respectively.* As at 30 November 2020 our Australian Shares option was ranked first over one-, five-, seven-, and 10 year periods, according to SuperRatings.

It’s fantastic to see more investment managers taking ESG factors into account. But, as our experience shows, combining ESG-related research with a robust ethical framework is the best way to produce strong investment performance and real impact for the planet, people and animals. It proves that investing for good really does better.

John McMurdo, chief executive, Australian Ethical Investment

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Can ESG investing boost performance?

Investing in line with environmental, social and governance (ESG) principles is rapidly becoming mainstream within funds management. Increasingly, investors expect their money to be managed in a way that doesn’t harm the planet, people and animals. What’s more, they want their investments to help shape a better future for themselves and future generations. 

Can ESG investing boost performance
Can ESG investing boost performance
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