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Top-down bottom-up demand for responsible investing

Top-down bottom-up demand for responsible investing

Eliot Hastie
— 1 minute read

The 2018 release of the Colonial First State Responsible Investment and Stewardship Report has highlighted the demand for responsible investments.

Colonial First State Global Asset Management’s head of responsible investment Asia Pacific Pablo Berrutti said there was a growing demand from both consumers and executives for responsible investing.

“You’re seeing a general trend around the world towards responsible investing. Momentum around ESG has increased significantly particularly over the last 18 months to two years,” he said.

Mr Berrutti said it was difficult for companies and their boards to ignore the evidence around the financial materiality of ESG issues.

“It’s very difficult for a board of directors of a company or a trustee of a super fund to ignore the potential financial impact of these issues. Then of course the consumer demand has grown. So, you’ve got both a top-down bottom-up push for more responsible investment and responsible business practices,” he said.

The report found climate change to be a major focus of responsible investment on, said Mr Berrutti.

It also believed that meeting the 1.5 degrees target would require significant ambition and innovation and a mindset change.

“The current approach to assessing climate risk is not comprehensive enough. Carbon footprinting doesn’t include important physical and transition risks. We have seen some funds promote a low carbon footprint despite holding assets in equally exposed sectors like pipelines or coal transport,” Mr Berrutti said.

Mr Berrutti said that other regulators and companies had all pivoted towards focusing on climate change and that momentum was building.

“The institute of company directors survey that came out just a few days ago put climate change and renewable energy as top policy issue for directors. There is a huge amount of momentum around this at the moment,” he said.

Mr Berrutti said that there would be an even larger push for sustainable investment products over the next couple of years as Millennials came into investing.

“There is a very clear trend that younger investors, particularly in that Millennial bracket and female investors are very strongly committed to responsible investing principals and want to see their investments run sustainable and also deliver financial outcomes and they don’t see that there should be a compromise between those things,” he said.

With the largest wealth transfers in history occurring over the next couple of decades Mr Berrutti said companies would need to focus on their sustainability.

“One of the largest wealth transfers in history will go from baby boomers to Millennials in the next two to three decades so we are really seeing the effect of that in the demand for more sustainable investment products,” he said.

Mr Berrutti said Colonial First State was committed to sustainable investments and he believed ESG investments provided important sources of return for investors.

“Our belief is that ESG issues including climate change constitute important sources of risk and return and provide insights into the quality of the companies we invest in,” he said.

 

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