Nearly half of Australian investors are influenced by environmental, social and governance factors when choosing funds or companies to invest in at 43 per cent, a study has found.
The Legg Mason Global Investment Survey, involving 16,810 investors from 17 markets, including 1,000 Australians, showed 88 per cent of investors believe that fund managers should actively ‘police’ companies they invest in to ensure they act responsibly.
Around 55 per cent of respondents said they avoid businesses with controversial track records.
Almost half of respondents at 45 per cent said they will increase ESG investments over the next five years.
Millennials were found to find responsible investing more important, with 70 per cent of the demographic investing in sustainable funds, as opposed to 21 per cent of Baby Boomers.
The study found Millennials at 28 per cent were equally as likely as Baby Boomers, at 24 per cent to feel fund managers should consider a company’s effect on their local community.
A higher proportion of younger investors felt fund managers should consider diversity of workforce, as voted by 35 per cent of Millennials against 16 per cent of Baby Boomers.
However, Legg Mason’s Australian managing director, Andy Sowerby, says the research highlights that a lack of information, understanding or advice is the main barrier to investing more into ESG, with more than half (56 per cent) of Australian investors citing these reasons.
“This is notably higher for Millennials at 67 per cent against Baby Boomers with 48 per cent and advised investors at 61 per cent versus DIY investors 36 per cent,” Mr Sowerby said.
“It is also more likely for those in Asia (62 per cent) or in the Americas (62 per cent), rather than Europe (53 per cent).”
Other impediments to ESG investment as listed by the survey included higher fees, expectation of poorer investment returns, concern that ESG is just a short-term trend, the limited number of investment options and the sentiment that it’s not an important consideration.
Mr Sowerby says ESG investment is growing in prominence, driven not just by investors’ consciences but also by data showing that companies that are well-run and focus on ESG behaviours also tend to be those that are the most profitable and sustainable long-term performers.
“In addition, when we asked Australian investors which ESG factors they considered to be the most important, environmental considerations were cited as the most important (30 per cent), with social factors at 19 per cent and governance by 27 per cent, while 24 per cent said the three factors are equally important,” he said.
“Companies need to take note of the greater scrutiny placed on them by consumers and investors.
“For instance, investors are most likely to avoid businesses with a controversial track record (55 per cent), to buy from businesses with a good social responsibility record (49 per cent) and to buy from local businesses rather than those that transport over long distances (56 per cent).”
Mr Sowerby says the results also reflect a view that ESG investing is an exclusionary approach.
“We don’t see it that way,” he said.
“An integrated approach to ESG allows investors to understand the risks and opportunities presented by ESG factors and ensures a holistic view to help identify the best companies to invest in for long-term returns.”
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