She offers a counter-example: Atlassian co-founder and Financial Review Rich Lister Mike Cannon-Brookes’ successful bid to stop Australia’s largest greenhouse gas emitter, AGL, from spinning off its coal business. However, Morningstar’s Hall says the world of ethical and sustainable investing is far from black and white. Pre-spinoff, Thomas says most ethical investors would probably have “scratched their heads” at a company making significant profits from gambling entering a sustainable fund. Woolworths has since spun off its gaming and liquor business in the form of Endeavour Group. It was only after profits from gaming exceeded 10 per cent of its profits, that it became an issue.” “Some ethical funds used to put Woolworths in there because of the good stuff that it did. However, its gambling business made up less than 10 per cent of its profits. He gives the example of Woolworths, which was previously the fourth-largest gambling company in Australian. “If you’ve got high materiality thresholds on your negative screens, you might end up with investments in the portfolio that surprise investors,” he says. If investors choose to have zero exposure to controversial industries or fossil fuels, investment funds’ material exposure is a “big issue” they need to consider, says managing director of specialist sustainable investing adviser, Ethinvest, Trevor Thomas. This is the big question – and one that divides sustainable and ethical fund managers, investors and advocates. What level of exposure to controversial industries are you comfortable with? We’re happy to hold them, so long as you can prove to us that we’re making a difference through engagement.’”Ģ. Certainly, we still have clients who say, ‘I don’t want any exposure to companies,’ but then there are clients who say, ‘We actually want to be part of the change. “It’s really about understanding what approach you’re comfortable. away from divestment and more towards active ownership and engagement,” says head of sustainable investing at wealth manager LGT Crestone, Amanda MacDonald. This is generally known as active engagement or, sometimes, shareholder activism.Īctive ownership is gaining ground, says Amanda MacDonald, the head of sustainable investments at LGT Crestone. As shareholders, they’ll use their votes to try to prod the company to move in the direction they want. For example, some investors may choose to invest in companies in the fossil fuel industry, provided they’re considered a leader in the transition to renewable energy.Īnd other investors may choose to invest in companies in industries where they want change to occur. That means investing broadly, often in an index, but excluding companies in controversial industries like gambling, weapons, tobacco and adult entertainment.Īt the other end of the spectrum is impact and themed investing, or investing specifically in certain areas to achieve broader social and environmental goals.Īnd in between the two, there’s more. One of the most common ways of achieving ESG investing goals is through the use of negative screens. Do you want to exclude companies which don’t align with your values, or do you want to invest in companies that are acting to match your values? Here are the four questions investors should consider when building a green portfolio.ġ. However, just because ESG investing is big, it doesn’t mean it’s straightforward, the experts warn. The green machine has slowed in 2022, but it hasn’t stopped. In the first three quarters of 2022, those products saw outflows of $26 billion. However, it’s against a backdrop of large outflows among ETFs and managed funds without a focus on sustainability. That’s down from $6.79 billion over the same period in 2021. In the first three quarters of 2022, sustainable exchange-traded funds (ETFs) and managed funds saw inflows of $1.98 billion, according to Morningstar analysis. Eamon Gallagherīut retail investors with an eye on environmental, social and governance (ESG) factors have proven to be “stickier” investors, says Morningstar ESG analyst Erica Hall. And as technology has been mauled, energy has roared.ĮSG factors are gaining traction for investors, says Morningstar analyst Erica Hall.
Many sustainable funds are overweight in technology and underweight in energy. Decarbonising the economy will offer the investment opportunity of a lifetime, BlackRock CEO Larry Fink wrote in his annual letter to CEOs at the beginning of the year.īut since the January letter, it hasn’t been smooth sailing for green funds: only 33 per cent of sustainable funds analysed by Morningstar have outperformed their respective peers – down from 55 per cent in the three- year period to September 2022.
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