Posts Tagged ESG

If you’re considering investing your money or your super in line with your values, you’re certainly not alone. A growing number of Australians want their investment to reflect what matters to them, and the marketplace is responding with “socially aware”, “responsible”, “sustainable” or “ethical” options. But with so many choices and claims out there, how can you tell if a company or super fund’s strategy genuinely lives up to what they’re promising?

When researching ethical investments, you’ll often come across the abbreviation “ESG”. ESG means “environmental, social and governance”, but different funds and companies may define ESG differently, and the term can cover a wide range of factors:

• “Environmental” may include pollution control, biodiversity protection, carbon emissions reduction, or sustainable agriculture.
• “Social” encompasses gambling exclusions, labour standards, diversity and inclusion, human rights, or military contracting policies.
• “Governance” often covers board diversity, business ethics, whistleblower protection schemes and anti-bribery and corruption measures.

Because ESG can mean different things to different organisations, you’ll need to very carefully examine each fund’s investment strategy and product descriptions to understand the claims they are making and how their business practices align with those claims.

Think hard about what you personally want to achieve with your investments. What ESG factors are most important to you? How much weight do you want to give those factors? This will give you a solid foundation to work from when you’re comparing different products.

Look for clear, specific claims rather than vague, overarching statements. Check company reports, market announcements or their website for information.

Be wary of vague terms like “green”, “eco-friendly”, “zero emissions” or “carbon neutral” without supporting details. Do you understand the ESG or sustainability- related terms the fund or company are using? Are they backed up with evidence?

You may have heard about “greenwashing” in the news. Greenwashing (or greenhushing) describes false or misleading claims made by companies or products to make them seem more environmentally friendly, sustainable or ethical than they are.

Sometimes, information about specific investments that don’t align with the expectations of ethically minded investors might be omitted or obscured.

Every fund operates differently. Some funds may exclude products that don’t meet certain ESG criteria (negative screening) or seek products that do meet a set ESG criteria (positive screening). Look for clear and detailed information about revenue thresholds, investment selection methodology, and which sectors or themes the investments are focused on.

Higher fees may be charged for management of ESG investments when compared to traditional options, so make sure you understand the full fee structure.