Responsible investing is akin to other aspects of life where making better decisions typically leads to better outcomes, and for many Australians this means aligning their investment portfolio with their values. Most investment management companies now offer portfolios specifically built to cater for the increased demand for consideration around environmental, social, and governance (ESG) matters. So, if you’re weighing up your options to increase the number of investments you hold where ESG is at the forefront, read on.
Defining “Responsible Investing” & ESG
Responsible investing integrates ESG considerations into investment decisions and ownership. This approach focuses on investing in companies that meet specific standards related to environmental stewardship, social responsibility, and governance ethics. The criteria include climate change mitigation, energy efficiency, waste management, customer satisfaction, data protection, gender diversity, ethical corporate behaviour, and more. By prioritising these factors, investors can support companies making positive impacts while still aiming for financial returns. Here’s an overview of each of the key ESG pillars:
- Environmental: Prioritises companies with initiatives to reduce carbon emissions, improve energy efficiency, manage waste, and mitigate air and water pollution.
- Social: Focuses on firms excelling in customer satisfaction, data protection, diversity, employee engagement, community relations, and labour standards.
- Governance: Looks for businesses with ethical board composition, audit structures, transparent executive compensation, and robust whistleblower schemes.
Responsible Investing & ESG: The Impact on Your Portfolio
Traditionally, investment decisions are primarily driven by the potential for financial returns, considering the investor’s risk tolerance. However, the landscape is changing. Many investors now seek to understand where their money is going, leading to a surge in responsible investing. This shift doesn’t mean compromising on returns; responsible investments are thoroughly researched for both financial viability and ESG compliance. When selecting shares for managed portfolios, investment managers evaluate companies based on the aforementioned ESG criteria to determine their suitability for responsible investing. This process ensures that investments not only aim for financial returns but also contribute positively to societal and environmental goals.
How to Start with Responsible Investing
To embark on responsible investing, explore managed funds that offer ESG-focused portfolios. Quality and expertise vary across funds, so finding one that matches your unique needs is crucial. Consulting with a financial adviser is key here – they can help you assess your risk tolerance and present suitable investment options. This guidance ensures that your move towards responsible investing is informed and aligned with your financial goals.
Engaging with a financial adviser is a critical step in transitioning to responsible investing. Advisers can tailor investment strategies to fit your risk profile and investment objectives, ensuring that your portfolio not only grows financially but also aligns with your ethical values.
What Now?
Responsible investing represents a paradigm shift in how individuals approach their investment strategies, moving beyond mere financial returns to include ethical and sustainable considerations. For Australian investors curious about integrating ESG factors into their portfolios, the journey begins with understanding what responsible investing entails, its impact on portfolio performance, and how to start. By choosing investments that align with both financial goals and personal values, investors can contribute to a more sustainable and equitable world.
If you’re ready to start your ESG investment journey, you can reach out to us on 1300 349 188, or via our website.
General advice warning: The advice provided is general advice only as, in preparing it we did not take into account your investment objectives, financial situation or particular needs. Before making an investment decision on the basis of this advice, you should consider how appropriate the advice is to your particular investment needs, and objectives. You should also consider the relevant Product Disclosure Statement before making any decision relating to a financial product.