Introduction

 

The ESG investments have been multiplying, and nowadays, more and more investors care not only about how firms perform financially but also if they fulfill their social responsibilities. Specialists estimate that by 2025, ESG financial products could exceed $50 trillion. This proves that this trend is here to stay and cannot be overlooked by any stockholder.

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The Overview of Australian Investors

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When it comes to responsible investments, the movement has been gradually more well-liked in Australia among private investors as well as large-size investment companies. In 2020, responsible investments accounted for 40% of the total market. That number has been increasing year over year.

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Typically, fund managers interested in embracing ESG values by intelligent allocation of their resources look at various ESG factors. Those include climate change, human rights infringements, diversity, in addition to values demonstrating an acceptable quality of governance like transparency and accountability or lack of corruption. Criteria and their importance may vary according to industry.

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Investors who care about ESG principles are a lot more likely to direct their funds towards firms engaged in developing sustainable infrastructure, renewable energy, and energy-efficient technologies. This also means they will avoid allocating their resources to companies traditionally responsible for damaging the environment. In the case of Australia, one of those is the coal mining industry. Moreover, it is worth highlighting shareholders of all age groups pay attention to sustainability reports along with financial statements. This is important since those in the higher age groups often tend to stick to traditional industries.

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To counterweight the adverse effects of the ESG movement to the coal industry, some of the Australian giants have already reacted and made substantial changes in how they operate. Lack of response from the coal industry could mean difficulties in acquiring new funds, insurance, or even license to operate. Luckily, Australians have adopted a particular accountability framework to help coal companies be more ESG friendly. Towards Sustainable Mining (TSM) allows mineral companies to evaluate and communicate their sustainability performance.

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The cores of the framework are transparency and credibility. Starting from 2025, firms will be required to publish data on how they perform with all TSM factors. For instance, those in the coal business will be obligated to provide data on their approaches towards managing air, water pollution, and biodiversity, as well as post-production activities. In addition, companies will be judged on the value they provide to employees and broader communities. Transparency and regular reporting should allow the coal industry to progress towards being more ESG friendly.

 

Many investors see the fact that a company cares about ESG standards as a valuable bonus. In a case where an investor has to choose between two assets. One issued by a company that addresses environmental and social issues in their policies and one that does not. The decision is relatively simple. By supporting companies with a green vision, stakeholders show that they also care about the future of our planet.

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Conventional vs. Socially Responsible Investing

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Some may worry that concentrating exclusively on companies embracing the ESG narrative may negatively affect portfolio diversification. Interestingly, studies conducted as long as 17 years ago prove that just because a stock portfolio solely targets assets with strong ethical and moral values does not mean it cannot reach a satisfactory level of diversification. To put it more simply, gains of potential investors should not be negatively affected if they decide to limit their investments to only those characterized as socially-responsible. Thus, it is false to assume there is a significant difference between the investment practices of conventional and socially-responsible funds.

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Interested shareholders can find a myriad of ethical exchange-traded funds (ETFs) listed on the Australian Securities Exchange (ESX). For instance, the Vanguard Ethically Conscious International Shares (VESG), the Betashares Global Sustainability Leaders ETF (ETHI), or the Russell Australian Responsible Investment (RARI). It is safe to say that as the ESG values became even more popular in the financial spheres, the opportunity for socially-responsible portfolio diversification is better than ever before.​

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Investors can carefully pick from companies of all sizes and different industries. Now is the time for those wanting to start their journey with socially responsible investing.
 

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Conclusions

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An increasing number of Australian stakeholders have been exploring the idea of socially responsible investing. Research proves that investors who focus solely on socially responsible investments do not risk a lack of diversification in their investment portfolios. This notion benefits all parties, including the investors themselves, companies that embrace the ESG values, and ordinary citizens. In the future, ESG metrics will likely become another crucial factor when considering the prosperity of a firm.

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