The rise and times of “Social Good” Investing

 

So, we have all heard of RI/ESG Investing but what does it really mean?

Responsible Investing (RI) and Environmental, Social, and Governance (ESG) are terms used when referring to ways to invest in a more responsible manner. We have found this is an ever-increasing conversation we have been having with clients and is becoming a more important consideration. We find more of our clients want to understand how these non-financial factors can form part of an investment portfolio, and they want to be informed of the risks and the growth opportunities in this sector.

As a member of RIAA (Responsible Investments Association Australasia), and with assistance from our research house, Zenith Investment Partners, we get some really good data and research which has allowed us to formulate some interesting opportunities for those families and Investors who have a family mandate and want to position some or all of their investments in this type of mandate.

In working with our research team, there are five broad categories that we discuss with our investor groups.

Traditional – investors that are seeking to achieve a stated investment outcome, but with little or no regard for ESG factors

Aware – investors also seeking to achieve a stated investment outcome, but want to take into consideration a broader range of factors including ESG

Integrated – investors seeking to achieve a stated investment outcome, but expressly wish to consider the ESG factors which materially alter the funds to invest in

Thematic – investors seeking to achieve an investment outcome  that includes an explicit ESG objective – both measurable and reportable

Impact – investors who target investments aimed at generating a positive, measurable social and environmental impact, alongside with a financial return.

The range of Responsible Investment (RI) Issues is broad but once broken down into the ESG areas, investors can generally start to narrow down their focus. As an example: “Environmental” includes Climate change, Sustainability, Biodiversity and Water, Pollution and waste issues; “Social” covers Work and Safety, Human Rights and community standards; whilst “Governance” includes the issues of Management Structures, Governance and ethics. All of these sectors further break down into issues that people may want to fucus into. We are finding climate change issues such as Fossil fuels, Sustainability issues of renewable energy and Community standards such as Gambling, Tobacco and firearms are leading the conversations we are having with our clients.

Fund managers and investment groups, in answering this social calling, are making more socially diverse funds available in the marketplace for investors. This is a clear, new movement and paradigm shift that we have not seen before. The social good investing sector however, can be confusing and with the trade-off of risk versus returns, well thought through advice is critical in ensuring you are getting the outcomes you and your family planned for, and want.

 

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