There is no question that an appetite for investment options that make a positive difference is burgeoning in this country, the question then is how can we satisfy investors by achieving both profitability and positive outcomes?
Beta shares recently revealed that 20% of all investors in Australia are deliberately seeking socially responsible investment opportunities, a significant figure that rises even higher when discussing younger investor preferences (28%).
However, the term ‘ethical’ by its nature is subjective.
I for one firmly believe that we not only have the power but the duty as financial institutions to channel this trend for ethical investment into real action. However, this is only possible if a consensus definition of what constitutes ethical investment is reached and able to be tested against strict ESG standards.
At Vellum, we understand that positive impact which truly makes a difference either enriches one or all of the following dimensions, Environmental, Social Impact or Corporate Governance. These dimensions, which constitute ESG, are the exact parameters by which we can observe our investments at work, but achieving this visibility will take some reform.
Currently there are no regulations that ensure that the growing numbers of Aussies trying to make a real difference with their investments will see real results. There is no existing obligation for so called ‘ethical investment’ funds to clearly disclose investment choices, nor adhere to any regulatory standards. This may mean many Australians may be investing in causes which are counterproductive to their beliefs.
Such standards, which would ensure that ESG dedicated funds were truly creating positive impact, already exist in Europe thanks to the Sustainable Finance Disclosure Regulation and similar measures have recently seen significant backing from US president Joe Biden (ref).
In order to properly harness this growing enthusiasm from Australians for sustainable investment, and to ensure that ESG continues to be a meaningful benchmark for positive change, we need similar reform here in Australia.