Responsible Investment

RESPONSIBLE INVESTMENT

The way you invest your money can make a difference.

Responsible Investment describes investments made based on the premise that environmental, social and governance (ESG) issues can affect financial performance. It encompasses ‘engagement’ for the purpose of assessing and improving future financial performance (which may well include support for shareholder resolutions) and ‘integration’ – the explicit inclusion of ESG risk into financial analysis.

The Australasian Centre for Corporate Responsibility (ACCR) has put together a set of resources to help you understand more about investing responsibly, the power of advocacy and engagement, and the international context for shareholder resolutions.

Responsible Investment in Australia

In Australia as consumer demand for investments that systematically consider ESG and/or ethical factors grows, the total assets under management that adapt a responsible investment approach continues to grow.

In its 2017 benchmark report, the Responsible Investment Association Australasia (RIAA) revealed that in responsible investments have more than quadrupled over the past three years. There are a reported $622 billion in assets under management in 2016, with nearly half (44%) of Australia’s assets under management now being invested through some form of responsible investment strategy.

You can read a summary of the benchmark report here or the full report here.

Ethical investment

To invest ethically means that in addition to considering the risk and return of your investments, you also consider how those investments align with your values. To put it simply, investing ethically means putting your money where your mouth is.

Choice has reported on ethical superannuation here. This report “New Zealand Superannuation Fund: How Responsible is it?” by one of ACCR’s founders Dr Robert Howell is a good summary of ethical investment issues, so well worth reading for non New Zealanders. Robert’s book “Investing in People and the Planet” is available from quaker.books@quaker.org.nz.

There are two basic methods of ethical investment, choosing what you invest in or becoming a shareholder advocate who change what their company does. Of course you can do both and many investors do.

These are two simple ways that you can invest ethically:

  • Screening or choosing what you invest in. You can chose to invest in good things (positive screening) or avoid investing in bad things (negative screening). If you are already invested in something and then sell the investment, this is called divestment.
  • Divestment (or not investing in the first place) is appropriate where you cannot influence a company to do better. Because of that there is a large campaign to divest from the fossil fuel industry.

Shareholder Engagement

However there are many companies where investors and other stakeholders may think that the company can do better. This is where shareholder engagement or advocacy comes into play. Active investors or shareholder advocates may write letters to their companies, meet and discuss issues with company management or industry associations and win support for actions proposed from other shareholders and other stakeholders. After doing this the next step may be to move shareholder resolutions. Moving shareholder resolutions forces the company to look at the issue and allows other concerned shareholders or stakeholders to be engaged.