Responsible investing at ‘top of investor’s mind’

Yasmine Raso

Senior Journalist, Financial Newswire

25 October 2022

The latest Advisable Australian Report for 2022 from Netwealth has revealed the growth of responsible investing (RI) in the last 10 years, with more Australians recognising the role investments play to care for the environment.

The report showed only 22 per cent of polled Australians currently have responsible investments in their portfolios, with 12 per cent previous holders and 66 per cent having never held responsible investments in their portfolios.

This comes as 61 per cent of Australians aged 18 years and over “care deeply about environmental issues” and 54 per cent “care deeply about social issues as well”, with RI allocations set to grow in the next five years as 34 per cent of survey respondents indicated they would increase their exposure.

The report also highlighted the importance of financial advisers taking “the opportunity to educate” their clients, focusing on furthering education and awareness of RI so it is no longer seen by advisers and investors as a boundary.

“The barriers to investing responsibly are often illusory and are often due to lack of client (and perhaps adviser) education, with more than seven in 10 (71%) investors rating their understanding of responsible investing as average or non-existent,” the report said.

“This suggests that there is a clear opportunity for financial advisers to step into that ‘knowledge vacuum’ to address misconceptions and misapprehensions. With education, they’re likely to find a relatively receptive audience: around two-thirds (66%) of investors would definitely or possibly consider investing in responsible investments for numerous reasons.”

The study also put the spotlight on the role of research as an important avenue to educate both advisers and investor, especially regarding the phenomenon of ‘greenwashing’ when companies overexaggerate the ESG credentials of investment products and offerings.

“Responsible investing is a trend that investment managers are understandably keen to capitalise on, and companies are keen to attract investors’ capital and to attract consumers to their products and services,” Netwealth said in the study.

“The “Morningstar Sustainability Rating” compares ESG risk across various managed funds within the same Morningstar Global Category, and the “Low Carbon Designation” identifies low carbon funds across the global universe. The designation is an indicator that the companies held in a portfolio are in general alignment with the transition to a low-carbon economy.

“However, it goes without saying that ESG credentials do not (and should not) replace strong financial fundamentals as criteria for selection. Rather, such considerations should run alongside financial considerations in assessing companies for inclusion in a portfolio.”