Ethical or responsible investing is growing rapidly in the Australian market. The Responsible Investment Association of Australia reports growth of $298 billion in 2020, with ethical investments now accounting for 40% of the entire market.
Regardless of personal values or motivations, with figures like these, ethical investing is something that investors cannot ignore. So here, we look at some of the factors shaping the future of ethical investing.
The push to ‘Net Zero’
Investors have been driving this shift for some time, and we have seen momentum swing away from companies that don’t take action when it comes to their environmental impact. Social pressure has also led many super funds to pull out of these investments or commit to do so in the near future.
The Climate Council of Australia has called for an end to coal and gas expansion, stating that, “It is vital that we replace all fossil fuels use as quickly as possible, meet all of our energy needs with renewables and take concrete action to restore damaged landscapes…”
But with Australia remaining a resource-based economy, what the move to Net Zero looks like on a practical level remains to be seen.
While the Australian Government has committed to reaching Net Zero by 2050, feedback from many sectors indicates that this is not serious enough. Furthermore, the lack of clear policy or mandatory reporting for listed companies can create a barrier for investors.
But major shareholders are supporting the shift, and while government policy is critical, it’s clear that private capital investors and high-emitting companies will play a key role in defining the way forward.
With a Federal Election imminent, the Opposition has indicated they will target Net Zero by 2030. However, whatever happens when we go to the polls, our progress towards this goal is something all investors should be watching closely.
An influx of younger investors
Over the last two years, we’ve seen significant growth in younger investors entering the market, driven by historically low interest rates and the impacts of the pandemic. The growth in online and small investment apps has only increased the appeal, making it easier to get started than ever before.
The most significant growth has been amongst the Millennial Generation, aged 25-40, for whom environmental concerns loom large. These investors are motivated by more than returns alone, they want to contribute to the planet positively. And they have put their money behind this goal, contributing $51.1 billion to sustainable investing across the globe.
With this generation expected to inherit $3.5 trillion from their parents in the coming years, they are a force to be reckoned with and their voices will be heard, in the market and in boardrooms.
One thing to watch for here is how these younger investors handle a market downturn. Many have entered the market at an unprecedented time and have only seen things go one way. Whether this heightened appetite for investing continues to grow when the outlook isn’t so positive remains to be seen.
A focus on social and governance
Environmental concerns have been top of mind for many investors for some time, but we’ve seen growing interest in the ‘S’ and ‘G’ of ESG (Social and Governance) in the last 18 months.
And it makes sense. Research demonstrates that areas like diversity lead to better decision making, and ultimately, stronger outcomes. So, whether driven by personal values or company performance, they should be of interest to investors.
While social and governance aspects are currently more challenging to quantify than carbon emissions for example, these are clearly areas to watch. As the Baby Boomer generation exits the workforce and Gen X takes the leadership mantle, Social and Governance issues will be top of the agenda and may lead to more tangible measurement and reporting.
Interested in getting started with or increasing your stake in ethical investments? Get in touch with Apt. We are a firm with a purpose and believe every investor should have the opportunity to make a difference and achieve their financial goals in the process.
General Advice warning
The information provided in this blog does not constitute financial product advice. The information is of a general nature only and does not take into account your individual objectives, financial situation or needs. It should not be used, relied upon, or treated as a substitute for specific professional advice. Apt Wealth Partners (AFSL and ACL 436121 ABN 49 159 583 847) and Apt Wealth Home Loans (powered by Smartline ACL 385325) recommends that you obtain professional advice before making any decision in relation to your particular requirements or circumstances.
