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 context for our 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 adopt a responsible investment approach continues to grow.
In its 2021 benchmark report, the Responsible Investment Association Australasia (RIAA) revealed the market for responsible investments in Australia had continued to soar in popularity to $1.2 trillion in 2020, with responsible investment assets growing at 15 times the rate that overall Australian professionally managed investments have grown.
The proportion of responsible investment assets under management to total managed funds grew from 31% to 40% in 2020, despite there only being a 2% increase in all professionally managed funds in Australia over the same period.
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.
There are two basic methods of ethical investment, choosing what you invest in or becoming a shareholder advocate who changes what their company does. Of course you can do both and many investors do.
These are two simple ways that you can invest ethically:
There are many companies that investors and other stakeholders may think 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 file shareholder resolutions. Filing shareholder resolutions forces a company to look at the issues and proposals that have been put forward, and allows other concerned shareholders or stakeholders to be engaged with these issues.
You can choose 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. There is a large ongoing campaign to divest from the fossil fuel industry.