Responsible investment during turbulent times
13 October 2020
How much are your values worth?
The truth is, if you’re willing to take a stand for what you believe in, you could gain quite a bit, at least when it comes to responsible investment.
By choosing to invest your money in a responsible way, you’re not only doing the right thing from an ethical and environmental standpoint, but you could also be setting yourself up for long-term financial success and a comfortable retirement.
Uncertainty — whether in the markets or the world at large — might make you want to reach for something stable and reliable. Here’s why responsible investment may be the right choice for you, no matter what the economic outlook is.
Responsible investment focuses on high-performing, ethical businesses and industries.
What is responsible investment?
Before we take a look at performance rates and discuss outcomes, let’s first explore what exactly we mean by ‘responsible investment’.
Responsible investing refers to opportunities for growing your savings by supporting enterprises that behave in a just and equitable manner. This means that these investments are geared toward environmentally sustainable companies as well as businesses with strong oversight and fair practices.
Here are a few terms that help explain how responsible investing works:
- ESG: This term refers to the three pillars of many responsible investment plans — environmental considerations, social impact and good governance. A recent report from JPMorgan Chase & Co. predicted that, soon, 44% of global assets under management could be influenced by ESG principles.
- Investment restrictions: Otherwise known as negative screens, this phrase is used to describe strategies that prohibit working with companies that benefit financially from harmful products or activities, like the tobacco industry.
- Impact investing: In addition to avoiding harmful investments, this approach seeks to support companies and initiatives that will produce positive effects for communities.
By focussing on ESG factors whilst using negative screens and looking for investment opportunities that will produce a positive impact, responsible investing represents a far-reaching approach to generating financial gains for individuals while benefiting the wider society.
Challenging circumstances and responsible investing
For responsible investing to be effective — both for investors and for businesses — this strategy needs to be resilient in the face of volatility. Fortunately, there’s reason to believe that responsible investments can perform comparatively well during times of uncertainty.
The COVID-19 pandemic has had a profound impact on everything in Australian society from education to family life and the economy. Writing in The Australian Financial Review, Simon O’Connor, the CEO of Responsible Investment Association Australasia (RIAA), noted that sustainable assets worldwide have outperformed benchmarks during the crisis. Citing recent reports from BlackRock and AXA Investment Managers, O’Connor pointed out that evidence of responsible investment resiliency has emerged during a time when more and more Aussies are becoming aware of the importance of this strategy.
Moreover, an RIAA report covering 2019 — a year in which devastating bushfires created a great deal of damage throughout the country — noted that Australian responsible investment funds performed better than their mainstream counterparts across all timeframes studied by the organisation.
In the face of difficult economic, social and environmental circumstances, it would seem that responsible investing can lead to better results for investors and for the planet. As things slowly return to normal, we expect that responsible investments will remain competitive in the marketplace.
Responsible investing emphasises support for ecologically friendly initiatives like wind energy.
Why does responsible investment seem so resilient?
There are a number of factors that might contribute to the resiliency of responsible investing, including governance, one of the central components of ESG. Good governance may be indicative of a company’s ability to manage distress, pivot and persevere during challenging times.
Amidst tightening regulations and future uncertainty surrounding issues like climate change, businesses that are ahead of the curve when it comes to environmental concerns will be better positioned to meet tomorrow’s challenges.
Another important factor is that consumers are aware of the consequences that await us as a society if we don’t do better, and they’re demanding action. Businesses that can demonstrate their contributions to the world at large stand to gain from these savvy consumers.
Investing for the long term — for yourself and others
Because responsible investment can make good business sense, it may seem obvious that it’s in your own best interest, for the long and short term, to focus on sustainability and ESG factors. At the same time, responsible investing can be good for the planet, which can leave a positive impact on the world for years to come.
At LGS, we believe that the consideration and integration of ESG factors in our investment decision-making process helps mitigate potential risks and maximise long-term returns for our members. We use negative screens to ensure that we don’t invest your super in controversial or high risk industries, and we are one of only four Australian super funds with all products certified ethical by the Responsible Investment Association Australasia (RIAA). Learn more about our responsible investment approach and achievements.
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