Most Australians are probably familiar with the phrase ‘responsible investing’ by now. This common term has been regularly splashed across news headlines and financial statements for several years now, and most Australians have come to expect their money will be responsibly invested by banks and other institutions.
In fact, the last few years have seen Australians become increasingly concerned about the ways their money is being invested by their banks, super funds and other investment funds. For some, this is motivated by climate change fears. For others, concerns about social housing or poor work practices shape their investment choices.
So what exactly makes an investment ‘responsible’, and what does it mean for your investments?
On this page
- What is responsible investing?
- What are the different types of responsible investing?
- What do responsible investing funds typically avoid investing in?
- Is responsible investing profitable?
- What is greenwashing?
- What is CFS’s approach to responsible investing?
- Does CFS have any sustainable investment options ?
- Getting started as a responsible investor
What is responsible investing?
Put simply, responsible investing refers to the practice of looking beyond traditional financial analysis when constructing a portfolio to include environmental, social, and governance (ESG) risks.
These risks – whether real or perceived by consumers – can pose both financial and reputational threats to businesses and as a result, affect their value as investment opportunities.
- Climate change
- Land use
- Waste and pollution
- Resource depletion
- Human rights
- Health and safety
- Labour standards
- Indigenous rights
- Business accountability
- Board diversity
- Fraud and corruption
- Shareholder rights
Responsible investors believe that treating these risks seriously improves sustainable investment outcomes. They integrate ESG factors in their analyses, report on their progress, and are often actively engaged with company boards to help improve a business’s ESG outcomes.
The three ESG categories (environmental, social, governance) shouldn’t be regarded as rigid definitions. Often, an ESG consideration won’t fall only into one clear category – it may overlap or be interlinked across two or more.
What are the different types of responsible investing?
While the various terms used around responsible investing can sometimes seem interchangeable, this isn’t the case. Responsible investing can be considered as an umbrella term with the other investment approaches as subsets within it, as the examples in the table below show.
What do responsible investing funds typically avoid investing in?
Ultimately, the responsible investment manager will decide which companies they will exclude from their portfolios.
However, many may exclude any company:
- which breaches international treaties
- engaged in illegal activities
- engaged in activities the Australian government is trying to reduce or restrict.
Is responsible investing profitable?
Historically, investors have fretted that investing responsibly means sacrificing their returns. This is generally not the case, since it can lead to investing in better quality and more sustainable companies over the long term.
According to the Responsible Investment Association Australasia, responsible multi-asset funds outperformed the overall market over every timeframe except 1 year in 2021. In some cases, responsible funds were outperforming the broader equity market by three times over the long term (to 31 December 2021).
Although the performance of individual funds will vary from fund to fund, the idea that responsible funds are naturally less profitable is a myth. You can invest your money responsibly and still enjoy healthy returns.
What is greenwashing?
With demand for responsible investments growing, many companies and fund managers are marketing their own sustainability credentials as a way to attract investors.
Unfortunately some of these companies, whether intentionally or unintentionally, are overstating their commitment to responsible practices. These attempts to exaggerate a commitment to responsibility is called ‘greenwashing’, and it’s become a major concern.
Australia’s financial services watchdog, ASIC, is working to stamp out greenwashing in Australia and improve accountability, however investors should still be aware of these risks and take the necessary steps to protect themselves.
What is CFS’s approach to responsible investing?
CFS believes that good, responsible investment management will have a positive outcome on both the performance of the companies we invest in and the returns we deliver for members.
Our responsible investing practices are modelled after the UN’s Principles of Responsible Investing and incorporate both factoring ESG into our financial modelling, (ESG Integration) and active ownership (meaning we exercise our rights as shareholders, through engagement with and voting on how a company operates its business, and in some instances exclusions.)
In general, we won’t take a position on, or make judgement of, an ethical or socially responsible issue unless it’s specific to our investment strategy. However, there may be some ESG risks, ethical issues and circumstances in which we believe it is appropriate to take action, whether that’s through the use of negative screens, exclusions or active engagement with our investment managers.
Does CFS have any sustainable investment options ?
We’re proud to offer the CFS Thrive+ Sustainable Growth fund , a sustainable option for investors who want their money invested in companies that help make a positive contribution to people, planet and policy.
Acadian Wholesale Geared Sustainable Global Equity
Baillie Gifford Wholesale Sustainable Growth
Pendal Wholesale Sustainable Balanced
Acadian Wholesale Sustainable Global Equity
CFS Thrive+ Sustainable Growth
Stewart Investors Wholesale Global Emerging Markets Leaders Sustainability
Alphinity Wholesale Sustainable Share
CFS TTR Thrive+ Sustainable Growth
Stewart Investors Wholesale Worldwide Leaders Sustainability
Ausbil wholesale Active Sustainable Equity
Pendal Wholesale Sustainable Australian Fixed Interest
Stewart Investors Wholesale Worldwide Sustainability
AXA IM Wholesale Sustainable Equity
Pendal Wholesale Sustainable Australian Share
Stewart Investors Worldwide Sustainability Select
Getting started as a responsible investor
No matter how or why you choose to invest, the first step to using your money wisely is to work out exactly what you want to achieve.
If you’d like to start investing responsibly, you first need to set a clear goal for your investments. Some of the questions you’ll need to ask yourself are:
- How long am I investing for?
- What level of returns/income would I like to achieve?
- Do I want my investments to minimise ESG risks or actively improve ESG outcomes? Or both?
- What sustainability considerations are most important to me?
Once you’ve answered these questions you can look for investment opportunities that meet your criteria.
You can visit the UN’s Principles of Responsible Investing and Responsible Investment Association Australasia website for more information on responsible investments.
What’s next?
Responsible investing glossary and jargon explained
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Things you should know
Avanteos Investments Limited ABN 20 096 259 979, AFSL 245531 (AIL) is the trustee of the Colonial First State FirstChoice Superannuation Trust ABN 26 458 298 557 and issuer of FirstChoice range of super and pension products. Colonial First State Investments Limited ABN 98 002 348 352, AFSL 232468 (CFSIL) is the responsible entity and issuer of products made available under FirstChoice Investments and FirstChoice Wholesale Investments.Information on this webpage is provided by AIL and CFSIL. It may include general advice but does not consider your individual objectives, financial situation, needs or tax circumstances. You can find the target market determinations (TMD) for our financial products at www.cfs.com.au/tmd, which include a description of who a financial product might suit. You should read the relevant Product Disclosure Statement (PDS) and Financial Services Guide (FSG) carefully, assess whether the information is appropriate for you, and consider talking to a financial adviser before making an investment decision. You can get the PDS and FSG at www.cfs.com.au or by calling us on 13 13 36.