Debunking six common myths about Responsible Investing

It’s true that climate change tends to steal the limelight when it comes to responsible investing. Climate solutions can involve actively investing in ‘green’ assets such as renewable energy, pollution control or recycling . 

However, the ‘E’ factor is much broader than just the effect of the company on the climate, for example its effect on finite resources. Furthermore, the other two factors of ESG (social and governance) can be every bit as important in responsible investing as environmental factors – let alone just climate change. A company in which a sustainable fund is considering investing will have to satisfy social and governance factors just as much as environmental – as well as financial factors of course. 

It is perhaps easier to see how ESG factors can be incorporated into share investing than into other asset types, and it’s therefore not surprising that this myth exists. 

However, responsible investing criteria can be incorporated across most of the main asset types as well as some of the less mainstream ones, as explained below . 

Shares

In simple terms, responsible investment share funds can view their approach in two ways:

• By investing in companies that support ESG-positive outcomes for people and environment (this is also called ‘positive screening’)
• By refusing to invest in companies that may have a negative effect on people and the planet – for example heavy polluters, or companies that discriminate against some sections of society. This is also called negative screening.

In reality, however, most investment managers will employ a more nuanced approach, supporting good companies they believe have a sustainable future whilst avoiding those that do not. 

Fixed income

This asset type includes bonds, where investors provide funding (in exchange for a fixed income) to companies and governments raising money for specific projects or expansion. Responsible investors can therefore selectively support projects that serve the public good, such as by creating low-income housing, or by funding innovative environmental projects. In fact, there are now ‘green bonds’ that are used to finance new and existing projects that offer climate change and environmental benefits.

Property

Investment managers investing in property directly or through listed property trusts can do so in a sustainable way through integrating the ESG factors into their valuation of the company. Good property companies will fund real estate projects through a sustainable lens, such as by investing in office buildings with high energy efficiency ratings or property construction companies that prioritise worker safety. 

Infrastructure

Infrastructure investments, both direct and through sharemarket-listed vehicles is an asset type where ESG factors can be very important. From transportation systems to energy generation and healthcare facilities, infrastructure delivers essential services and plays an important role in advancing sustainable, inclusive development and enhancing societal resilience.

Other asset types

Other asset types may be harder to invest in using a sustainable lens, but this may be because insufficient data exists in some cases. This is improving as investor demand increases. 

Teenage climate warrior Greta Thunberg might be partly behind the perception that only the younger generation cares about saving our planet or protecting workers’ rights in poorer countries. 

It’s certainly true that Millennials have been very much a focus of responsible investing, but this has overshadowed the fact that people from every generation are interested in it. This includes even the Baby Boomers – now aged in their sixties and seventies – whose values and activism may have partly motivated the establishment of the first sustainable investment funds in the 1970s. 

In Australia, consumers of all ages are becoming more active in demanding their money be invested responsibly and ethically. Research conducted for CFS by SEC Newgate Research found that 87% of Australians surveyed are interested in a sustainable investment option. While women aged between 18-34 years old express the most interest, 41 percent of all age groups think sustainable investment option is extremely or very appealing.