Register For Our Mailing List

Register to receive our free weekly newsletter including editorials.

Home / 229

The impact of the trend to ethical investing

The tide has turned for Responsible Investment (RI). Every day I see RI in action, and quantifiable evidence is crucial to ensuring that the products and services of investment managers are meeting the needs of investors.

The Responsible Investment Association Australia (RIAA) recently issued a Report exploring the effect of social issues on how Australians invest. The Report found that 92% of Australians expect their superannuation and other investments to be invested responsibly and ethically. There is a clear expectation that fund managers should take into account environmental, social, and governance (ESG) factors when reviewing companies.

Super funds such as HESTA, AustralianSuper and REST have been nudging their investment managers to adopt their respective ESG policies. Now we are observing a similar push from individuals. A key finding of the Report is that seven in ten Australians would rather invest in a responsible super fund. Millennials would consider switching their investments to another provider if their current fund engaged in activities inconsistent with their values.

RI is now mainstream

There is evidence everywhere of the push to consider RI alongside financial outcomes. I exit at Wynyard train station in Sydney every weekday. At the station, the Commonwealth Bank cops a serve from Greenpeace in the form of an anti-coal funding poster.

The Dutch fund PFZW is set to divest from high-carbon companies, representing about 1.7 billion euros of assets. Citing the need to invest in a way that protects the environment, the fund reported it would divest completely from coal-related companies by 2020, while investments in fossil-fuel companies will be reduced by 30%. PFZW said:

“This will take place in four annual steps and result in investments being withdrawn from approximately 250 companies focused in the energy, utilities, and materials sectors.”

More importantly, PFZW believe the investment change will be “neutral to slightly positive” for medium-term investment returns. Do I hear anyone thinking stranded assets yet?

If that is not enough to scare a miner, closer to home, the Commonwealth Bank chair Catherine Livingstone told shareholders at the recent AGM that Australia's largest bank is winding down its funding of coal projects:

"We expect that trend to continue over time as we help finance the transition to a low carbon economy."

We are now seeing internationally-recognised economic and financial organisations debate ‘stranded asset’ exposures and asset divestitures and warn of the significant economic consequences of climate change in the financial press. We are also witnessing a surge in political and regulatory interventions in response to climate change, reflecting community concerns.

Many of these risks derive from evolving societal, governmental, and market perceptions rather than directly from the potential physical impacts of climate change. However, irrespective of their source, they have the potential to quickly and significantly affect the value of investments, and therefore, represent both material financial risks and opportunities.

These issues cannot be ignored by those entrusted with investment governance, notwithstanding their personal, moral or ideological views on the reality of climate change.

For those that don’t consider RI ESG as a key theme for investing, check Section 52 of the Superannuation Industry (Supervision) Act 1993. A key requirement contained in the Act is that trustees perform their duties and exercise their power in the best interests of beneficiaries. Considering the weight Australians (especially millennials) put on RI, fund managers must recognise investment desires that conform with client values.


Tarren Summers is the Co-Portfolio Manager of the Glennon Capital RI Future Leaders Fund and has completed the PRI Academy training in environmental, social, and corporate governance (ESG) issues for the investment and finance community.

December 04, 2017

We need to be careful not to be responding all the time to popularist sentiments from pressure groups pushing a certain agenda.

We are supplying the world with coal, gas and nuclear fuel but seem to be incapable of making the most of these assets whilst others are gaining benefits from them.

December 02, 2017

Ethical investing? Move away from coal? Bring it on I say

Warren Bird
November 30, 2017

Ashley, perhaps the article i wrote a while back will help you understand.

I think that in the two years since I wrote that there's been a trend among managers towards having more exclusion lists, particularly in the fossil fuel space.

To answer your question, which I hope wasn't an attempt to trivialise the discussion or be dismissive even if it reads that way, of course you can be a responsible investor and continue to use products and services that rely on coal. The issue is the transition to the world of the future from the world that we currently have. It's up to each investor to decide whether that means they need to divest completely from investing in fossil fuels now or whether, like AGL, they are undertaking a business transformation away from coal towards renewables.

The other thing that's changed is China's policy. They might not be doing it for climate change reasons - pollution is their issue - but they are investing heavily in renewable energy. This is driving down the cost of those sources and the crossover with coal is not far away.

The time will come when everything you eat, wear, sit on etc is not reliant on coal for the energy that has produced it. It's irresponsible of any investor who is managing other people's money not to factor that trend into the decisions they make on their behalf.

November 30, 2017

I get confused with all the different, conflicting and mutually exclusive definitions of ‘responsible’ investing. If everything I eat, wear, sit on, communicate with, drive, ride, and otherwise use every day of my entire life - is made using coal fired power, can I still call myself ‘responsible’?


Leave a Comment:



Four reasons ESG investing continues to grow

Should we exclude companies purely on ethical grounds?

Sustainable, responsible or ethical – what’s the difference?


Most viewed in recent weeks

10 reasons wealthy homeowners shouldn't receive welfare

The RBA Governor says rising house prices are due to "the design of our taxation and social security systems". The OECD says "the prolonged boom in house prices has inflated the wealth of many pensioners without impacting their pension eligibility." What's your view?

House prices surge but falls are common and coming

We tend to forget that house prices often fall. Direct lending controls are more effective than rate rises because macroprudential limits affect the volume of money for housing leaving business rates untouched.

Survey responses on pension eligibility for wealthy homeowners

The survey drew a fantastic 2,000 responses with over 1,000 comments and polar opposite views on what is good policy. Do most people believe the home should be in the age pension asset test, and what do they say?

100 Aussies: five charts on who earns, pays and owns

Any policy decision needs to recognise who is affected by a change. It pays to check the data on who pays taxes, who owns assets and who earns the income to ensure an equitable and efficient outcome.

Three good comments from the pension asset test article

With articles on the pensions assets test read about 40,000 times, 3,500 survey responses and thousands of comments, there was a lot of great reader participation. A few comments added extra insights.

The sorry saga of housing affordability and ownership

It is hard to think of any area of widespread public concern where the same policies have been pursued for so long, in the face of such incontrovertible evidence that they have failed to achieve their objectives.

Latest Updates


$1 billion and counting: how consultants maximise fees

Despite cutbacks in public service staff, we are spending over a billion dollars a year with five consulting firms. There is little public scrutiny on the value for money. How do consultants decide what to charge?

Investment strategies

Two strong themes and companies that will benefit

There are reasons to believe inflation will stay under control, and although we may see a slowing in the global economy, two companies should benefit from the themes of 'Stable Compounders' and 'Structural Winners'.

Financial planning

Reducing the $5,300 upfront cost of financial advice

Many financial advisers have left the industry because it costs more to produce advice than is charged as an up-front fee. Advisers are valued by those who use them while the unadvised don’t see the need to pay.


Many people misunderstand what life expectancy means

Life expectancy numbers are often interpreted as the likely maximum age of a person but that is incorrect. Here are three reasons why the odds are in favor of people outliving life expectancy estimates.

Investment strategies

Slowing global trade not the threat investors fear

Investors ask whether global supply chains were stretched too far and too complex, and following COVID, is globalisation dead? New research suggests the impact on investment returns will not be as great as feared.

Investment strategies

Wealth doesn’t equal wisdom for 'sophisticated' investors

'Sophisticated' investors can be offered securities without the usual disclosure requirements given to everyday investors, but far more people now qualify than was ever intended. Many are far from sophisticated.

Investment strategies

Is the golden era for active fund managers ending?

Most active fund managers are the beneficiaries of a confluence of favourable events. As future strong returns look challenging, passive is rising and new investors do their own thing, a golden age may be closing.



© 2021 Morningstar, Inc. All rights reserved.

The data, research and opinions provided here are for information purposes; are not an offer to buy or sell a security; and are not warranted to be correct, complete or accurate. Morningstar, its affiliates, and third-party content providers are not responsible for any investment decisions, damages or losses resulting from, or related to, the data and analyses or their use. Any general advice or ‘regulated financial advice’ under New Zealand law has been prepared by Morningstar Australasia Pty Ltd (ABN: 95 090 665 544, AFSL: 240892) and/or Morningstar Research Ltd, subsidiaries of Morningstar, Inc, without reference to your objectives, financial situation or needs. For more information refer to our Financial Services Guide (AU) and Financial Advice Provider Disclosure Statement (NZ). You should consider the advice in light of these matters and if applicable, the relevant Product Disclosure Statement before making any decision to invest. Past performance does not necessarily indicate a financial product’s future performance. To obtain advice tailored to your situation, contact a professional financial adviser. Articles are current as at date of publication.
This website contains information and opinions provided by third parties. Inclusion of this information does not necessarily represent Morningstar’s positions, strategies or opinions and should not be considered an endorsement by Morningstar.

Website Development by Master Publisher.