Register For Our Mailing List

Register to receive our free weekly newsletter including editorials.

Home / 296

What do top ESG companies look like?

ESG integration is a branch of investment analysis that assesses companies on their environmental (E) and social (S) impacts as well as the quality of their governance (G). It is a tool used by investment managers to gauge the long-term financial health of companies. For example, a company that pollutes the environment could face financial penalties as well as damage to its reputation, both of which could affect the company’s profitability. In this sense, ESG integration is ethically passive - it is concerned about the financial impact of things like pollution, poor labour practices and a lack of diversity on boards – not whether they are right or wrong.

Ethics is different

An ethical investment manager, on the other hand, will actively screen out companies that engage in poor practices and look to invest in companies that do good for people and the planet. ESG integration is often used by fund managers who want to take a best-in-sector approach. That said, it can still be a useful tool for ethical managers who want to analyse the non-financial practices of companies in more detail. However, basing an investment strategy on ESG alone will never be a replacement for a truly ethical investment approach.

To fully appreciate the difference between ESG and ethical investment, it’s worth taking a look at the types of companies that feature on ESG lists or indices. One of the better-known indices is The Dow Jones Sustainability Australia Index, which is reviewed annually by investment manager RobecoSAM using the latter’s Corporate Sustainability Assessment.

In its annual update in September 2018, S&P Dow Jones described the index as the “gold standard for corporate sustainability” based on “financially material ESG factors”. The Dow Jones Sustainability Australia Index is made up of 43 companies with some surprising inclusions among them. This list is eye-opening because it tends to favour companies with comprehensive sustainability reports rather than the most socially-responsible business practices.

Let’s take a look at some of the companies that made the list.

Gambling companies

Two notable inclusions in the index are gambling and entertainment companies Star Entertainment Group and Tabcorp Holdings. Star Entertainment Group is the owner of casinos in Brisbane, the Gold Coast and Sydney, while Tabcorp offers wagering and gaming services and also has a media arm that broadcasts horse racing on Sky. On the face of it, it is hard to understand how companies that earn the majority of their revenue from gambling could be considered sustainable. On its website Star Entertainment Group touts itself as the “global leader of the casino and gaming industry” as per the Dow Jones Sustainability Index. Star Entertainment Group notes it achieved maximum scores from Dow Jones in the areas of anti-crime policy/measures and promoting responsible gambling.

In its 2018 Sustainability Report, Tabcorp describes itself as a “significant economic contributor to Australia” with a focus on “responsible gambling and advertising practices”. However, despite its impressive ESG credentials Tabcorp was fined $45 million for breaching money laundering and terrorism financing laws in 2017, which at the time was the largest civil penalty in Australian corporate history.

Mining explosives

Also on the Dow Jones Sustainability Australia Index is Melbourne-headquartered multinational Orica, which supplies commercial explosives for the mining, quarrying, and oil and gas sectors. Orica publishes a comprehensive sustainability report each year that covers issues like workplace safety, climate change and good governance. However, in 2014 Orica was forced to pay $768,250 for releasing pollutants at its Kooragang and Botany plants (the largest penalty every issued by the Land and Environment Court), and in 2012 the Queensland Court ordered Orica to pay $432,000 after the company pleaded guilty to releasing cyanide into the environment on 217 occasions. In addition, The Newcastle Herald reported in 2011 that hexavalent chromium had “rained down’” on about 25 workers on duty at the Kooragang Island plant in August that year.

Other ESG companies in the Dow Jones Sustainability Australia Index include mining and fossil fuel companies Oil Search, Woodside Petroleum, Wesfarmers and Newcrest Mining. It’s encouraging to see these companies are paying attention to their environmental impact and looking to give back to the communities they impact with their activities. Oil Search, for example, has donated $5 million to support disaster relief efforts in Papua New Guinea as well as developing roads, hospitals and schools.

However, some mining practices are unsustainable in the long term, contrary to the high ESG rankings of the companies named in this article. That said, some ethical investors may decide to invest in mining companies after intense scrutiny.

Australian Ethical does not invest in any of the companies discussed. However, we acknowledge, for example, that metallurgical coal is necessary in the short term to make steel to build the renewable infrastructure of the future. Higher recycling rates for scrap steel (a process which does not require metallurgical coal) will help reduce the demand for this type of coal.

ESG can be a useful tool but it should never be mistaken for a genuinely ethical approach to investment. Ethical investors are focused on delivering returns without harming (and indeed proactively benefiting) the planet, people and animals. Australian Ethical assesses each company on its merits based on the principles laid out in our Ethical Charter, which has been unchanged since 1986.

 

Leah Willis is Head of Client Relationships at Australian Ethical, a sponsor of Cuffelinks.

 

RELATED ARTICLES

Is it a myth that 'purpose' can drive corporate profits?

Beyond the acronym, navigating important ESG choices

Investment learnings from the COVID-19 crisis

banner

Most viewed in recent weeks

Raising the GST to 15%

Treasurer Jim Chalmers aims to tackle tax reform but faces challenges. Previous reviews struggled due to political sensitivities, highlighting the need for comprehensive and politically feasible change.

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

The Labor government is talking up tax reform to lift Australia’s ailing economic growth. Before any changes are made, it’s important to know who pays tax, who owns assets, and how much people have in their super for retirement.

Here's what should replace the $3 million super tax

With Div. 296 looming, is there a smarter way to tax superannuation? This proposes a fairer, income-linked alternative that respects compounding, ensures predictability, and avoids taxing unrealised capital gains. 

9 winning investment strategies

There are many ways to invest in stocks, but some strategies are more effective than others. Here are nine tried and tested investment approaches - choosing one of these can improve your chances of reaching your financial goals.

The rubbery numbers behind super tax concessions

In selling the super tax, Labor has repeated Treasury claims of there being $50 billion in super tax concessions annually, mostly flowing to high-income earners. This figure is vastly overstated.

With markets near record highs, here's what you should do with your portfolio

Markets have weathered geopolitical turmoil, hitting near record highs. Investors face tough decisions on valuations, asset concentration, and strategic portfolio rebalancing for risk control and future returns.

Latest Updates

Investment strategies

Finding income in an income-starved world

With term deposit rates falling, bonds holding up but with risks attached, and stocks yielding comparatively paltry sums, finding decent income is becoming harder. Here’s a guide to the best places to hunt for yield.

Economy

Fearful politicians put finances at risk

A tearful Treasury chief, a backbench rebellion, and crashing bonds. What just happened in the UK and why could Australia’s NDIS be headed for the same brutal fiscal reality?

Shares

Investing at market peaks: The surprising truth

Many investors are hesitant to buy into a market that feels like it’s already climbed too far, too fast. But what does nearly a century of market history suggest about investing at peaks?

Shares

Chinese steel - building a Sydney Harbour Bridge every 10 minutes

China's steel production, equivalent to building one Sydney Harbour Bridge every 10 minutes, has driven Australia's economic growth. With China's slowdown, what does this mean for Australia's economy and investments?

Investment strategies

Will stablecoins change the way we pay for things?

Stablecoins have been hyped as a gamechanger for the payments industry. But while they could find success in certain niches, a broader upheaval of Visa and Mastercard's payments dominance looks unlikely.

Infrastructure

An investing theme you can bet on for the next 30 years

Investors view infrastructure as a defensive asset class rather than one with compelling growth prospects. These five tailwinds for demand over the coming decades suggest that such a stance could be mistaken.

Investment strategies

A letter to my younger self: investing through today's chaos

We are trading through one of history's most confounding market environments. One day, financial headlines warn of doomsday scenarios. The next, they celebrate a new golden age. How can investors keep a clear head?

Sponsors

Alliances

© 2025 Morningstar, Inc. All rights reserved.

Disclaimer
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. To the extent any content is general advice, it has been prepared for clients of Morningstar Australasia Pty Ltd (ABN: 95 090 665 544, AFSL: 240892), without reference to your financial objectives, situation or needs. For more information refer to our Financial Services Guide. 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.