The environment – our natural world – is the most important asset to human survival.
And with 2020 confirmed by the National Oceanic & Atmospheric Administration as the second hottest year globally on record, the time to invest in our environment is now.
Climate change is accelerating. This past decade is the hottest the world has ever recorded but the good news is, financially supporting the environment to recover is easier than you think.
In my experience, investors are increasingly looking for ways to minimise the financial risk of climate change, yes, but they also want to become part of the solution.
However, inclination and preference is one thing, and action is another.
I believe you don’t need to wait for the next cutting edge green hydrogen technology, big battery project or smart grid opportunity to make a positive impact on climate change. Instead, you can make your money work for the environment right now, in unexpected ways.
Invest in existing companies that hold sustainable practices at the very core of what they do. Direct your capital to those with sustainable products and responsible business models because companies that proactively green their operations and supply chains have influence well beyond their direct markets.
Take these three examples.
Global logistics company Brambles has become one of the world’s most sustainable businesses through its robust governance practices, and programs that actively address its sustainability targets. As the world’s largest producer of reusable pallets, crates and containers, the company has been able to reduce emissions, combat deforestation and cut waste. Not only does this address environmental concerns, but it’s good for business too. Over FY20, the company has provided investors with a strong return on equity of 18 per cent and a dividend yield of 3.4 per cent.
Meanwhile, Danish company, Vestas Wind Systems, is a global leader in the design, manufacture, installation and servicing of wind turbines. As a global industry leader in electrical equipment for the clean energy sector, the company combines strong ESG ratings with a demonstrable alignment to the United Nations Sustainable Development Goals, saving the world from hundreds of millions of tonnes of CO2. With strong global demand for renewables growing their pipeline of work, Vestas has seen its share price more than double over 2020.
And energy company AusNet Services is enabling the further uptake of large scale renewable energy sources. With a focus on efficient transmission and distribution, the company generates 18 per cent of its revenue from transmitting alternative energy sources. This focus on renewables is paying off, with its stock outperforming over the last 12 months.
Companies like these clearly signpost to others that strong ESG profiles are good for the bottom line and key stakeholders. They also raise the bar among industry peers and normalise environmental considerations.
So investors, take note: an ethical approach, coupled with a careful selection of companies with excellent ESG profiles can deliver returns for you and the planet. The performance myth has well and truly been debunked as ESG risk-adjusted funds have demonstrated time and time again that there is no performance cost to invest responsibly.
It’s clear that the bulk of investors are catching on. In 2019, the Australian responsible investment market continued to grow, with associated assets under management up 17 per cent over the course of the year to $1149 billion. This represents 37 per cent of total professionally managed assets under management.
Furthermore, ESG/responsible aligned funds are now expected to outnumber conventional funds by 2025.
2020 was a trying year for investors and the public. But from my position at an ethical fund managers in Australia, it’s pleasing to see ethical strategies gaining mainstream acceptance. The market downturn after COVID-19 struck validated our approach as responsible funds were found to be less exposed to risk than their mainstream counterparts. Furthermore, they’re also well placed to benefit from a green-focused recovery which is clearly on the agenda in the EU and US and, quite frankly, should be here too.
As our Australian and International equities portfolios strongly outperformed benchmarks over the 2020 financial year, we’re closer to answering the age old question: Can you have your cake and eat it too? In this case, it appears you can.
Désirée Lucchese is Ethics & Impact Manager at UEthical, one of the largest ethical investment managers in Australia with over $1 billion under management.