Upping the pressure on banks and super funds to take action on climate change

More than ever before, Australians are upping the pressure on the finance industry to invest ethically for a better world and are demanding more transparency about the industry’s impact on climate change and social challenges, according to a new report from Responsible Investment Association Australia (RIAA) .

The report, From Values to Riches 2022, revealed the vast majority of Australians (83%) expect their money in super, banks and other investments to be invested responsibly and ethically, particularly when it comes to climate change.

However, close to three quarters of the population are wary of “greenwashing” and would like to see exactly where their money is being invested. This group would be more likely to invest in responsible investment products if their sustainability claims were independently verified by third parties.

This increasing pressure couldn’t come at a more crucial time. The most recent Intergovernmental Panel on Climate Change (IPCC) report was unequivocal in spelling out the time for action on climate is now. The finance sector has a huge role role to play in shifting capital away from harmful industries and into those that are creating positive change.

Connecting your investments to improving the world
This generational shift towards responsible investing has been gaining momentum every year. One way Australians are connecting their savings to a better future is by investing ethically through their super fund.

However, there can be a disconnect between what consumers care most about, and what super funds screen out. For example, two-thirds of Australians want to avoid animal cruelty, testing and animal products, while only 32% of investment providers offer such products. It is important to make sure the investments line up with your values.

The top social and environmental issues consumers want to avoid with their investments:
1. Animal cruelty
2. Human rights abuses
3. Animal testing for non-medical purposes (e.g. cosmetics)
4. Pornography
5. Environmental damage (e.g. deforestation, palm oil, pollution)

How to find the true ethical investors
If you’re one of the 61% of Australians motivated to save and invest more on the basis that you know your money is making a positive difference in the world, we’ve provided some tips on how to figure out who is the real deal when it comes to responsible investing versus who might be trying to pull the “green” wool over your eyes.

What to look for:

1. A proven ethical investment philosophy, process and strategy. Does the fund manager embrace ethical investing principles? For example, do they conduct impact assessments of their portfolio holdings? Or are they simply offering an ethical “add on” or a box ticking approach?

2. Research and data. Does the fund have an in-house ESG research team? Or do they simply rely on third party data? An in-house approach is preferable, as the scale of difference between ratings agencies undermines their accuracy.

3. Voting records. Does the fund manger vote on key issues at AGMs of the companies that they invest in? If fund managers vote against ESG issues or aren’t transparent about their votes, this is a red flag.

4. Signatories. Is the fund manager a signatory to responsible investing groups such as UN Principles for Responsible Investing (PRI)? The more the better, as this shows a public commitment to responsible investing.

5. Transparency. Is the fund transparent about its entire portfolio? Or does it only publish its top 10 holdings? Transparency is a must for true ethical investors.

Australian Ethical has made it easy for people to cross-check how they invest. To find out more, visit australianethical.com.au/why-ae/ ethics/