Australia has seen a significant surge inESG (environmental, social and governance) investingin recent years.
Last year, the amount of cash that flowed into funds invested in ESG stocksquadrupled to $3 billion. We still have a way to go before the state ofESG stocks on the ASXcatches up with Europe and the UK. But so far, things seem to be moving in the right direction.
And it’s not only ESG equity funds that benefit from increased interest in ethical investing. ASX-listed companies, especially miners, are listening to investors’ signals and embracing more responsible operations across the board.
5 flow-on effects of increased ESG investment
1. Companies are becoming more accountable
Social licence to operate has grown from a fringe concern to a priority for companies of all sizes. Investors have voiced concerns about sustainability for decades. Still, it’s only recently that action on issues like climate change, gender equality, and traditional ownership became linked to financial performance.
AlthoughESG investing isn’t a silver bullet, more responsible action and transparent communication from companies will benefit local communities and Australian society.
2. ETFs are interested
Rising interest inESG stockshas opened a new avenue for exchange-traded funds (ETFs). These institutional funds manage investments on behalf of individuals, putting their money into sustainable strategies where the fund believes they will get the highest return.
The tide is turning, with $2 in every $10now going to ESG funds. If the trend continues with the shift to sustainable investing, the amount of cash Australians invest in ESG stocks on the ASX could soon eclipse traditional shares.
3. Genuine ethical investing is gaining popularity
As ESG investing gains ground, the risk of greenwashing increases. Greenwashing is a dodgy practice where companies try to appear more ethical than they actually are.
Thankfully, ASIC is already on top of the issue. And investors are increasingly aware of false claims, preferring to put their money into the genuine article with ESG credentials.
Boab Metals Limited(ASX: BML) has always sought to do right by our local community, employees, and investors. As members of the WA community, we know our choices make a difference. Bybuilding capacity in the Kimberleyandpowering our projects with renewable energy, we hope to make positive contributions wherever we can.
4. Local communities are benefiting from authentic investment
Responsible practices benefit local communities and employees. As ESG stocks become more popular and shareholders reward responsible action, there’s more authentic engagement.
Boab Metals aims to act responsibly and contribute to local communities. We don’t just work in the Kimberley; we’re part of the community. That means caring for each other to build capacity for future generations.
5. More information and resources to encourage a focus on ESG issues
It’s not just ASIC taking notice of increased interest in ESG stocks.The ASXandAustralasian Investor Relations Association (AIRA)have both published guides on ESG reporting for companies.
More interest in ESG stocks generates honest conversations about responsible behaviour. In turn, those conversations lead to more awareness, which creates a cycle that benefits everyone.
Raising the profile of ESG investing in Australia
Ultimately, more investment into ESG stocks on the ASX benefits everyone. Companies are incentivised to act responsibly and communicate transparently, which raises standards for others in the industry.
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