Ethical Investing is still Important
Introduction:
ESG investing, driven by good environmental, social, and governance principles, has garnered both praise and criticism in recent times. Amidst the noise surrounding this approach, it is essential for the responsible finance community to step up and address the world's pressing challenges. While responsible investors are making strides towards sustainability, there is a need for more significant accountability and collective action to leave a positive legacy for future generations.
Addressing Greenwashing:
One major concern is greenwashing. Responsible investors must acknowledge the potential for overclaiming and take proactive measures to combat greenwashing. By implementing robust safeguards and governance, investment houses and funds can maintain ESG credibility and uphold their commitment to sustainable practices.
Understanding Human Motivation for Responsible Investing:
Many individuals, including pension holders and stock market investors, are drawn to responsible and sustainable funds due to a desire to support companies that prioritize people and the planet. Although they seek financial returns, they are also driven by the need to protect their families and friends. Research supports this, indicating that a majority of investors are willing to forgo some profits to benefit employees, society, or the environment.
Redefining the Investor Mindset:
The conventional assumption that investors are solely focused on financial gains needs to be reconsidered. Responsible investors often have multiple priorities, seeking excellent financial results while also considering environmental and social factors. Legal and theoretical frameworks should evolve to grant fiduciary investors greater freedom to acknowledge, engage with, and act upon their clients' non-financial priorities.
Responsible Investing and Investor Return:
We of course believe that investors can target social and environmental outcomes without compromising on long-term returns. We do believe however that short-term volatility is likely to increase when investors start excluding certain industries and sectors and concentrate in others as responsible investors do. For the long-term investor, this should not be an issue.
Embracing Responsible Investing's Potential:
By addressing challenges like greenwashing, understanding human motivations, and redefining investor priorities, we can power a new wave of authentic and ambitious responsible investing. This approach will live up to the expectations of those it serves and contribute significantly to tackling global challenges.
Conclusion:
ESG investing's relevance has never been greater, with the world facing unprecedented environmental and social issues. Responsible investors are already making a positive impact, but there is still much work to be done. By collectively combating greenwashing, understanding human motivations, and embracing a more holistic investor mindset, we can pave the way for responsible investment to shape a better and sustainable future. It's time to champion the potential of responsible investing and ensure our actions leave a positive legacy for generations to come. Together, we can attain the goals of responsible finance and foster a more ethical and sustainable world.
This note has been prepared by ELM Responsible Investments (‘ELMRI’) ABN 70 607 177 711 AFSL 520428, for Australian wholesale clients for the purposes of section 761G of the Corporations Act 2001 (Cth).
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