Feel- good in­vest­ments must also be per­form­ers

The Weekend Australian - Review - - Investments -

IN­VESTORS who want to en­sure their money helps com­pa­nies to grow with­out sac­ri­fic­ing so­cial and en­vi­ron­men­tal val­ues may be ex­cused for be­ing cyn­i­cal when it comes to choos­ing which com­pa­nies of­fer both prof­itabil­ity and a small en­vi­ron­men­tal foot­print.

For this is the green’’ era, a time of en­vi­ron­men­tal re­spon­si­bil­ity, and com­pa­nies are herald­ing their green cre­den­tials in ad­ver­tis­ing and the me­dia, but not of­ten enough, with for­malised re­port­ing on sus­tain­abil­ity.

Like other in­vestors, those who seek out sus­tain­able in­vest­ment ve­hi­cles also seek a healthy re­turn. They want an in­vest­ment which per­forms well but not at the ex­pense of en­vi­ron­men­tal and so­cial is­sues. They re­ally want the same things as the com­pa­nies which strive to cre­ate share­holder wealth within cur­rent ex­pec­ta­tions of so­ci­ety.

In­vest­ments also need to meet the cri­te­ria that an­a­lysts use when as­sess­ing per­for­mance. The cri­te­ria evolve to meet changes in so­ci­ety with the latest per­for­mance frame­work used by many an­a­lysts look­ing at three fac­tors: en­vi­ron­ment, so­cial and gov­er­nance.

The frame­work is com­monly known as ESG and is emerg­ing as a tool that mea­sures the true so­cial, en­vi­ron­men­tal and prof­itable sus­tain­abil­ity of a fund.

Lead­ing com­pa­nies approach sus­tain­abil­ity through seek­ing com­pet­i­tive ad­van­tage and what is good for the busi­ness. An approach that strives only to save the planet’’ and does not con­trib­ute to the longterm fi­nan­cial health of the busi­ness will fal­ter.

KPMG sup­ports the ESG re­port­ing frame­work which con­sid­ers macro fac­tors such as the econ­omy and in­dus­try is­sues, to­gether with mi­cro as­pects such as board in­de­pen­dence and ex­ec­u­tive re­mu­ner­a­tion.

If a com­pany fol­lows ESG prin­ci­pals and aligns its busi­ness strat­egy with sus­tain­abil­ity re­port­ing, in­vestors can more eas­ily recog­nise the fac­tors that make an in­vest­ment at­trac­tive to them.

Avoid­ing green­wash’’, where peo­ple are mis­led about a com­pany’s en­vi­ron­men­tal prac­tices, or the en­vi­ron­men­tal ben­e­fits of a par­tic­u­lar prod­uct or ser­vice, is only pos­si­ble where there is clear com­mu­ni­ca­tion about a com­pany’s sus­tain­abil­ity strat­egy, rigour in as­sess­ing per­for­mance and trans­par­ent re­port­ing.

How­ever, sus­tain­able re­port­ing is still an emerg­ing area and this is re­flected in the low num­ber of Aus­tralian com­pa­nies that pro­duce sus­tain­abil­ity re­ports. Aus­tralia lags in­ter­na­tional trends in this area, with just 35 per cent of Top 100 Aus­tralian com­pa­nies com­plet­ing sus­tain­abil­ity re­ports com­pared to 76 per cent of Top 100 UK com­pa­nies. While sus­tain­abil­ity re­port­ing in Aus­tralia has in­creased over the years, it is now likely to be fur­ther boosted by the needs of reg­u­la­tors ( who re­quire re­port­ing on is­sues such as green­house gas emis­sions), the cap­i­tal mar­kets ( which now in­clude sus­tain­abil­ity is­sues in their over­all as­sess­ment of per­for­mance), in­vestors ( who have an ever- in­creas­ing aware­ness of sus­tain­abil­ity is­sues), and com­pa­nies ( which are en­hanc­ing ex­ist­ing re­port­ing frame­works to bet­ter fit wider so­ci­etal trends).

In­vestors when seek­ing a sus­tain­able in­vest­ment may lean to­wards in­dus­tries that sup­port sus­tain­able prac­tices, such as al­ter­na­tive en­ergy providers or car­bon trad­ing com­pa­nies.

How­ever, through gain­ing fa­mil­iar­ity with sus­tain­abil­ity prin­ci­ples such as ESG, in­vestors can in­vest in a wide range of in­dus­tries with the knowl­edge that the prac­tices em­ployed by for­ward- think­ing com­pa­nies are in them­selves good for so­ci­ety while be­ing good for share­hold­ers.

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