Environmental, social, and governance (ESG) investment refers to the investment in a company based on a set of standards that are used to assess the company’s broader impact on the environment, society, and corporate governance practices. Globally, ESG investment has been on an upward trajectory, with about half of professional investors planning on increasing their environmental, social, and governance (ESG) investing over the next year. While often used synonymously with sustainable investing, the main difference is that ESG is a standardized tool used to measure a company’s performance against a set of criteria, while sustainability is more of an overarching principle that considers environmental, social, and economic factors. In terms of sustainable funds worldwide, the largest concentration was held in Europe, with the United States and Asia following.
Is corporate Australia ready for the next ESG overhaul?
Australia’s sustainable finance sector is starting to catch up to the rest of the world, with considerable changes coming soon. From mid-2024, climate-related financial disclosure will be mandatory for large businesses in Australia. The government is also introducing a program for sovereign green bond issuance. Moreover, the Australian Sustainable Finance Institute (ASFI) is developing a sustainable finance taxonomy to help combat “greenwashing,” particularly regarding false claims about sustainability and energy transition investments. According to the ASFI, positive progress is being made across Australia’s sustainable finance corporate landscape, particularly regarding integrating sustainability into business practice. However, when examining the reporting practices among large businesses in Australia, less than half stated that they can report timely and reliable data on the performance of their sustainability initiatives.
Interest in responsible investment is on the rise
While ESG investing is nothing new, more Australian investors are following global trends in pursuing sustainable or responsible investments. The country’s working population holds investments through their superannuation or pension funds, and just over 40 percent of Australians stated they would switch to an ethical superannuation fund if it performed the same as their current fund. When including other investment types, renewable energy and energy efficiency were at the top of investors’ minds when considering environmental and social issues in Australia. With around 60 percent of consumers motivated by positive investment impacts in Australia and mandated reporting and tighter frameworks in the pipeline, corporations in Australia will need to keep up with these changes to attract investment.
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