Last summer's bushfire crisis is changing the way we invest
The Black Summer bushfire conflagration brought the impacts of climate change and biodiversity loss right to the forefront of Australia's consciousness.
Between the bushfire season and the onset of the COVID-19 pandemic, advisers are noting an uptick in both interest in responsible, sustainable and impact investing, and actual transition of existing clients towards more sustainable investments and strategies.
While the relative outperformance of the broader umbrella of ESG-themed products, super funds and fund options through the turbulence of 2020 is also adding to the interest, advisers say that investors are conveying their interest in investing in ways that minimise harm on people and the planet, and want to look at how their investment dollars can go further in terms of generating positive impacts as well.
"Our clients are people deciding that they're going to live their best life now ... but making sure they're connected with their community and the environment that they're living in," said Karen McLeod, principal financial adviser at Ethical Investment Advisers in Queensland. "They're making sure that they're setting up for additional disruption, making things sustainable in a way that's secure and safe and brings joy."
That has meant clients are seeking investments that are providing financial returns but also positive additional benefits to people and environment, McLeod says.
"After the bushfires, people were frightened and moving towards ethical investments b/c they were worried about their negative impacts, and they saw a safe haven in ethical investment," she explains.
Responsibly invested funds have been strongly growing year on year for the last few years. According to research from the Responsible Investment Association Australasia (RIAA) from last year, assets under management rose 17% over the course of 2019 to $1.149 trillion, the latest figures on record from the peak body. In addition to growing in terms of AUM, the industry is also deepening its best practice, the report found.
Dave Rae, an adviser at Federation Financial Services in Canberra, says he has seen an increase in clients overall in 2020, and a three-fold increase in the amount of responsibly invested funds he manages on behalf of clients. He estimates that approximately 30% of his existing clients have transitioned towards responsible investments.
"The conversations this time last year went to another level in terms of reducing any exposure to fossil fuels and the level of interest in shifting away from fossil fuels," Rae says. "Those conversations continue throughout the year for our clients as well."
The issues raised through the COVID-19 pandemic have impacted on client discussions as well, Rae says.
"The COVID conversation has really focused very much on the treatment of employees," he says. "This has been in terms of looking at big employers in terms of how they've treated their workforce, did they do it in a way that was responsible, were they really trying to manage and be mindful of what their workforce was going through, or were they really focused on the bottom line only?"
Rae has taken those client concerns on board when talking to fund managers whose offerings are on his product list, to see if fund managers are speaking with companies about these concerns and reflecting those concerns in their investment processes.
McLeod also notes that the twin impetus of seeking responsible, sustainable and ethical investments, matched with the desire to still have strong financial return, has also pushed clients to look at new sectors and new asset classes.
"People are looking for investment opportunities that are not necessarily the usual suspects," she says. "That means looking beyond the ASX200, which we've always done, and I think that trend extends beyond ethical investors. People are struggling to accept low cash rates, and are looking for alternative investments, whatever t might be."
This means focusing on working out what people's risk appetites are, she adds.
"We're continuing to get closer to stocks and companies to be more aware of the ESG factors that may positively or negatively impact," she says. "That means finding companies, products and services that are starting to make a positive different to life on planet."