Don't forget the S in ESG investing


Although climate change dominates the conversation when it comes to environmental, social and corporate governance (ESG) investing, it isn't the only story. If you're interested in investing in companies that do good for people and communities, while also producing risk adjusted returns, you can do that too.

Investing with a social lens can mean investing in a variety of ways - companies that improve healthcare, companies that perform strongly in making sure they are diverse and inclusive and investing in social and affordable housing, for example.

It can also mean excluding companies that have negative impacts on communities and people, such as avoiding companies that have exposures to modern slavery, or companies that provide services to offshore asylum seeker detention centres.

dont forget the s in esg

There is also increasing focus on investing in line with the United Nations Sustainable Development Goals (SDGs). The SDGs are 17 actions relating to improving life on earth in terms of both environmental and social goals by 2030, including measures on eradicating poverty, improving health, and access to jobs and employment.

There are both managed funds and super funds that have taken the SDGs and established funds that invest in companies that contribute to those goals.

One way to invest in social themes can be through your super fund - many funds integrate social themes through their investment portfolios. HESTA, for example, has stated that it invests in line with several SDGs relating to social themes.

It can also be good for your long-term investment needs. HESTA's Sustainable Growth Option also has strong returns - it returned 23.03% in the year to June 30, 2021, and 11.28% over 10 years to June 30, 2021. HESTA's Sustainable Growth Option was recognised in the Money Best of the Best Awards for 2022 as having the best diversified ESG Super Product.

If you are interested in an explicit social theme, you could look to examples such as the American Century Health Care Impact Equity fund, distributed in Australia by Zurich Financial Services. The fund invests in a portfolio of healthcare companies listed on global markets, while supporting positive social impact. The strategy is linked to Sustainable Development Goal 3 - Good Health and Wellbeing and focuses on several specific parts of the healthcare and medical sector.

In addition to the investment theme, American Century Investments, the underlying fund manager, is 40% owned by the Stowers Institute for Medical Research, which means that part of the profits goes towards supporting medical research.

Zurich Financial Services Australia offers a local version of the strategy, the Healthcare Impact Fund, which is managed by American Century Investments. The fund currently has The fund has returned 10.95% since its inception in December 2020, underperforming the benchmark MSCI Health Care Index, which returned 12.22% in that same time.

There are other ways to invest in social - Australian Ethical Investments recently launched an active ethical ETF, The High Conviction Fund ETF (ticker: AEAE), which is an actively managed portfolio of 20 to 35 companies primarily drawn from the ASX 300. The companies meet the ethical criteria based on Australian Ethical's rigorous Ethical Charter.

AEAE seeks exposure to "forward-looking industries" such as renewables, healthcare, communications, and information technology and targets a highly liquid portfolio of mid- and large-cap securities complemented by select smaller cap exposures.

AEAE listed on CBoe Australia (formerly Chi-X), and is based on the High Conviction Unit Trust, launched in October 2021.

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Rachel Alembakis is the Managing Editor of FS Sustainability, a Rainmaker title that examines how investors and companies integrate environmental, social and corporate governance issues into their decision-making processes. She has more than a decade's experience covering investment issues for a range of publications in Australia and overseas. Rachel hosts the ESG podcast, The Greener Way.