BetaShares Managing Director Alex Vynokur (pictured) and Dr John Hewson, Chairman of Asset Owners Disclosure Project, have taken part in a media briefing, discussing the increased recognition from investors that there is a financial risk involved in climate change and why ethical investments are an attractive solution.
“When we spoke to advisers and investors about ethical investing, climate change was the largest consideration for many investors, reflecting the growing awareness of the financial risk involved in climate change. This is why our Global Ethical ETF, ETHI starts with a screen that ensures it only tracks companies that can be classed as climate change leaders,” Vynokur says.
“The strong performance of the ethical investing sector has been another factor driving demand. If you consider the push from consumers to support ethical companies, it’s not surprising this flows through to the bottom line, driving superior performance and better equity market returns.
“The natural sector bias of ethical indices has also sheltered the sector from the downturn associated with the end of the resources boom.”
The briefing event follows on from the launch of Australia’s first global ethical equities ETF, BetaShares Global Sustainability Leaders ETF which uses a broad set of ethical eligibility screens to provide investors with access to a portfolio of the world’s leading sustainable and ethical companies in one simple trade.
ETHI invests in 100 large global stocks from developed market countries (excluding Australia) that are climate change leaders. To be defined as a leader, a company must be 60 per cent more carbon efficient than the average for the company’s industry.
In addition, ETHI uses a broad set of ethical eligibility screens to remove companies that have exposure to fossil fuels, gambling, tobacco, armaments, human rights concerns and other activities deemed inconsistent with responsible investment best practice.
“Ultimately, Australians are increasingly using ethical investment options as they realise the impact their money can have on promoting positive environmental and social outcomes. ETHI is a transparent, cost-effective and highly liquid tool that allows them to invest in line with their beliefs,” Vynokur concludes.
The Asset Owners Disclosure Project idea was born nine years ago when it became clear the government was failing to act on climate change. It operates on the assumption that important, climate-related decisions will be driven from the investment community and measures how the top 500 asset owners in the world are managing climate risk.
“Investors are increasingly looking for ethical and sustainable investments. The Australian Prudential Regulation Authority’s warning that climate change could threaten the entire financial system, encouraging institutional investors to look carefully at the climate risk their assets are exposed to, was a significant turning point in the investment industry,” Hewson says.
“The Asset Owners Disclosure Project has always advocated that asset owners have a fiduciary obligation to manage the financial risk posed by climate change and it is pleasing to see that APRA has now embraced this view as well.”
Of the AUD45 trillion worth of assets these 500 asset owners represent, 8-9 years ago only 2 per cent of their investments could be classed as low carbon, compared to 55 per cent of investments that were directly climate exposed. Today, over half of these companies will now have a climate change risk management plan in place.
“This state of play when the Project started represented a 55-2 punt against the impact of climate change. It’s been great to see this transform over time, as asset owners realise they can’t ignore the financial risk associated with climate change,” Hewson adds.
