By John Collett
Young investors hoping to make a difference with their money are finding it increasingly difficult to determine if a company’s ethical credentials are genuine despite a significant rise in the number of sustainable investment offerings.
An investor study by the Australian Securities Exchange (ASX) shows that of those who say they are open to environmental, social and governance (ESG) investments and who have invested in the past 12 months, just over half of 18 to 24-year-olds did so with ESG factors in mind.
Investing in sustainable companies is increasingly popular, but getting clear information can be difficult.Credit: Getty
Only 18 per cent of “pre-retirees” – those aged 50 to 64 – who said they are open to ESG investing actually did so. The environment is the most important consideration among ethically-minded investors, at 74 per cent, with corporate governance issues important for almost 60 per cent of these investors.
Of the investors actively investing with ESG principles, over a third of 18 to 24-year-olds said it is challenging to find the ESG standing of investments, compared to 16 per cent of investors of all ages who invest with ESG principles.
Georgie Percival holds units in Australian listed exchange-traded funds (ETFs) that invest with ESG screens, as well as shares in listed companies whose activities, such as renewable energy, are helping to mitigate climate change.
Georgie Percival wants her investments to make good returns and help the planet.
The ASX study finds that, like Percival, 20 per cent of all investors hold units in ETFs – up from 15 per cent in 2020. ETFs are listed and units in them are bought and sold just like shares in listed companies. They include those that track the returns of a market index, including market indices that have an ESG focus.
The 24-year-old is one of those who started investing, or increased their investing, during 2020 in the initial wave of COVID-19.
“It is [a] bit of ‘fun’ money; investments that I appreciate [in terms of making a difference] and would like to do well,” the cosmetic development chemist said.
Percival, who lives in Melbourne, says she is wary of claims that companies make about what they are doing for the environment and climate change. She is mindful of the problem of “greenwashing”, where claims to be conducting business in a way that is sustainable cannot be fully substantiated.
“It is a matter of educating yourself by reading a company’s ESG statements, but I take [the claims of ethical ETFs] on good faith, but you can check the companies they hold,” Percival says.
The ASX report is based on an online survey of more than 5500 adult Australians by Investment Trends. It finds 1.2 million more people now own investments outside of super (excluding self-managed super funds) or the family home than in 2020 – to take the total to 10.2 million adults, or 51 per cent of the adult population.
The trends are reflected in the portfolios of younger investors using the Superhero investment platform that is used by Percival.
John Winters, chief executive and co-founder of Superhero, says it is younger investors from among its 250,000 account holders who are spearheading the trend to ESG investing.
“ESG and sustainability-related stocks have been popular on Superhero ... and there’s been a definite shift towards exchange-traded funds that put ESG first ... while our older investors have continued to have their eye on blue chips and energy stocks,” Winters says.
He says ETFs are not the only favoured way for younger investors to make ESG investments — they also favour US tech stocks like Apple and Microsoft, which tend to score highly on sustainability ratings.
Jacinta Schlosser, business development manager of investment products at the ASX, says ESG investors should look at an investment’s policy documents and information on the products.
She says investors can read reports from reputable researchers, such as Morningstar and, if needed, seek financial advice. The ASX runs Investor Days, where there is access to listed investment managers.
- Advice given in this article is general in nature and is not intended to influence readers’ decisions about investing or financial products. They should always seek their own professional advice that takes into account their own personal circumstances before making any financial decisions.
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