The thought was unimaginable. In May 2020, Rio Tinto, a company with strong Australian links, despite its Spanish sounding name, was responsible for destroying ancient caves in the Pilbara Desert, 46,000 years old.
Not only were these of great cultural significance to the traditional landholders of the region, the Puuti Kunti Kurrama and Pinikura people, but they were part of the cultural and spiritual heritage of all Australians.
Rio Tinto’s action had nothing to do with us, right? Well technically, that’s true. But in a way it did, because indirectly so many Australians have invested in Rio Tinto, through their superannuation. In fact, through our super funds so many of us have a little bit of a stake in a broad range of investments these days, and this is making people think more about how they invest.
What happened next with Rio Tinto shows how this plays out. As a consequence of Rio Tinto’s actions in the Pilbara, 38 leading Australian super funds issued a statement saying they were shocked by the destruction of the caves. AustralianSuper, the biggest super fund in Australia, put pressure on Rio Tinto to terminate the contracts of its three leading executives. Which is exactly what they did.
It’s a good example of how investors think today and how businesses respond – often with great sensitivity to social and environmental impacts.
So what was once a boutique style of investing – ‘ethical investing’- is now broadening into ‘responsible investing’, once seen as separate from traditional investment. It takes into account environmental, social and governance factors, (ESG).
Ethical investment funds for example, chase investment in renewable energies, such as solar or wind. They avoid tobacco and weapons. There’ll be agricultural products they’ll avoid too, for example, palm oil, because these farms are wiping out rainforests and with them the habitats of the Orang-Utang.
They might also scrutinise investment in the clothing industry. In 2013 Rana Plaza in Bangladesh collapsed, killing 1,100 garment workers and exposing realities behind anonymous garment manufacture globilisation. This triggered the ethical clothing movement.
Research shows that more and more investors see ethical investments as a key part of their portfolio, not just a luxury.
And there is growing evidence that responsible and ethical investment is a good investment strategy, with evidence showing consistent strong performance, often better than traditional alternatives.
The September 2020 report of the Responsible Investment Association of Australasiashows that in 2019, “Australian and multi-sector responsible investment funds outperformed mainstream funds over 1, 3, 5 and 10 year time horizons.”
According to the KPMG Super Insights Report of 2019, the ethical and sustainable superannuation fund Australian Ethical was Australia’s fastest growing superfund in the five years to 2018.
The Financial Review reported in August that “Australian Ethical’s inflows doubled in January following the devastating bushfire season, contributing to a profit rise of nearly 50 per cent for the year. The ASX-listed active manager believes this was a direct consequence of the deadly fires, which were linked to rising temperatures and provoked a spike in concern over the effects of climate change.”
You might think that with Covid-19 distractions, concerns about the environment would fall away. But not so. Research has just come out showing that despite the pandemic people are still as worried about the environment.
The Australia Institute’s Climate of the Nation Report, which has tracked attitudes to climate change since 2007, was reported by the ABC on Wednesday, October 28, saying 80 per cent of people think we are already experiencing problems caused by climate change and 83 per cent support the closure of coal-fired power stations.
So you can expect responsible investing to weave its way further into the investment strategies of everyday people, like you and me.
Here’s a few tips to get started on responsible investing:
- Ask your financial adviser – ‘does my superannuation fund invest in, for example, tobacco companies? Weapons? Palm oil?
- What does it ‘pro-actively’ invest in? For example, Renewable energy?
If you are not comfortable with the answers you receive, ask:
- What ethical, sustainable or responsible investment options are available?
- What would it cost to switch all or some of my money into one of these options?
This will be a case of setting a few priorities, to decide what investments are most aligned to your values.
To see how ethical investments were outperforming their traditional counterparts, go to: https://www.intheblack.com/articles/2018/10/01/ethical-investments-higher-returns
For the September 2020 report of the Responsible Investment Association of Australasiago to: https://responsibleinvestment.org/resources/benchmark-report).
For more on the Australia Institute’s Climate of the Nation Report, go to: The Australia Institute’s Climate of the Nation report