ESG Research Australia is a collaboration of superannuation funds, fund managers and asset consultants which has the single objective of increasing the amount and quality of stock broker research in Australia that includes consideration of environmental, social and governance (ESG) issues.
ESG RA is a working group underneath the Responsible Investment Association Australasia, however maintains a separate membership. The working group is overseen by a committee comprised of fund managers and superannuation funds.
Our objectives are to encourage more ESG-inclusive research and to mainstream ESG. It’s worth explaining why we think these objectives are so important:
To make better investment decisions to better serve the interests of our members / shareholders because:
- a substantial part of a company’s value relates to extra financial performance or intangibles
- traditional financial analysis too often takes too short a time-frame or doesn’t include (for example) environmental risks, human resource and social issues, corporate governance.
To send a clear and consistent signal throughout the investment chain – asset owners, fund managers, consultants, brokers, company management – of the importance of ESG factors.
There is very little ESG – inclusive research produced in Australia so there is a need for an Australian initiative to get the ball rolling.
A practical way that UNPRI signatories can fulfil their obligations.
What is ESG?
In an investment context ESG (environmental, social and governance) issues are fundamental issues that have the potential to impact company financial performance or reputation in a material way, yet are generally not part of traditional fundament investment analysis.
The relevant ESG issues are those that have the potential to materially impact long term shareholder risks and returns. Examples include:
- Externalities such as pollution
- Greenhouse gas emissions
- Excessive or poorly structured executive remuneration
- Board non-independence
- Employee safety issues
- Community health and well being issues
ESG and ESG RA are fundamentally different from ethical investing. ESG investing is about making better investment decisions over the longer term by taking into account factors that are too often glossed over or ignored in normal fundamental analysis. Ethical investing, on the other hand, takes into account ethical or moral considerations in investment decisions, most often by negatively screening out investment categories such as armaments or gambling.