Is ESG ‘woke capitalism’ harming businesses in the name of social benefits?
ESG is fundamentally about risk management. Just as no investor would fund a beachfront hotel without considering rising sea levels, responsible investors assess ESG (environmental, social and governance) factors to understand and manage financial risks and identify opportunities.
Institutional investors (superannuation funds and fund managers) have a fiduciary duty to consider long-term risks, including climate change and biodiversity loss. Ignoring these risks would be poor financial management.
Likewise, regulations on financial advice emphasise long-term client interests. In Australia, advisers are required to consider their clients’ broader long-term interests. In New Zealand, advisers must consider the clients’ views along with ensuring the advice given is suitable for the client given their needs and goals.
Is it downhill for sustainable funds now, especially with Trump 2.0?
Good investors think long term, well beyond a four-year presidency. A 20-year-old opening their first superannuation account today will retire after 2065. Long-term thinking allows portfolios to consider long-term trends, benefit from compound interest, ride out short-term volatility, and avoid reactionary decision-making. Regardless of who is in the White House, the global transition to a low-carbon economy continues, and investors remain focused on managing risks and opportunities that will shape the decades ahead.
Morningstar’s 2024 Q4 research (released on 30 January 2025) reveals global sustainable fund assets reached an all-time high of US$3.2 trillion by the end of 2024, an 8% increase from the previous year and over four times the 2018 figure. Despite a decline in inflows during the year due to factors like some underperformance of ESG strategies, greenwashing concerns and anti-ESG sentiment, sustainable funds saw a strong rebound in Q4, with inflows rising to US$16 billion from US$9.2 billion in Q3.
Some investors are withdrawing from climate and DEI initiatives – is this proof that ESG is failing?
The political environment in the US has made it tricky for some. While some investment managers or banks may withdraw from specific initiatives due to political or economic pressures, they’re still working to address long-term climate risks in other ways.
Organisations may be changing the way they talk about their sustainability goals, but they are not walking back from their fiduciary duty (i.e. legal obligation) to act in the best financial interests of clients; today, this requires considering the impact of ESG factors on investment decision-making. In fact, 93% of all professionally managed funds in Australia are now managed by investors with a public commitment to responsible investment and almost all investment managers (81% in Australia, 87% in New Zealand) already implement ESG integration within their investment strategies.
Are ‘green’ funds underperforming?
All funds face challenges due to geopolitical risks, for many reasons not just the US election. Wars, invasions, natural disasters and changing global power dynamics pose risks to businesses and assets across the board. This impacts many funds and many investments (particularly those focused on short term returns). Unfortunately, despite these risks also affecting the performance of ‘non-green’ funds, ‘green’ funds are often singled out for scrutiny, notwithstanding the myriad of benefits provided by ‘green’ funds. The reality is, overall, the funds doing responsible investment well continue to deliver positive returns.
Funds certified by RIAA as responsible investment products generally perform on par with or better than the rest of the market. According to ISS Market Intelligence, RIAA certified responsible investment products outperformed across 1-, 5- and 10-year periods as of September 2024.
Is consumer interest in ESG a fading fad?
Consumer interest in sustainable investing isn’t a passing trend. People with superannuation accounts or investment portfolios have immense power. With substantial amounts of money invested – such as the AU$4 trillion in Australia’s superannuation funds (the 5th largest pool of pension assets in the world) and NZ$112 billion in KiwiSaver (over 27% of the NZ GDP), consumers are in the driver’s seat when it comes to how and where this money is allocated.
RIAA’s research shows that 88% of Australians expect their super and banking to be invested responsibly and ethically. Similarly in Aotearoa New Zealand, 74% expect responsible and ethical management of their investments, and 59% are willing to move their funds if their investments do not align with their values. Globally, more than three quarters of individual investors are interested in investing in companies or funds that aim to achieve financial returns while also considering positive social and/or environmental impact.
Does Trump 2.0 prevent progress on impact investing?
While pollical shifts may influence policies, the momentum behind impact investing is largely driven by investor demand, regulatory trends and the long term need for sustainable economic growth. Investment approaches exist on a spectrum balancing financial returns with social and environmental outcomes. While traditional investing often ignores ESG factors, responsible investment integrates them through approaches like ESG integration, screening, stewardship and thematic investment to manage risks and enhance returns. Impact investing goes further, aiming for measurable positive change alongside financial performance. Unlike philanthropy, which expects no financial return, impact investing seeks both impact and returns. See here for RIAA’s Responsible and Ethical Investment Spectrum mapping out the various approaches.
Coming up, we will have more Q&As to debunk common misconceptions about ESG and responsible investing.
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<small>Disclaimer: The above content is provided by Responsible Investment Association Australasia (ACN 641 046 666, AFSL 554110) for information purposes and is not an offer to buy or sell a financial product, and is not warranted to be correct, complete or accurate. For more information refer to our Financial Services Guide on the RIAA website. Any general advice has been provided without reference to your investment objectives, financial situation or needs. If the advice relates to the acquisition of a particular financial product for which an offer document (such as a product disclosure document) is available, you should obtain the offer document relating to the particular financial product and consider it before making any decision whether to acquire the product. Past performance does not necessarily indicate a financial products’ future performance. To obtain information tailored to your situation, contact a financial adviser.
Want to explore these topics further? Join us at the RIAA Conference, where leading local and global experts will unpack these issues and discuss the future on ESG. For more information.
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About the contributors
About the speakers
Estelle Parker
Co-CEO
-
RIAA
With a distinguished 20-year career at the Department of Foreign Affairs and Trade, Estelle Parker brings crucial expertise in government relations, policy-making, and themes important to responsible investors, including human rights and the SDGs. As a leader driving RIAA’s research, certification, policy, standards, and working group programs, her leadership has elevated these initiatives to achieve heightened levels of professionalism, impact, and value delivery for our members, aligning seamlessly with RIAA’s strategic objectives.
Beyond her organisational impact, Estelle is a respected figure in the responsible investment landscape, serving as a strong advocate on influential global and government committees, including the Principles for Responsible Investment’s Global Policy Reference Group, the Global Sustainable Investment Alliance and the Australian Government’s Natural Capital Working Group. Additionally, she serves as the Convenor of the Taskforce on Nature-Related Financial Disclosures official Consultation Group for Australia and Aotearoa New Zealand, and the Steering Committee for the Australian Sustainable Finance Institute. She is also a member of the Council of the Australian Institute for International Affairs (Victoria).
Dean Hegarty
Co-CEO
-
RIAA
Dean is committed to cultivating meaningful engagement opportunities for members and ensuring the delivery of high-quality membership values that significantly contributes to the sector. Passionate about championing ESG investment, Dean collaborates closely with global and local asset managers, super funds, Kiwisaver providers, financial advisors, and wealth platforms to align capital with sustainable outcomes.
His strategic leadership has played a pivotal role in elevating RIAA’s presence in both Australia and Aotearoa New Zealand, resulting in substantial growth and transformative organisational changes. With over a decade of experience leading teams in the not-for-profit sector, Dean has driven remarkable growth in membership and events while forging essential industry partnerships. Dean also serves as a member of the National Advisory Board on Impact Investing in New Zealand and sits on the GovCo of the New Zealand Stewardship Code.
Is ESG ‘woke capitalism’ harming businesses in the name of social benefits?
ESG is fundamentally about risk management. Just as no investor would fund a beachfront hotel without considering rising sea levels, responsible investors assess ESG (environmental, social and governance) factors to understand and manage financial risks and identify opportunities.
Institutional investors (superannuation funds and fund managers) have a fiduciary duty to consider long-term risks, including climate change and biodiversity loss. Ignoring these risks would be poor financial management.
Likewise, regulations on financial advice emphasise long-term client interests. In Australia, advisers are required to consider their clients’ broader long-term interests. In New Zealand, advisers must consider the clients’ views along with ensuring the advice given is suitable for the client given their needs and goals.
Is it downhill for sustainable funds now, especially with Trump 2.0?
Good investors think long term, well beyond a four-year presidency. A 20-year-old opening their first superannuation account today will retire after 2065. Long-term thinking allows portfolios to consider long-term trends, benefit from compound interest, ride out short-term volatility, and avoid reactionary decision-making. Regardless of who is in the White House, the global transition to a low-carbon economy continues, and investors remain focused on managing risks and opportunities that will shape the decades ahead.
Morningstar’s 2024 Q4 research (released on 30 January 2025) reveals global sustainable fund assets reached an all-time high of US$3.2 trillion by the end of 2024, an 8% increase from the previous year and over four times the 2018 figure. Despite a decline in inflows during the year due to factors like some underperformance of ESG strategies, greenwashing concerns and anti-ESG sentiment, sustainable funds saw a strong rebound in Q4, with inflows rising to US$16 billion from US$9.2 billion in Q3.
Some investors are withdrawing from climate and DEI initiatives – is this proof that ESG is failing?
The political environment in the US has made it tricky for some. While some investment managers or banks may withdraw from specific initiatives due to political or economic pressures, they’re still working to address long-term climate risks in other ways.
Organisations may be changing the way they talk about their sustainability goals, but they are not walking back from their fiduciary duty (i.e. legal obligation) to act in the best financial interests of clients; today, this requires considering the impact of ESG factors on investment decision-making. In fact, 93% of all professionally managed funds in Australia are now managed by investors with a public commitment to responsible investment and almost all investment managers (81% in Australia, 87% in New Zealand) already implement ESG integration within their investment strategies.
Are ‘green’ funds underperforming?
All funds face challenges due to geopolitical risks, for many reasons not just the US election. Wars, invasions, natural disasters and changing global power dynamics pose risks to businesses and assets across the board. This impacts many funds and many investments (particularly those focused on short term returns). Unfortunately, despite these risks also affecting the performance of ‘non-green’ funds, ‘green’ funds are often singled out for scrutiny, notwithstanding the myriad of benefits provided by ‘green’ funds. The reality is, overall, the funds doing responsible investment well continue to deliver positive returns.
Funds certified by RIAA as responsible investment products generally perform on par with or better than the rest of the market. According to ISS Market Intelligence, RIAA certified responsible investment products outperformed across 1-, 5- and 10-year periods as of September 2024.
Is consumer interest in ESG a fading fad?
Consumer interest in sustainable investing isn’t a passing trend. People with superannuation accounts or investment portfolios have immense power. With substantial amounts of money invested – such as the AU$4 trillion in Australia’s superannuation funds (the 5th largest pool of pension assets in the world) and NZ$112 billion in KiwiSaver (over 27% of the NZ GDP), consumers are in the driver’s seat when it comes to how and where this money is allocated.
RIAA’s research shows that 88% of Australians expect their super and banking to be invested responsibly and ethically. Similarly in Aotearoa New Zealand, 74% expect responsible and ethical management of their investments, and 59% are willing to move their funds if their investments do not align with their values. Globally, more than three quarters of individual investors are interested in investing in companies or funds that aim to achieve financial returns while also considering positive social and/or environmental impact.
Does Trump 2.0 prevent progress on impact investing?
While pollical shifts may influence policies, the momentum behind impact investing is largely driven by investor demand, regulatory trends and the long term need for sustainable economic growth. Investment approaches exist on a spectrum balancing financial returns with social and environmental outcomes. While traditional investing often ignores ESG factors, responsible investment integrates them through approaches like ESG integration, screening, stewardship and thematic investment to manage risks and enhance returns. Impact investing goes further, aiming for measurable positive change alongside financial performance. Unlike philanthropy, which expects no financial return, impact investing seeks both impact and returns. See here for RIAA’s Responsible and Ethical Investment Spectrum mapping out the various approaches.
Coming up, we will have more Q&As to debunk common misconceptions about ESG and responsible investing.
<hr>
<small>Disclaimer: The above content is provided by Responsible Investment Association Australasia (ACN 641 046 666, AFSL 554110) for information purposes and is not an offer to buy or sell a financial product, and is not warranted to be correct, complete or accurate. For more information refer to our Financial Services Guide on the RIAA website. Any general advice has been provided without reference to your investment objectives, financial situation or needs. If the advice relates to the acquisition of a particular financial product for which an offer document (such as a product disclosure document) is available, you should obtain the offer document relating to the particular financial product and consider it before making any decision whether to acquire the product. Past performance does not necessarily indicate a financial products’ future performance. To obtain information tailored to your situation, contact a financial adviser.
Want to explore these topics further? Join us at the RIAA Conference, where leading local and global experts will unpack these issues and discuss the future on ESG. For more information.
