The proportion of consumers considering environmental, social, and governance (ESG) criteria in their investment decisions has surged from 39% last year to 54% this year, according to our latest Financial Advice Landscape Report, which includes analysis of our annual survey of Australian consumers, advisers, and advice practices.
Figure 1: Consumers factoring ESG into their investment decision making
Source: 2024 Australian Financial Advice Landscape Report
Additionally, Figure 2 below highlights the increased interest from clients in ESG investments, with the proportion of clients asking their advisers about ESG criteria rising to 25% this year from 17% last year.
Figure2: What topics are clients asking about?
Source: 2024 Australian Financial Advice Landscape Report - Note: * denotes a contemporary category introduced in 2023 with no historical data.
This notable increases underscore a growing awareness and preference among investors for sustainable and ethical investment options despite the controversies and scepticism surrounding the efficacy of ESG claims by large investment organisations. Some of these organisations have faced accusations of failing to live up to their ESG promises, as highlighted by recent actions taken by the Australian Securities and Investments Commission (ASIC) against several major asset managers and superannuation funds. These actions have prompted many funds to enhance their compliance and communication efforts. However, the absence of a standardised ESG framework continues to pose challenges, making it difficult for consumers to distinguish between genuine and superficial ESG investments.
Impact Investing: A Growing Trend
Amidst the growing scepticism, impact investing is gaining traction as a credible way for investors to support companies that deliver both positive social or environmental impact and financial returns. This dual focus on impact and returns appeals to a broad range of investors, particularly those who are disillusioned with traditional ESG claims but remain committed to investing responsibly.
Regulatory Developments and Market Reactions
The government's plan to introduce mandatory climate reporting for large businesses and financial institutions aims to increase transparency and accountability. This initiative has the potential to spotlight those that are genuinely committed to their ESG promises and expose those that are not. Consequently, some fund managers have become more cautious about launching new ESG products, waiting for greater clarity and consistency in ESG standards and methodologies.
Shifts in Investment Focus
The increased consumer consideration for the social and governance aspects of ESG is also noteworthy. This shift is driven by heightened awareness and expectations around corporate governance and social responsibility, particularly in sectors like technology. Consumers are not only looking for environmentally sustainable investments but also for companies that demonstrate strong governance practices and social responsibility.
Australian Investment Landscape Insights
Chapter 4 of this year’s Landscape Report delves deep into the detailed allocation of investments, showcasing where the money is flowing within these asset classes. It highlights the sectors and sub-sectors that are receiving the most attention from ESG-focused investors and some broad trends:
Technology Sector: There is a growing emphasis on investing in tech companies that prioritise data privacy, ethical AI, and sustainable practices. The technology sector has received significant attention from ESG-conscious investors.
Healthcare: Investments are increasing in healthcare companies that are committed to social responsibility and equitable access to healthcare. This sector has seen notable interest from ESG-directed funds.
Renewable Energy: Renewable energy projects, including solar, wind, and hydroelectric power, continue to attract substantial investment as the world moves towards a more sustainable energy future. Renewable energy investments have grown significantly, indicating strong investor interest in sustainable energy solutions.
We can see that the increasing consumer appetite for ESG investing is reshaping the investment landscape. As transparency and standardisation improve, it is likely that ESG investments will continue to grow, driven by a combination of regulatory developments and evolving consumer preferences. Advisers and investors alike are poised to benefit from a clearer, more accountable ESG investment framework, paving the way for a more sustainable and ethically responsible financial future.
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