ESG investors to focus on resilience in 2023

Amid numerous global events and policy developments, the responsible investment industry in Australia should be looking to steady the ship in the coming year.

At the top of their agendas would likely be the development of a Sustainable Finance Agenda and a consultation on a mandatory climate-related financial disclosure, both announced by the Government in December.

With this internationally-aligned framework, large business and financial institutions would be expected to provide more information and greater transparency on the transition to net zero and their climate change efforts.

“To stay relevant as capital market participants in 2023 and beyond, we believe responsible investors must intensify research into how well companies are managing their specific exposures to financially material environmental and social factors, analysing their near- and long-term financial impacts,” agreed John Streur, CEO of Calvert Research and Management.

He added: “We believe the events of 2022 will prove to have been seminal for responsible investing and ESG research, helping shape the framework for a rapidly-changing investment landscape. The combination of powerful geopolitical events, along with ambitious government regulations aimed directly at responsible investing, are together creating a new reality for market participants.”

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Government actions from the last year, including intervention in trade and industrial policy and setting standards for responsible investing and ESG, were likely to dominate in 2023, Streur noted. 

According to Jack Nelson, manager of the Global Emerging Markets Sustainability funds at Stewart Investors, the biggest decision going into the new year was continuing to build resilience with their investments.

“For us, the biggest decision is trying to be resilient, so hopefully companies in our portfolios are able to hold up when things go wrong,” he told Money Management, adding that most of their stock had been owned for long periods of time.

“It’s difficult for us to make one-year predictions. We don’t try to reposition the fund simply based on what’s happening, we don’t try to be the first to know and we were never going to have our finger on the pulse of what’s going to happen.”

Instead, he held a more long-term approach, noting that emerging markets in Asia had proved strong in the last 12 months. 

“In the last 30 years or so, we’ve seen massive improvements in global living standards, we’ve had extreme poverty almost disappear in China, we’ve made big inroads in other markets like India. Our generation is living through a one-time shift in humanity, away from most people in the world not having enough. 

“This was always going to be a volatile asset class, but the opportunities are great, it’s pretty exciting.”

For Streur, there was already a shift towards “a narrower and more competitive field” within responsible investing. 

“We believe the outcome will be to strengthen capital deployment, create measurable differentials between corporations that can manage well and those that cannot, and enhance how capital markets function. 

“Greater transparency, greater disclosure, greater focus on financial outcomes — these are the required underpinnings of successful, market-led solutions, consistent with the realities of the world we experienced in 2022.”