Ethically-driven investors 'blind dating' without portfolio transparency
Without a comprehensive agreed framework towards sustainable finance, ethically-driven investors are ‘blind dating’ by being unable to access full portfolio transparency, according to a sustainability executive.
Dugald Higgins, head of responsible investment and sustainability at Zenith Investment Partners, noted that every ESG fund defined their sustainability approach differently.
“There are well over 100 funds in Australia with some form of overt ESG or sustainability orientation. However, they all have different ways of looking at these issues based on their asset class, style and investment methodology.
“So it pays to understand what’s underneath the bonnet. This is an area that’s highly subjective and definitely not a one size fits all approach,” Higgins said.
“This is particularly problematic for ethically-driven investors who are essentially ‘blind dating’ without access to full portfolio transparency.”
This was among one of the many reasons the Government’s consultation towards a comprehensive sustainable finance strategy was warmly welcomed.
“We have passed the point of rhetoric and are moving into the age of accountability. And a big part of that means transparency – transparency in process, holdings, stewardship, actions and outcomes, and key metrics such as carbon,” he added.
“The acid test separating quality approaches from ‘junk products’ – which probably won’t survive the inevitable increase in regulation and transparency - will be the ability to provide clear, tangible evidence linking through to action and outcomes.”
He stressed the importance of funds being genuine about their sustainability aims, in fighting climate change rather than fighting climate risk in their portfolios.
While Australia had been lightly regulated in sustainability claims compared to its global peers, the Government’s development of a comprehensive sustainable finance strategy held much promise.
It would include new taxonomies for sustainable investment and initiatives to strengthen ESG product labelling, and the adoption of the International Sustainability Standards Board (ISSB) alongside the International Accounting Standards Board (IASB).
Higgins called this a “gamechanger” for Australia.
“Adoption of the Standards around the world will help in delivering much-needed consistency and comparability in sustainability-related information to markets. While it will be challenging and an imperfect solution for every scenario, just like accounting standards today, it will be a big step in the right direction,” he said.
AUTHOR
Rhea Nath
Recommended for you
The Governance Institute has said ASIC’s governance arrangements are no longer “fit for purpose” in a time when financial markets are quickly innovating and cyber crime becomes a threat.
Compliance professionals working in financial services are facing burnout risk as higher workloads, coupled with the ever-changing regulation, place notable strain on staff.
The Senate economics legislation committee has recommended Schedule 1 of the Delivering Better Financial Outcomes legislation be passed as it is a “faithful implementation” of the recommendations.
Treasurer Jim Chalmers has handed down his third budget, outlining the government’s macroeconomic forecasts and changes to superannuation.
