New research by Australia’s original responsible investment manager and super fund Australian Ethical and research company Investment Trends shows that climate change and environmental factors have been, and will continue to be, the number one driver of investment decisions by those who consider ESG factors when making investment decisions (“ESG investors”).

According to the survey of 2,854 Australian investors and 321 financial advisers, 78 per cent of ESG investors intend to invest based on environmental factors in the next 12 months, compared to corporate governance (46 per cent), ethical beliefs (43 per cent), social issues (34 per cent), and indigenous issues (31 per cent).

This has increased over the last year, when actual purchases of an investment or stock based on environmental factors was 58 per cent, compared to 34 per cent for ethical beliefs, 25 per cent for corporate governance, 20 per cent for social issues, and 11 per cent for indigenous issues.

Despite these trends, however, advisers are more cautious: just 40 per cent said they discussed ESG investing with their clients in the last 12 months, despite the overwhelming demand from investors. 

It is also investors, not advisers, who predominantly initiate ESG investment decisions: 55 per cent of new inflows allocated by advisers to ESG-aligned investments in the last 12 months were driven by investors. 

When it came to choosing the right ESG product provider, ESG investors cited the provider’s reputation as the most important factor (87 per cent), encompassing investment track record, distribution network, brand name recognition, and stated ESG values.

Across generations, the number one action thought to positively impact the environment and society was “clean and renewable energy sources” according to millennials (25-39 years), “energy consumption reduction” to Zoomers (18-24 years), and “recycling of non-biodegradable waste” to all other age groups. 

Accumulators were most likely (35 per cent) to say they would invest in companies focused on creating a positive social or environmental impact, while Zoomers were most likely (32 per cent) to actively avoid companies that create social and environmental harm.

In the last 12 months, 74 per cent of Zoomers (18-24 years) also said they had bought an investment or stock based on environmental factors.

John McMurdo, CEO and MD of Australian Ethical, said: “At Australian Ethical, we’ve known for many years that climate change would and should become a key driver of private investment decisions.

“This is why we’ve ensured climate-friendly frameworks are integral to our investment philosophy, which has driven a 34-year track record of above-market returns in our premium products.

“But not all Australians have the time, energy, or experience to invest in and generate positive sustainable returns from these thematics, which is where Australian Ethical can help. We offer a range of options in our managed funds and superannuation that enable investors to gain exposure to climate-positive investments via one of Australia’s most experienced responsible investment managers.”

Sarah Brennan, CEO of Investment Trends, said: “ESG will further become a key component of the investing landscape, and this is set to continue to grow. Licensees, platforms and product issuers who ignore it do so at their peril. Our new research shows that not only are investors living their ESG values and partaking in a range of climate-conscious activities, the vast majority want to tackle climate change issues as they build wealth.

“The climate activities and themes which Australian investors are most interested in are new technologies such as for clean and renewable energy, carbon emission reduction, as well as initiatives to reduce energy usage, and recycling.

“When it comes to their views of how ESG investing impacts long-term returns, Australians have different perceptions depending on how they are currently invested. 82 per cent of consumers who are invested in ESG believe returns will either be better or about the same than other investment strategies. In contrast, 43 per cent of non-ESG investors believe they will be worse off,” explained Brennan. 

“Importantly, ESG managers have an opportunity to help educate investors about areas such as performance and assist them access information more easily to alleviate any concerns about investment returns.”