ESG

Greenwashing is still the biggest barrier to uptake of responsible investment strategies, but this and other challenges the ESG sector are facing now are also signs of a proliferating market that’s just picking up speed.

The global energy transition is an unstoppable process with major questions marks still hanging over it, not least among them the economic implications of super-cheap energy once the transition is complete, according to ClearBridge Investments’ Nick Langley.

Tasmanian eco-tech firm Sea Forest is making huge strides in its quest to use a unique Australian seaweed to combat climate change by reducing methane emissions from cows. The plan has huge environmental and commercial potential, its chief scientific officer says – government policy just needs to catch up.

ESG investment strategies are at their highest-ever penetration rate, with 90 per cent of global investors now on board, according to a new survey. And while greenwashing and data disclosure concerns remain, sustainability-minded investors are coming up with their own solutions for these challenges.

While many sustainable funds use negative screens to avoid stocks with poor ESG scores, Martin Currie’s Naomi Bant says engagement with companies that can provide a net benefit to society leads to better investment and sustainability outcomes.

Switching to a sustainable pension fund is one of the most effective ways to reduce a person’s carbon footprint, with no performance tradeoff required. As the need for climate solutions grows more urgent, the momentum for environmentally friendly investment options in Australia’s $3.5 trillion super sector is gathering pace.

Slowing inflation, peaking interest rates and a renewed interest in companies with consistent earnings have sparked a rotation back into quality names in 2023. Sustainable investment strategies lend themselves to these types of businesses, according to Australian Ethical, which also sees a “massive gust of tailwind” from the net-zero push.

While some still associate them with lower returns, ESG analysis and sustainable investing are really about managing risk and harnessing opportunities, the Perennial Partners portfolio managers said. If done “authentically”, sustainable investing is “very much a returns game”.

The global transition away from fossil fuels will require a massive reallocation of capital, and with the technology driving it now more cost-effective than ever, companies and investors that seize climate-related opportunities will be best placed to reap the benefits, according to recent MSCI research.

As Australia’s energy transition ramps up, spurred by a greater government commitment, the ethical investment manager says investors risk getting saddled with “stranded assets” if they don’t limit their exposure to fossil fuels.

For the world to meet climate targets, the supply of battery-grade lithium will have to ramp up greatly, prompting expectations that the price will keep rising for years to come. And Australian companies with proven lithium deposits could do well as M&A in the sector stays hot, analysts say.

With a successful and orderly energy transition “far from guaranteed”, disruptive themes are set to profoundly affect financial markets for years to come, the asset manager said in a new report. Investors should act – and potentially reallocate – accordingly.