Wave of collaboration across investors driving ESG change

Sustainable investors are using collaborative strategies to help achieve ESG outcomes, a new report finds.

Responsible investors are increasingly collaborating to address prominent ESG issues, including climate change and human rights, a new report released today suggests.

Engage, Advocate, Collaborate: Unpacking Stewardship in Australasia in 2022 found that 82 per cent of sustainable investors surveyed across Australia and New Zealand collaborate with others to achieve better ESG outcomes. This includes sharing ideas and resources, as well as aligning similar needs from companies.

Climate change (83 per cent); diversity, equity and inclusion (69 per cent); and human rights, including modern slavery (68 per cent) are the top ESG topics that responsible investors are engaging on. Other areas of interest include public health, biodiversity and conservation, First Nations rights, natural capital, extreme events and geopolitical issues.

The findings of the report come as responsible investing reaches an all time high in the Australia and New Zealand region. At the end of 2021, 43 per cent of the total market was invested responsibly in Australia, amounting to over $1.5 trillion. 

Estelle Parker, executive programs manager at Responsible Investment Association Australasia, which produced the report in partnership with KPMG, said this trend recognises the large-scale nature of ESG issues.

“Investors are recognising that many ESG issues that are a material risk to their portfolios are not going to be solved by individual engagements with investee companies alone,” she said.

“Issues like climate change and cultural heritage protection are systemic in nature, and investors are increasingly working to tackle these risks using a broader range of tools.

“Modern slavery [for example] presents a number of risks to investments, including reputational risk and brand damage, as well as earning sustainability risks. Our members understand that system and policy change is needed, and it’s not something they can address alone or without strong regulation.”

The report investigates a range of activities undertaken by investors to influence a company towards becoming more sustainable, which it terms the practice of ‘investor stewardship’.

These activities include collaboration, voting at shareholder meetings, engaging directly with the company and advocating for policy changes, with the aim of improving ESG outcomes, increasing financial performance and creating long-term value, among other objectives.

Findings of the report suggest that Australian and New Zealand investors apply a systematic approach to stewardship by proactively identifying key ESG issues within an investee company or portfolio, or strategically nominating the ESG outcomes they want to achieve within an organisation. Investor stewardship can also be reactive, responding to key events as required.

“The penny is dropping that these kinds of activities fit squarely within an investor’s fiduciary duty,” continued Parker.

“If you’re a corporate or a member of government, you can expect to have more conversations with investors about ESG issues, as they endeavour to manage the long-term returns of their clients’ savings and investments.”

Just over half (51 per cent) of the investment managers, asset owners, banks, trusts and foundations surveyed adopted a stewardship strategy, which sets standards of engagement for sustainability outcomes and provides principles for investors to follow. 

All up, more than 40 stewardship codes or initiatives were reported across more than 20 jurisdictions, with most being voluntary.

But while there is notable progress in organisations developing investment strategies and robust stewardship, more than half of respondents identified limited resources and capacity, skills and knowledge gaps, and accountability as the biggest barriers to effective practice.

“While some firms have strong stewardship processes, policies and strategies, many have a long way to go to meet best-practice standards,” Parker said. 

“It leaves us wanting for greater adoption of stewardship codes, better monitoring of stewardship practices, and more transparent reporting on both stewardship activities and their outcomes.”

Engage, Advocate, Collaborate investigates how Australian and New Zealand investors are prioritising and formalising stewardship into investment management.

The Responsible Investment Association Australasia champions responsible, ethical and impact investing and a sustainable financial system in the Australia and New Zealand region.