1 00:00:05,640 --> 00:00:08,360 Speaker 1: Welcome to the Fear and Greed Business Interview. I'm Sean Aylmer. 2 00:00:08,560 --> 00:00:12,480 Speaker 1: Responsible investing in Australia continues to rise, with demand from 3 00:00:12,520 --> 00:00:16,639 Speaker 1: institutional investors a key driver of growth. At the same time, 4 00:00:16,720 --> 00:00:20,160 Speaker 1: concerns about greenwashing within the industry have increased about countering 5 00:00:20,160 --> 00:00:24,400 Speaker 1: that is, a greater commitment to transparency within portfolios. These 6 00:00:24,440 --> 00:00:27,200 Speaker 1: are some of the headline findings of the Responsible Investment 7 00:00:27,280 --> 00:00:30,880 Speaker 1: Benchmark Report, highlighting not just the size of the industry 8 00:00:30,920 --> 00:00:33,800 Speaker 1: but also some of the challenges ahead. Estelle Parker is 9 00:00:33,840 --> 00:00:38,640 Speaker 1: the co CEO of the Responsible Investment Association Australasia, which 10 00:00:38,680 --> 00:00:41,159 Speaker 1: is the great supporter of this podcast. Stelle, Welcome to 11 00:00:41,200 --> 00:00:41,800 Speaker 1: Fear and Greed. 12 00:00:42,120 --> 00:00:43,480 Speaker 2: It's great to be with you, Sean. 13 00:00:44,159 --> 00:00:49,320 Speaker 1: So just how big has responsible investing become in Australia. 14 00:00:50,280 --> 00:00:53,080 Speaker 2: Look, it's basically mainstream, I would say. When you think 15 00:00:53,120 --> 00:00:57,800 Speaker 2: about the breadth of responsible investment approaches, everything from integrating environmental, 16 00:00:57,840 --> 00:01:01,280 Speaker 2: social and governance factors into investment meant decision making right 17 00:01:01,360 --> 00:01:05,200 Speaker 2: through to the real point end of responsible investment. We're 18 00:01:05,240 --> 00:01:08,880 Speaker 2: seeing the vast majority of fund managers in Australia adopting 19 00:01:08,920 --> 00:01:12,840 Speaker 2: one of those approaches and our recent benchmark report, as 20 00:01:12,880 --> 00:01:16,000 Speaker 2: you noted, shows the growth in the market we're seeing, 21 00:01:16,280 --> 00:01:20,120 Speaker 2: in particular ESG risk considerations being really key. So eighty 22 00:01:20,160 --> 00:01:25,360 Speaker 2: one percent of managers are incorporating ESG integration into their 23 00:01:25,360 --> 00:01:29,200 Speaker 2: decision making. So it's really wonderful to see year on 24 00:01:29,319 --> 00:01:34,400 Speaker 2: year growing. The market itself at the moment has grown 25 00:01:34,440 --> 00:01:37,480 Speaker 2: to one point six trillion in Australia and in New 26 00:01:37,520 --> 00:01:40,520 Speaker 2: Zealand sitting at about two hundred and seven billion dollars, 27 00:01:41,120 --> 00:01:43,840 Speaker 2: and a lot of drivers of that include things like 28 00:01:43,840 --> 00:01:48,320 Speaker 2: the strength and regulatory framework, definitely increased investor demand, but 29 00:01:48,400 --> 00:01:51,080 Speaker 2: also expectations of consumers. 30 00:01:51,800 --> 00:01:53,600 Speaker 1: It's kind of how long is a page of strings 31 00:01:53,640 --> 00:01:57,560 Speaker 1: sometimes with responsible investing because how you define it and 32 00:01:57,600 --> 00:02:00,440 Speaker 1: we can talk about ESG and stuff like that, but 33 00:02:00,680 --> 00:02:04,920 Speaker 1: is there kind of for people like myself an easy 34 00:02:04,920 --> 00:02:09,240 Speaker 1: way of understanding what does fall under responsible investing and 35 00:02:09,240 --> 00:02:09,880 Speaker 1: what doesn't. 36 00:02:10,840 --> 00:02:13,960 Speaker 2: Sure Look, there is a spectrum of responsible investment approaches, 37 00:02:13,960 --> 00:02:17,880 Speaker 2: but at its core it is factoring in considerations around 38 00:02:17,919 --> 00:02:22,160 Speaker 2: society and the environment as well as governance factors along 39 00:02:22,240 --> 00:02:27,280 Speaker 2: with financial performance in investment decision making. So, as I said, 40 00:02:27,320 --> 00:02:31,079 Speaker 2: you know, considering environmental, social and governance risks. So looking 41 00:02:31,120 --> 00:02:33,359 Speaker 2: at you know, what are the risks that the current 42 00:02:33,440 --> 00:02:36,920 Speaker 2: energy transition, for example, may have on an asset, and 43 00:02:36,960 --> 00:02:39,840 Speaker 2: how do you reduce that risk? You know, may maybe 44 00:02:39,880 --> 00:02:44,480 Speaker 2: by reducing reliance on fuels, improving energy efficiency and so on. 45 00:02:44,919 --> 00:02:48,960 Speaker 2: But other strategies include things like screening investments by applying 46 00:02:49,040 --> 00:02:51,560 Speaker 2: rules and a very popular one, of course, is screening 47 00:02:51,560 --> 00:02:55,440 Speaker 2: out fossil fuel investments from a portfolio, or even you know, 48 00:02:55,560 --> 00:02:58,840 Speaker 2: ensuring that all companies in a portfolio have a robust 49 00:02:59,080 --> 00:03:02,639 Speaker 2: net zero strategy, for example. And then there's something called 50 00:03:02,680 --> 00:03:06,320 Speaker 2: thematic investing, which is where you actually proactively construct a 51 00:03:06,400 --> 00:03:10,800 Speaker 2: portfolio in order to access certain benefits from trends like 52 00:03:10,880 --> 00:03:15,040 Speaker 2: a renewable energy portfolio, or even constructing a portfolio to 53 00:03:15,160 --> 00:03:19,600 Speaker 2: benefit from say an aging population for example. So looking 54 00:03:19,639 --> 00:03:22,440 Speaker 2: at those kind of long term mega trends. Then, as 55 00:03:22,480 --> 00:03:25,720 Speaker 2: I said, impact investing, is that really pointy and where 56 00:03:25,760 --> 00:03:29,800 Speaker 2: you've got this really strong intention to generate really positive 57 00:03:29,880 --> 00:03:34,200 Speaker 2: and measurable social and environmental impacts, but that needs to 58 00:03:34,240 --> 00:03:37,560 Speaker 2: be alongside a financial return, and that's things like you know, 59 00:03:37,640 --> 00:03:40,840 Speaker 2: social housing is a very popular one. And of course 60 00:03:40,920 --> 00:03:43,680 Speaker 2: throughout all of that we've got something called stewardship, which 61 00:03:43,760 --> 00:03:47,680 Speaker 2: is using investor rights and influence by say voting at 62 00:03:47,720 --> 00:03:52,160 Speaker 2: agms or engaging in investing companies to improve performance. But 63 00:03:52,520 --> 00:03:55,480 Speaker 2: that's all of that is looking at delivering a really 64 00:03:55,520 --> 00:03:56,800 Speaker 2: strong financial return. 65 00:03:57,760 --> 00:04:01,200 Speaker 1: Okay, I want to take those two separately. Impact investing, 66 00:04:01,600 --> 00:04:03,480 Speaker 1: how are we going in terms of growth of that, 67 00:04:03,600 --> 00:04:05,880 Speaker 1: because it has been a difficult one to stand up 68 00:04:06,280 --> 00:04:09,160 Speaker 1: for many companies that we seem to be doing better. 69 00:04:10,000 --> 00:04:13,280 Speaker 2: Well, we are doing better, and I think impact investing 70 00:04:13,400 --> 00:04:16,040 Speaker 2: is still quite nascent in Australia. It's growing off a 71 00:04:16,120 --> 00:04:20,320 Speaker 2: very low base, but interestingly, the institutional investors are starting 72 00:04:20,360 --> 00:04:22,520 Speaker 2: to look at this, so they're standing up, you know, 73 00:04:22,560 --> 00:04:27,040 Speaker 2: within the asset owners, their own teams, looking at delivering impact, 74 00:04:27,400 --> 00:04:30,039 Speaker 2: often at the kind of due to the demand of 75 00:04:30,120 --> 00:04:33,760 Speaker 2: their consumers and their members. So I can't recall the 76 00:04:33,800 --> 00:04:37,120 Speaker 2: exact figures, but that is something that everybody should be 77 00:04:37,160 --> 00:04:40,640 Speaker 2: really cognizant of because there are some really fantastic opportunities 78 00:04:40,920 --> 00:04:45,080 Speaker 2: in the impact investing space that do deliver returns very 79 00:04:45,120 --> 00:04:48,680 Speaker 2: distinct of course from philanthropy. And I would also say 80 00:04:48,760 --> 00:04:51,599 Speaker 2: just on impact investing, you know, there's some really interesting 81 00:04:51,640 --> 00:04:55,680 Speaker 2: innovative partnerships with NGOs in the social housing space, in 82 00:04:55,760 --> 00:05:00,159 Speaker 2: the green space, the nature and biodiversity protection space. So 83 00:05:00,240 --> 00:05:03,720 Speaker 2: that is definitely an area to watch stewardship. 84 00:05:04,279 --> 00:05:07,680 Speaker 1: That's something which seems to have gained increasing popularity in 85 00:05:07,680 --> 00:05:09,960 Speaker 1: the last couple of years because you're not screening out 86 00:05:10,000 --> 00:05:13,880 Speaker 1: stocks necessarily, but you're using your power as a shareholder 87 00:05:14,440 --> 00:05:18,880 Speaker 1: to potentially influence how management is thinking. The great thing 88 00:05:18,920 --> 00:05:21,320 Speaker 1: about that is that you can potentially maybe you can 89 00:05:21,320 --> 00:05:22,880 Speaker 1: never own a cold company, I'm not sure, but you 90 00:05:23,480 --> 00:05:26,080 Speaker 1: might be able to own some certain energy companies who 91 00:05:26,080 --> 00:05:29,000 Speaker 1: are going through a transition. Just sort of explain how 92 00:05:29,040 --> 00:05:30,480 Speaker 1: that works within this framework. 93 00:05:31,200 --> 00:05:34,800 Speaker 2: Look, you mentioned the energy transition and climate change is 94 00:05:35,080 --> 00:05:38,039 Speaker 2: we're seeing eighty six percent of investment managers those that 95 00:05:38,080 --> 00:05:42,920 Speaker 2: are using engagement and voting as an investment strategy. Climate 96 00:05:43,000 --> 00:05:45,360 Speaker 2: change is the issue that they are all looking at, 97 00:05:45,640 --> 00:05:48,720 Speaker 2: but also things like diversity, looking at their gender balance 98 00:05:48,720 --> 00:05:51,760 Speaker 2: and so on on boards, and issues like human rights 99 00:05:51,800 --> 00:05:56,560 Speaker 2: and that's modern slavery, that's looking at indigenous cultural heritage protection, 100 00:05:57,480 --> 00:05:59,960 Speaker 2: and then as well as that general kind of environment 101 00:06:00,040 --> 00:06:04,400 Speaker 2: and tal concerns and ensuring that biodiversity and nature are protected, 102 00:06:05,040 --> 00:06:07,400 Speaker 2: and that is you know everything, as you say, from 103 00:06:07,480 --> 00:06:12,080 Speaker 2: voting at agms, using the influencer that they have, but 104 00:06:12,200 --> 00:06:17,200 Speaker 2: also having meetings engaging with companies, and that is becoming 105 00:06:17,279 --> 00:06:20,160 Speaker 2: much more robust. I would say, So it's no longer 106 00:06:20,200 --> 00:06:23,039 Speaker 2: good enough to say as an investor, I've just sent 107 00:06:23,200 --> 00:06:25,560 Speaker 2: you know, a bunch of letters to you know, a 108 00:06:25,600 --> 00:06:28,600 Speaker 2: bunch of companies that were invested in to tell them 109 00:06:28,600 --> 00:06:30,760 Speaker 2: that they should have better diversity on their board or 110 00:06:30,760 --> 00:06:32,520 Speaker 2: that they should have a good net zero strategy. But 111 00:06:32,520 --> 00:06:36,440 Speaker 2: they're actually following up and they're reporting to their members 112 00:06:36,440 --> 00:06:39,279 Speaker 2: and consumers as well on the kinds of activities, and 113 00:06:39,320 --> 00:06:43,479 Speaker 2: we're seeing a lot more transparency as well in voting practices. 114 00:06:43,480 --> 00:06:45,599 Speaker 1: Stelle, I still want to talk to you about greenwashing, 115 00:06:45,680 --> 00:06:48,720 Speaker 1: green hushing, a few other challenges for responsible investing. Will 116 00:06:48,720 --> 00:06:59,279 Speaker 1: do that after this break. I'm talking to Estelle Parker, 117 00:06:59,360 --> 00:07:04,360 Speaker 1: co C of the Responsible Investment Association Australasia. The report 118 00:07:04,400 --> 00:07:08,480 Speaker 1: talks about green washing or green hushing. Can you define 119 00:07:08,480 --> 00:07:10,680 Speaker 1: those and just how big a challenge is it for 120 00:07:10,680 --> 00:07:11,320 Speaker 1: the industry. 121 00:07:11,920 --> 00:07:17,120 Speaker 2: Sure? Look, greenwashing itself is essentially overstating the environmental or 122 00:07:17,160 --> 00:07:20,840 Speaker 2: social benefits of an investment, and as we know, the 123 00:07:20,880 --> 00:07:23,840 Speaker 2: regulators really have been cracking down over the past couple 124 00:07:23,840 --> 00:07:26,760 Speaker 2: of years, and this is a good thing because we 125 00:07:26,800 --> 00:07:29,400 Speaker 2: want the claims that are being made out there to 126 00:07:29,640 --> 00:07:33,080 Speaker 2: consumers where there is a huge demand for investments that 127 00:07:33,160 --> 00:07:37,560 Speaker 2: are responsible and that also have positive impact. But consumers 128 00:07:37,560 --> 00:07:40,160 Speaker 2: themselves are telling us that they are concerned about green 129 00:07:40,320 --> 00:07:43,680 Speaker 2: washing in the sector. They're also telling us through our 130 00:07:43,800 --> 00:07:47,600 Speaker 2: consumer surveys that they are much more likely to invest 131 00:07:47,680 --> 00:07:51,000 Speaker 2: in a product that has been verified by a third party. 132 00:07:51,600 --> 00:07:55,960 Speaker 2: So Rea itself we run a responsible investment certification program 133 00:07:55,960 --> 00:07:59,040 Speaker 2: where we really comb through those products and make sure 134 00:07:59,080 --> 00:08:01,720 Speaker 2: that they are what they say they are on the label. 135 00:08:01,840 --> 00:08:03,600 Speaker 2: You know, it's not much different to a tin on 136 00:08:03,880 --> 00:08:06,960 Speaker 2: something on the supermarket shelf tin ofbate things. You expect 137 00:08:07,000 --> 00:08:09,520 Speaker 2: what's in the tin to reflect the same as what's 138 00:08:09,560 --> 00:08:13,360 Speaker 2: on the label. And so the industry has responded to 139 00:08:13,800 --> 00:08:17,040 Speaker 2: the regulator signaling. We're seeing a very strong pipeline of 140 00:08:17,080 --> 00:08:21,200 Speaker 2: products coming to us for responsible investment certification and I 141 00:08:21,240 --> 00:08:23,400 Speaker 2: think as well, you're right, green hushing is a bit 142 00:08:23,400 --> 00:08:26,280 Speaker 2: of an issue, and we have seen some funds pulling 143 00:08:26,320 --> 00:08:28,960 Speaker 2: back a little bit from claims that they are making 144 00:08:29,400 --> 00:08:32,439 Speaker 2: in order to ensure that what they are saying accurately 145 00:08:33,200 --> 00:08:36,679 Speaker 2: reflects exactly what they are doing. So you really do 146 00:08:37,120 --> 00:08:38,800 Speaker 2: need to substantiate claims. 147 00:08:39,600 --> 00:08:42,120 Speaker 1: Okay, there's been a number of high profile cases of 148 00:08:42,160 --> 00:08:46,400 Speaker 1: alleged green washing, Like that's not necessarily a bad thing 149 00:08:46,440 --> 00:08:49,240 Speaker 1: because it actually makes puts everyone else on notice. 150 00:08:49,679 --> 00:08:52,520 Speaker 2: Look, I know when our sick put out their first 151 00:08:52,520 --> 00:08:55,480 Speaker 2: guidance a couple of years ago on greenwashing, which was 152 00:08:55,559 --> 00:08:58,880 Speaker 2: essentially clarifying. It's not like a whole lot of new 153 00:08:58,920 --> 00:09:04,040 Speaker 2: greenwashing legislation came up. It was clarifying existing consumer law 154 00:09:04,160 --> 00:09:08,640 Speaker 2: and the expectation of investors under that consumer law. And 155 00:09:08,960 --> 00:09:11,320 Speaker 2: we do know that funds kind of went away and 156 00:09:11,400 --> 00:09:12,960 Speaker 2: had a really good look at what was in the 157 00:09:12,960 --> 00:09:16,600 Speaker 2: marketing material compared to what was in their legal documents, 158 00:09:16,880 --> 00:09:20,520 Speaker 2: and then comparing that to their portfolio holdings. And so 159 00:09:20,880 --> 00:09:24,320 Speaker 2: I think the industry now definitely understands that it's no 160 00:09:24,400 --> 00:09:27,160 Speaker 2: good just to make claims and not doing anything about them. 161 00:09:27,200 --> 00:09:30,280 Speaker 2: You really need to back up those claims with robust 162 00:09:30,320 --> 00:09:33,480 Speaker 2: strategies and practices, and you also need to be really 163 00:09:33,480 --> 00:09:34,600 Speaker 2: transparent about that. 164 00:09:35,480 --> 00:09:38,520 Speaker 1: The report focuses on where we've been it is a 165 00:09:38,520 --> 00:09:43,160 Speaker 1: new world. From January sixth and Donald Trump's administration obviously 166 00:09:43,160 --> 00:09:46,720 Speaker 1: has made lots of noises around some of these issues. 167 00:09:47,520 --> 00:09:50,079 Speaker 1: Do you think in Australia it will matter? 168 00:09:50,840 --> 00:09:54,040 Speaker 2: Look, good investors think long term, right, So, as we've 169 00:09:54,080 --> 00:09:57,000 Speaker 2: just been talking about consumer awareness and demand for this 170 00:09:57,040 --> 00:10:01,040 Speaker 2: stuff is growing, responsible investors under stand that you need 171 00:10:01,080 --> 00:10:05,040 Speaker 2: to think long term and that good responsible investment, including 172 00:10:05,280 --> 00:10:08,800 Speaker 2: ESG integration, but also thinking about longer term trends and 173 00:10:08,840 --> 00:10:13,000 Speaker 2: trying to access those opportunities makes really good business sense. 174 00:10:13,720 --> 00:10:17,800 Speaker 2: So the political environment obviously has been raised by some 175 00:10:18,240 --> 00:10:22,440 Speaker 2: We see geopolitical risk, we see performance concerns across the 176 00:10:22,440 --> 00:10:25,360 Speaker 2: board all the time people are considering this stuff, But 177 00:10:25,480 --> 00:10:28,760 Speaker 2: good investors think long term performance is very very good. 178 00:10:28,800 --> 00:10:31,800 Speaker 2: It has been very good for the products that reascertifies 179 00:10:32,400 --> 00:10:35,080 Speaker 2: over quite a number of time periods and over quite 180 00:10:35,080 --> 00:10:38,600 Speaker 2: a number of years, we see certified funds perform on 181 00:10:38,720 --> 00:10:41,240 Speaker 2: par with all better than the rest of the market, 182 00:10:41,920 --> 00:10:44,839 Speaker 2: and the most recent data that shows that they are 183 00:10:44,880 --> 00:10:48,680 Speaker 2: outperforming on one year, five year, and ten year periods, 184 00:10:48,720 --> 00:10:52,840 Speaker 2: which results do vary quite widely by asset classes. We're 185 00:10:52,880 --> 00:10:57,160 Speaker 2: also seeing globally. Morning Star Direct has basically said that 186 00:10:57,200 --> 00:10:59,960 Speaker 2: over the past decade to twenty twenty five, the top 187 00:11:00,040 --> 00:11:04,480 Speaker 2: twenty sustainable funds globally have garnered a really positive average 188 00:11:04,520 --> 00:11:08,280 Speaker 2: return of over thirteen point five percent. So you know, 189 00:11:08,360 --> 00:11:11,400 Speaker 2: smart people are looking this at this They're thinking much 190 00:11:11,520 --> 00:11:16,160 Speaker 2: longer term than a four year presidency, and that obviously 191 00:11:16,600 --> 00:11:20,640 Speaker 2: allows them to consider, you know, where we're going globally 192 00:11:20,720 --> 00:11:21,880 Speaker 2: and filter out the noise. 193 00:11:22,800 --> 00:11:24,520 Speaker 1: Selle, thank you for talking to Fear and Greed. 194 00:11:24,880 --> 00:11:26,199 Speaker 2: It's been a great pleasure, Sean. 195 00:11:26,640 --> 00:11:29,760 Speaker 1: That was a Stelle Parker, co CEO of the Responsible 196 00:11:29,800 --> 00:11:33,960 Speaker 1: Investment Association Australasia, which is a great supporter of this podcast. 197 00:11:34,040 --> 00:11:36,440 Speaker 1: This is the Fear and Greed Business Interview. Remember this 198 00:11:36,559 --> 00:11:39,839 Speaker 1: is general information only and you should seek professional advice 199 00:11:39,880 --> 00:11:42,440 Speaker 1: before investing. Join us every morning for the full episode 200 00:11:42,480 --> 00:11:44,800 Speaker 1: of Fear and Greed, the daily business news for people 201 00:11:44,960 --> 00:11:52,920 Speaker 1: who make their own decisions. I'm Sean Elmer. Enjoy your day.