InvestSMART

The risks and rewards of ESG focused investing

If you're not thinking about environmental, social and governance (ESG) factors, you're putting your portfolio and retirement at risk.
By · 16 Apr 2019
By ·
16 Apr 2019 · 5 min read
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Our new Ethical Fund launches on Monday, 29th April 2019, I recorded a webinar explaining how it works, why we expect it to outperform and to answer common questions we've received including some new ones from listeners on the webinar.

In the webinar I explain why all investors should be analysing the risks associated with environmental, societal and governance (ESG) issues. In my view you're only going to see change when executive remuneration is tied to managing these factors. If the CEO of the stocks in your portfolio aren't explaining how they're managing these risks, then they're putting your retirement at risk.

I use the example of ex-National Australia Bank chief Andrew Thorburn recently receiving a golden handshake that didn't include $22m worth of shares. It was a major step forward in only rewarding management for good performance.

There’s further examples of companies such as Dulux that manages its environmental risks well, all the way to executive remuneration being 10-20% based on these factors. Dulux was also spun off from Orica, which is timely and I explain in the webinar why spin offs are a reliable source of outperformance.

Late last year, we seeded the Ethical Portfolio with internal funding, in preparation for the official listing on the ASX in June. And just on Tuesday, the portfolio had its first major win with Dulux receiving a takeover from Japanese paint company Nippon Paint.

Although we wished the deal had been tabled after we officially launched the Fund, it's a good example of the type of high quality business that we seek to own for the long term i.e. a business with strong competitive advantages, unique assets (in this case Dulux's strong brand), and good management. 

The InvestSMART Ethical Share Fund (Managed Fund) is designed to provide investors with a diversified selection of Australian companies that produce growing, sustainable profits at low risk of interruption from the increasing threats associated with Environmental, Social and Governance (ESG) factors. 

If you're interested in investing in our Ethical Share Fund, click here to register your interest and to be notified once the inital offer period opens. 

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Nathan Bell
Nathan Bell
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Frequently Asked Questions about this Article…

ESG-focused investing involves analyzing the risks associated with environmental, societal, and governance issues. It's important because it helps investors identify companies that manage these risks effectively, potentially leading to better long-term performance and sustainability.

The InvestSMART Ethical Share Fund is designed to provide investors with a diversified selection of Australian companies that produce sustainable profits. It focuses on companies with strong competitive advantages and good management, while minimizing risks from ESG factors.

Tying executive remuneration to ESG factors ensures that company leaders are incentivized to manage environmental, societal, and governance risks effectively. This alignment can lead to better company performance and protect investors' interests.

Dulux is an example of a company that manages its environmental risks effectively. Its executive remuneration is partially based on ESG factors, which has contributed to its strong performance and attractiveness as an investment.

Investing in spin-offs like Dulux can be beneficial because they often have strong competitive advantages and unique assets. These factors can lead to reliable outperformance and long-term growth potential.

To invest in the InvestSMART Ethical Share Fund, you can register your interest on their website to be notified once the initial offer period opens. This will allow you to participate in the fund and benefit from its ESG-focused investment strategy.

A good candidate for the Ethical Share Fund is a company with strong competitive advantages, unique assets, and good management. These companies should also effectively manage ESG risks to ensure sustainable, long-term profitability.

Considering ESG risks is important for investors because these factors can significantly impact a company's performance and sustainability. By analyzing ESG risks, investors can make more informed decisions and potentially achieve better long-term returns.