ESG Investing: The Road to Carbon Neutrality is Paved in Gold

Dana Pjanic | Climate Change Fellow

After the shocking volatility of domestic economies and global markets in 2020, it seems that financial literacy and the ability to safeguard your money and assets are becoming increasingly valuable skills. But, Australian investors are not just looking for reliable returns and ‘sure thing’ investments; many want their portfolios to reflect their own social values and to support companies with a positive impact on society.


This can best be seen in the growing interest in Environmental, Social and Governance (ESG) investing, a form of investing which analyses stocks through the criteria of how they adhere to ethical and sustainable principles. Examples of ESG investing could include seeking companies with a focus on eliminating their carbon footprint, that prioritise the health and safety of their employees or commit to demographic diversity in their board of directors and management team. For those with an interest in averting climate disaster and contributing to emissions reduction, ESG investing presents an opportunity to do so while also making positive returns.


According to the ASX Investor Study of 2020, 12 per cent of investors consider ESG factors as a top three consideration when making investment decisions, with this figure growing to 19 per cent amongst younger ‘next generation’ investors. Furthermore, the interest in ESG investing is not just limited to Australia. Bloomberg Green reports that last year governments, corporations and other groups made $490 billion USD (A$632 billion) selling green, social and sustainability bonds.


Considering the global swing towards sustainable development and carbon neutrality, it is no surprise that ESG investing has seen this surge in public interest. President Biden has proposed his Clean Energy Revolution, a host of countries such as Japan, South Korea and the EU have committed to net-zero emissions by 2050 and China has made significant efforts to rebrand itself as a leader in climate technology and investment. In contrast, until recently the Australian Government was attempting to use ‘carryover credits’ from the former Kyoto Protocol to reach current Paris Agreement targets, essentially creating an accounting loophole to keep emissions as high as possible for as long as possible.


Though Prime Minister Scott Morrison has recently conceded that the nation should aim to reach net-zero “as soon as possible”, this sentiment is largely unaccompanied by any policy framework that could actually bring this goal to fruition. Current governmental climate action consists of incentive schemes such as the Climate Solutions Fund and the Technology Investment Roadmap, these two programs aim to support the transition to energy efficient measures for homes, businesses and communities and develop low emissions technologies. However, these programs have also been often criticised for their decentralised and voluntary approach, allowing businesses to decide autonomously how much they will reduce emissions and imposing no binding nationwide targets. To fulfil the pledges Australia has made under the Paris Agreement would require a complete overhaul of the current environmental strategy.


In light of the current mood for ESG investing and sustainable practices both at home and abroad, it is becoming increasingly unclear why the Australian Government continues to drag its feet in committing to decisive climate action. Old arguments about the necessity of coal and its ability too 'ensure that Australian industry [remains competitive] in a global market’ simply don’t ring true anymore when considering China’s unofficial ban on Australian coal, sending exports plummeting in 2020. This over-reliance on the fossil fuel industry ignores Australia’s strong advantages in its mineral resources, wind and solar energy generation, and the potential these industries have for future development. In fact, ClimateWorks, an independent advisory board within the Monash University Sustainable Development Institute, has found that the technical progress of the last five years has made it possible for carbon neutrality to be achieved in Australia in all sectors by 2050.


Though this achievement would require comprehensive policy action and the upscaling of all current government programs, the country already has a strong foundation in its natural resources and an increasing public understanding of the gravity of climate change. The Climate Solutions Fund and the Technology Investment Roadmap, though inefficient and haphazard as they are, could be expanded into cohesive and strategic government programs with the potential to lay the groundwork for a transformation in the energy, agricultural and transport sectors, and in the Australian economy in general. Better yet, it would contribute to the groundswell of ESG investing by promoting companies with a dedication to climate consciousness, increasing the likelihood that these investments will continue to stay profitable. It is evident that the general public has already begun to invest in a sustainable climate-neutral future, and that now they are just waiting on their government to do the same.


Dana Pjanic is the Climate Change Fellow for Young Australians in International Affairs.