ESG factors are becoming increasingly dominant in investment decisions
\nA variety of Aussie funds use one or more ESG strategies in their investment process
\nVulcan Energy lauded for plans to supply \u2018ethically-sourced\u2019 lithium to the electric vehicle industry<\/p>\n
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Climate change risk, energy markets in turmoil, inflation, and the road to net zero continue to shape the ESG landscape and responsible investment, as evidenced this month at COP28. <\/strong><\/p>\n While the 28th United Nations climate change conference was perhaps more controversial than ever given it was held in the UAE \u2013 one of the world\u2019s largest oil producing countries \u2013 it came at a crucial time for the target to limit global temperature rises to 1.5C.<\/p>\n Progress and advancements were made, including 50 of the biggest oil and gas companies committing to reaching net-zero methane emissions by 2030, as well as net zero carbon emissions in their energy use and production by 2050.<\/p>\n These same 50 companies, accounting for 40% of global oil production, also committed to ending flaring \u2013 a practice where oil wells burn off accumulated methane rather than capturing it due to regulations and safety concerns \u2013 by 2030.<\/p>\n To facilitate this, the World Bank announced the creation of a US$250m trust fund<\/a> to help companies avoid the practice and the conference closed with an agreement signalling the \u201cbeginning of the end\u201d of the fossil fuel era.<\/p>\n This movement towards \u2018responsible investing\u2019, a process that acknowledges Environmental, Social, and Governance (ESG) factors in investment decisions, is also taking place on our own shores with the Responsible Investment Benchmark Report <\/em>valuing Australia\u2019s responsible investment market at $1.3tn in 2022, or 36% of the market.<\/p>\n And while this reflects a 16% drop in numbers from the previous year, the report goes on to say Australia\u2019s responsible investment market still reached a new milestone.<\/p>\n A record 272 professional investment managers in the country are now engaged in responsible investment amounting to $3.3tn, or 93% of all professionally managed assets in Australia.<\/p>\n The number of fund managers that met the Responsible Investing Association of Australasia (RIAA\u2019s) responsible investment threshold also rose, increasing from 74 in 2021 to 77 in 2022, showing an overall strengthening of approaches to responsible investment by more market participants.<\/p>\n \u00a0<\/p>\n In a nutshell, ESG investing is a broad term which can refer to different ways of incorporating environmental, social and governance issues into the investment process.<\/p>\n As Emilie O\u2019Neill, co-head of ESG at Perennial Partners puts it, the expression can include engagement with companies on material ESG risks and opportunities, and\/or financial analysis of ESG into the price target, as well as financial modelling of an investment opportunity.<\/p>\n \u201cIt can also extend to investing in companies set to benefit from environmental or social themes,\u201d she says.<\/p>\n \u201cTypically, the types of ESG investing are broken down into the following areas \u2013 positive screening, negative screening, portfolio tilt, ESG integration, stewardship, activist and sustainable themes like renewable energy, low carbon technology, and water management, just to name a few.\u201d<\/p>\n \u00a0<\/p>\n For investors looking to play the space, O\u2019Neill says there\u2019s a variety of funds on the Australian market that use one or more ESG strategies in their investment process.<\/p>\n Some examples include the Vanguard Ethically Conscious International Shares Index ETF (ASX:VESG)<\/a>, and BetaShares Global Sustainability Leaders ETF (ASX:ETHI)<\/a>.<\/p>\n There\u2019s also the Perennial Better Future portfolio under the code \u2018ASX:IMPQ\u2019 which O\u2019Neill says targets companies with operations in healthcare, education, renewable energy, low carbon technology, water management, environmental services and improving social welfare.<\/p>\n \u201cThese are the sectors that we believe will benefit from sustainability headwinds particularly evident in global climate policy, with the greatest impact on sustainable industries stemming from government initiatives,\u201d she says.<\/p>\n \u201cAdditionally, healthcare stocks are a critical component of our ESG-focused portfolio.<\/p>\n \u201cThese stocks, many of which have global reach, have the potential to generate attractive returns while shaping a better healthcare outcome for patients \u2013 a critical ingredient in making a positive contribution to society.\u201d<\/p>\n \u00a0<\/strong><\/p>\n Founded in 1986 and listed in 2002, Australian Ethical Investment (ASX:AEF)<\/a> \u00a0is currently the only pure play stock offering exposure to ESG.<\/p>\n The company\u2019s investment approach is heavily weighted towards Australian small caps with a focus on the healthcare and technology sectors.<\/p>\n In a previous interview with Stockhead, <\/em>AEF chair Steve Gibbs labelled gambling, fossil fuels, and the bulk of the mining sector as areas it did not invest in, though admitted to the interpretation being flexible enough to change slightly over time.<\/p>\n For example, the fund has exposure to lithium, given its importance in the construction of storage batteries, via investments in Allkem (ASX:AKE)<\/a>, IGO (ASX:IGO)<\/a> and Pilbara Minerals (ASX:PLS)<\/a>.<\/p>\n \u00a0<\/p>\n Seneca Financial Solutions is an Australian boutique investment and private wealth advisory company.<\/p>\n As the trusted financial advisor to some of Australia\u2019s most successful families, professionals, and business owners, Seneca is very selective in what it does.<\/p>\n When it comes to ESG investing on the ASX, Seneca CEO Luke Laretive tells Stockhead <\/em>the ETFs and managed funds operating with an \u2018ESG\u2019 designation of some sort tend to focus on \u2018harm avoidance\u2019, which is a negative screen.<\/p>\n \u201cBut there are a few companies listed on the ASX that are working positively to progress towards carbon neutrality or address equality and diverse representation,\u201d he says.<\/p>\n \u201cAnd a small subset of those few are viable investments from which we could reasonably expect to generate positive financial returns.<\/p>\n \u201cOne of those unique companies is Vulcan Energy Resources (ASX: VUL)<\/a> which is constructing a carbon-neutral lithium project in Germany.<\/p>\n \u201cOnce in production in 2026, VUL will supply ethically-sourced lithium to the electric vehicle industry and further assist in decarbonising the transport industry.\u201d<\/p>\n Unlike other miners trying to set up critical mineral projects in Europe, Vulcan has faced no pushback in Germany where its Zero Carbon Lithium projects seeks to provide an answer to where sustainable production of critical minerals will come from in the future.<\/p>\n Last week, the Landau City Council formally approved the construction of the geothermal renewable energy and lithium extraction plant (G-LEP) and, following satisfaction of conditions, the right to acquire the land which is within the planned Landau commercial park \u201cAm Messegel\u00e4nde S\u00fcdost\u201d.<\/p>\n This demonstrates the strong support by the City of Landau, given the project\u2019s local social and environmental benefits which include producing renewable heat and power as well as enough lithium hydroxide for ~500,000 battery electric vehicles each year.<\/p>\n \u00a0<\/p>\n \u00a0<\/p>\n\n \ufeff<\/span><\/span><\/span>At Stockhead<\/em> we tell it like it is. While Vulcan Energy Resources are a Stockhead<\/em> client, it did not sponsor this article. The post Navigating ESG, easy as 1-2-3: How to live and prosper in the resources industry<\/a> appeared first on Stockhead<\/a>.<\/p>","protected":false},"excerpt":{"rendered":"What is ESG investing?<\/strong><\/h2>\n
How to play the ESG game on the ASX <\/strong><\/h2>\n
There\u2019s only one pure play ESG stock<\/strong><\/h2>\n
Seneca\u2019s renewable energy stock pick<\/strong><\/h2>\n
Vulcan Energy Resources share price today:<\/h2>\n
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