ESG is ‘bare minimum’ in the RI world

Ahead of the ESG Summit 2023 (hosted by ifa’s sister brand, InvestorDaily), Ethinvest financial adviser Justin Medcalf said there is scepticism about how effective environmental, social, and governance (ESG) investment is as a risk management framework.

“The industry has adopted ESG as a bit of a catch-all to include everything that traditionally was within the responsible investment staple,” he told ifa.

“I think it’s natural for advisers to start there because it makes sense to integrate ESG in funds purely from a risk mitigation perspective. It’s about de-risking a portfolio and trying to avoid any financial impacts of those risks.”

Mr Medcalf’s comments preceded his session at the InvestorDaily ESG Summit 2023, where he will outline key strategies to implement ESG advice and how he rolls out his ESG focus and shapes conversations with clients.

Evidence has shown that considering ESG risks has financial outcomes for alpha generation in a portfolio, Mr Medcalf said.

“But most of our clients question whether ESG is enough,” he said.

Advisers need to move further and consider whether investments will have a measurable, deliberate, and positive impact, Mr Medcalf asserted.

“We see ESG investments that negatively or positively screen certain industries as a bare minimum. When we illustrate the different types of responsible investment (RI) methodologies and its scope for positive impacts, ESG is considered a very light touch.

“We need to be actively investing in industries that will help us decarbonise our economy and meet our net zero goals. Unfortunately, ESG alone is not going to help us do that.”

It is not easy, however, to find investments in a listed environment that have a positive impact as most of the funds that label themselves as impact investments in private markets are available only to wholesale investors, Mr Medcalf pointed out.

“We see that as an exciting area. We would be very surprised if there weren’t more retail offerings available in the market in the next couple of years,” he said.

Mr Medcalf said his focus is on positively screened funds that are actively seeking to have a positive environmental or social impact, and thematic investing in specific sectors such as battery technology.

“A lot of our clients are actively seeking impact investing,” he said.

“More clients are looking for a real tangible impact in their investments, which is exciting.”

Mr Medcalf encouraged new ESG advisers to seek support from experienced advisers because navigating this field alone could be overwhelming.

“It can be a bit of a minefield. Quite often, advisers say it’s all too hard and they’ll just throw clients into funds that say they are ethical or sustainable,” he said.

“This shortcut approach is not sufficient. You’re not meeting your clients’ needs by doing that. I can understand advisers might do it because they lack support. So, try to look for other like-minded advisers.”

Joining the Responsible Investment Association Australasia (RIAA) and the Ethical Advisers’ Co-op could help advisers form networks and “learn as you go”, he concluded.

Join us at the ESG Summit in Sydney to hear how Justin Medcalf made the internal shift and implemented ESG advice into his business offerings.

It will be held on 23 March at Aerial UTS Function Centre, Sydney, and 29 March at Grand Hyatt, Melbourne.

Click here to buy your tickets don’t miss out! There are only a few tickets remaining.

For more information, including agenda and speakers, click here.