Investors’ approach to ESG

4 min read
4 min read

In the midst of the COVID-19 pandemic, bfinance conducted an Asset Owner Survey to ascertain how investors’ priorities and practices are changing when it comes to ESG investing, sustainability and impact.

The survey responses were received from 256 global investors, the majority being pension funds, with combined assets of approximately US$7 trillion. This included responses from 28 Australian investors, over half of whom were superannuation funds, as well as some insurance companies and endowment trusts.

The results found the global health pandemic has accelerated the focus on environmental, governance and social (ESG) issues with 96 per cent of Australian investors now placing a high or moderate importance of ESG into their investment strategy.

In fact, over 45 per cent of Australian investors in bfinance’s study said the pandemic had affected their investment team’s focus on ESG issues. ESG criteria now also plays a crucial role in selecting external asset managers in Australia.

When assessing global data, Australian investors’ approaches to ESG was consistent with global peers. For example, the survey revealed that 50 per cent of Australian investors are now assessing carbon emissions in their portfolio, compared to 46 per cent of global investors in the survey.

Investors are also now starting to actively move on industry imperatives such as the UN Sustainable Development Goals (SDG) which was launched five years ago. While take up of these goals was slow across the globe, Australian investors now only trail by 3 per cent compared to the overall survey results. In the last three years, 25 per cent of Australian respondents have started or are in the midst of mapping their portfolio against the UN SDGs compared to 28 per cent of global investors.

Importantly, the bfinance survey revealed a shift in the way investors are now engaging with ESG. Rather than seeing environment and governance issues as an opportunity, investors are adopting an active engagement approach with ESG now defined by outcomes. A rise in the UN SDG reporting is an example of this increased focus on impact. Investors are also now assessing the carbon emission footprint of their portfolio, proving that investors are now wanting to both manage and reduce their carbon impacts. The focus is no longer integration but impact.

Fixed income and hedge funds lag

From an asset class perspective, the majority of Australian investors have integrated ESG across all asset classes for over the last three years. Fixed income, however, falls short at 48 per cent.

Hedge funds ranked the worst in terms of ESG integration for Australian investors. When asked if they would be unlikely to hire an external manager who did not meet certain ESG requirements, 60 per cent of investors reported none of the listed issues would affect their decision.

Real assets such as infrastructure and real estate have the highest ESG integration, which is not surprising given that these assets include ESG elements such as renewable energy. Australian investors also tend to have a higher weighting to real estate assets than their global peers. Ultimately, the majority of respondents agree ESG integration will be associated with outperformance over the next three years across all asset classes except for hedge funds.

Moving ahead

Reporting on ESG issues remains a key challenge, with 35 per cent of Australian investors struggling to get consistent ESG reporting from asset managers across all asset classes. Globally, this challenge is more pronounced with 55 per cent of investors identifying it as a major problem.

The current regulatory framework could make reporting and therefore active engagement on ESG more challenging for investors. Currently there is a fragmented approach. Europe is leading the way with its Taxonomy framework that includes climate targets. The US is following, with the newly installed Biden Administration recognising climate risk is indeed a reality and has already re-signed up to the Paris Agreement.

Closer to home, Australian Prime Minister Scott Morrison has recently changed his rhetoric towards climate change. While the states and territories had already moved on net zero emission targets for 2050, it was only February this year the PM succumbed to pledging he is hoping to achieve net zero carbon emissions by 2050. While not committing to achieving the goal by 2050, but rather “as soon as possible”, it provides critics with optimism that the Government is finally taking meaningful steps to address climate change. This undoubtedly will help align the interests of Government and the Private sector in promoting policy engagement in ESG, at least from an environmental perspective.

With ESG now a priority for both Australian and global investors, the time is now to act sustainably.

Picture of By Daniele Goldberg

By Daniele Goldberg

Client consultant at bfinance

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Carmen Beverley-Smith

Executive Director - Superannuation, Life & Private Health Insurance, APRA

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Carmen joined APRA in March 2023 and holds the role of Executive Director, Life and Private Health Insurance and Superannuation.  

She has had an esteemed career in financial services, spanning over 25 years. She has held diverse leadership roles at Westpac and Commonwealth Bank of Australia, including across risk, transformation and change, product and portfolio development, and sales and service. 

Prior to joining APRA, she held the role of General Manager, Risk Transformation Delivery Integration at Westpac. This involved leading the group-wide implementation of a suite of solutions to uplift risk management capability and develop data, analytics and reporting. 

Carmen leads with a values-driven approach and a particular interest in developing and mentoring talent. 

She holds a Bachelor of Commerce and Accounting, is a certified Chartered Accountant and a Graduate of the Australian Institute of Company Directors. 

Amy C. Edmondson

Novartis Professor of Leadership and Management, Harvard Business School

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Keynote 8 – Navigating the energy transition: opportunities, investor strategies and policy needs

Amy C. Edmondson is the Novartis Professor of Leadership and Management at the Harvard Business School, a chair established to support the study of human interactions that lead to the creation of successful enterprises that contribute to the betterment of society.

Edmondson has been recognized by the biannual Thinkers50 global ranking of management thinkers since 2011, and most recently was ranked #1 in 2021 and 2023; she also received that organization’s Breakthrough Idea Award in 2019, and Talent Award in 2017.  She studies teaming, psychological safety, and organisational learning, and her articles have been published in numerous academic and management outlets, including Administrative Science Quarterly, Academy of Management Journal, Harvard Business Review and California Management Review. Her 2019 book, The Fearless Organization: Creating Psychological Safety in the Workplace for Learning, Innovation and Growth (Wiley), has been translated into 15 languages. Her prior books – Teaming: How organizations learn, innovate and compete in the knowledge economy (Jossey-Bass, 2012), Teaming to Innovate (Jossey-Bass, 2013) and Extreme Teaming (Emerald, 2017) – explore teamwork in dynamic organisational environments. In Building the future: Big teaming for audacious innovation (Berrett-Koehler, 2016), she examines the challenges and opportunities of teaming across industries to build smart cities. 

Edmondson’s latest book, Right Kind of Wrong (Atria), builds on her prior work on psychological safety and teaming to provide a framework for thinking about, discussing, and practicing the science of failing well. First published in the US and the UK in September, 2023, the book is due to be translated into 24 additional languages, and was selected for the Financial Times and Schroders Best Business Book of the Year award.

Before her academic career, she was Director of Research at Pecos River Learning Centers, where she worked on transformational change in large companies. In the early 1980s, she worked as Chief Engineer for architect/inventor Buckminster Fuller, and her book A Fuller Explanation: The Synergetic Geometry of R. Buckminster Fuller (Birkauser Boston, 1987) clarifies Fuller’s mathematical contributions for a non-technical audience. Edmondson received her PhD in organisational behavior, AM in psychology, and AB in engineering and design from Harvard University.

 

Daniel Mulino MP

Assistant Treasurer and Minister for Financial Services

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Born in Brindisi, Italy, Daniel was a young child when he moved with his family to Australia. He grew up in Canberra and completed his first degrees – arts and law – at the ANU. He then completed a Master of Economics (University of Sydney) and a PhD in economics from Yale.

He lectured at Monash University, was an economic adviser in the Gillard government and was a Victorian MP from 2014 to 2018. As Parliamentary Secretary to the Treasurer of Victoria, Daniel helped deliver major infrastructure projects and developed innovative financing structures for community projects.

In 2018 he was preselected for the new federal seat of Fraser and became its first MP at the 2019 election, re-elected in 2022 and 2025. From 2022 to 2025, Daniel was chair of the House of Representatives’ Standing Economics Committee in which he chaired inquiries; economic dynamism, competition and business formation and insurers’ responses to 2022 major floods claims.

In 2025, he became the Assistant Treasurer and Minister for Financial Services.

In August 2022, Daniel published ‘Safety Net: The Future of Welfare in Australia’, which aims to explore the ways in which an insurance approach can improve the effectiveness of government service delivery.