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The bean counters should be shocked: the tree huggers have joined the ranks of the stock pickers. The trend to go green is gathering pace in the finance industry and may already have gone past the tipping point from "fad" to "material concern".
This month Goldman Sachs JBWere's
staff super fund became the first Australian corporate fund to sign the United Nations' responsible investment principles.
Launched last year, the UN principles commit signatories to include environmental, social and ethical issues - known as ESG - in their investment analysis and decision-making.
Several public sector and industry funds in Australia, including UniSuper, Hesta Super and Cbus are already signatories, along with their international peers.
The asset management team at Goldman Sachs JBWere have already signed on and the broking house has appointed Andrew Gray as its inaugural head of ESG research.
Gray previously headed his firm's quantitative research team and his new post makes him a pioneer among Australian market analysts.
He says the sheer number of funds who signed on to the UN principles was one of the big drivers pushing ESG research on to the mainstream agenda.
Added to that was the gathering consensus on climate change and the need to translate that into the language of equity markets.
"Awareness of this 12 months ago was close to zero," Gray says.
"Most participants are now aware of ESG and open-minded, but wanting to see the proof or the analysis of how it will impact on investment returns."
Responsible investment - once neatly coralled into the niche category "ethical investment" - had broken out and is ready for the next phase, "mainstreaming".
Such research finds fertile ground in Australia, where the nation's burgeoning super funds, worth around A$1.3 trillion ($1.57 trillion), have unloaded much of their coffers in local equity markets.
"ESG is particularly relevant for this market, given that some of these factors are longer-term in nature, and given we have number of super funds that are investing for the longer term," Gray says.
Gray and his colleagues have already produced research on corporate governance and workplace health and aim to work through all the ESG issues.
"As we roll out research and increasingly find correlations, we're becoming increasingly comfortable that there is a value link in the space," he says.
The Cbus fund, which handles A$13 billion in funds for construction workers, was one of the first local funds to sign the UN principles.
Chief executive Sandy Grant launched a broadside at the Federal Government earlier this year, saying its lack of leadership on emissions targets, carbon trading and water policy was creating uncertainty for investors.
Grant says ESG investment principles are no longer a fad confined to a few specialist "ethical" funds.
"We've spoken to all our fund managers, here and overseas, and asked them how they take environmental, social and governance factors into account in assessing risk," he says.
"We believe it is a major risk factor."
As an example of environmental risk, Grant pointed to how insurance firms were now facing the likelihood of more intense adverse weather events as result of climate change.
"Do people factor that sort of thing into their assessment of the relative merits of investing in insurance companies?
"All fund managers are going to have to take this into account to be successful, in attracting funds and in giving returns."
Industry players say Australia is lagging Europe on ESG issues, but is significantly ahead of Wall Street and the Asian markets.
Raj Thamotheram is director of responsible investment at AXA Investment Managers, a division in one of Europe's biggest funds.
Visiting Australia last month after a gap of several years, he noticed how far responsible investment had come on to the agenda.
Thamotheram says large corporate scandals during the past decade, such as the Enron and WorldCom failures, had sensitised the finance industry to be more active and engaged on governance.
He says the idea that sustainable investment principles are at odds with a fund manager's fiduciary duty is long past. "If a company is run simply to maximise its share price on a quarter-by-quarter basis ... sooner or later that company is going to destroy the golden egg.".
At AXA, Thamotheram's role is to help "mainstream" responsible investment practices out of the ghetto of specialist funds.
"You can't stock pick your way out of climate change," he say.
"The whole of the market has to shift to adapt to climate change."
- AAP
