Sustainability is becoming a ubiquitous term amongst every sector, with every organisation, no matter how large and small, making moves to ensure their business is helping the planet, not hindering it.
In Australia, 90 per cent of consumers know what sustainability is and 61 per cent say the sustainable actions of a brand impact whether or not consumers shop with that brand. Furthermore, in another study 9 out of 10 Australian consumers will only buy sustainable products.
While sustainable brands sway over everyday consumer purchase decisions, innovations in sustainability have garnered the attention of investors, eager to keep track of global trends just beyond the horizon.
Whether they’ve become noticeable through investor presentations, news headlines, or through political campaigning, it can’t be denied how quickly environmental sustainability has become a focus among everyday consumers.
Welcome to ‘sustainable investing’
Sustainable investing is about investors making conscious choices in who they give their money to. For example, someone could choose to make more conscious investments in companies and funds with clearly-outlined Environmental, Social, and Governance (ESG) goals.
Incorporating these ESG decisions into their value propositions allows companies across varying industries to align themselves to the pressing global concern of decarbonisation — of which many net zero-related targets are set between 2025 to 2050.
Beyond the moral and socially-responsible impacts associated with sustainable investment choices, investors will of course keep an objective preference to ensure healthy financial returns for their portfolios.
This common drive to seek value creation is arguably among the biggest challenges that have stalled the earlier uptake and popularity of ESG-focused investment choices. But with pivots toward greener options made even by dyed-in-the-wool resources and energy companies like Fortescue Metals and Rio Tinto, it’s clear to see the time has come for greater adoption of green energies to halt the drastic decline in global environmental health.
Top sustainable investing strategies
In the same way that investors look to emerging trends to find long-term value creation opportunities in the market, more global companies have dialled into the purchasing influences of the now-majority millennial workforce, and its preference for high-quality ESG practices. Beyond keeping aligned with these preferences through your assessment of viable companies that keep recognisable ESG efforts, a look at the wider industrial landscape will present a number of still-developing trends.
A number of these trends will present as major overhauls within otherwise entrenched industries, such as automotive production and electric vehicles (EV). This industrial shift alone drives plenty of investors away from fossil-fuel related investments, towards materials that support the emerging EV market.
Similarly, other efforts to decarbonise will see large investments made to develop a green hydrogen market, as a more sustainable and environmentally-friendly source of fuel.
Companies to watch in 2022
Peak iron ore spot prices during the first half of 2021 provide Fortescue Metals with a solid financial position to continue building upon its Future Industries division. Among initiatives associated with this new division includes the company’s efforts to enable its sustainability financing framework, which supports eligible green and social projects.
Australian Ethical offers another leading example for ESG-focused investors to consider, especially with their proactive support of companies such as Sentient Impact Group. Among its recent asset acquisitions, Sentient uses impact investing as a medium through which the group seeks to generate strong financial investment returns, as well as create positive social and environmental results within Australia, and globally.
Identifying risks and opportunities for sustainable investing
It takes significant effort and investment to achieve lasting, sustainable change. Maintaining a healthy balance sheet with positive cash holdings, low net debt and manageable capital expenditure places companies in good stead to achieve such long-term change, and deliver continued growth. Taking time to understand which companies are sustainable and have commendable ESG efforts, can also help you become a top sustainable investor.
Ultimately, while the opportunities are exciting, it’s important to take the time to research deeper and identify which companies are truly sustainable and worth investing in, and which are ‘greenwashing.’
Michael Kodari, CEO of KOSEC – Kodari Securities
Michael Kodari is the Founder and CEO of Kodari Securities (KOSEC), a leading provider of investment services to a substantial and diversified client base, including corporations and ultra-high net worth individuals. With over a decade of experience in funds management and stockbroking, Michael has worked with some of the world’s leading value investors and financial institutions. A philanthropist and a prominent expert in the stock market, CNBC Asia has referred to him as “the brightest 21st century entrepreneur in wealth management”.
KOSEC – Kodari Securities is a leading provider of investment services to a substantial and diversified client base, including corporations and ultra-high net worth individuals. Established in 2010, KOSEC exists to empower and equip investors with the best investment opportunities, knowledge, tools and resources, as well as providing the highest level of product/service offering to help them make better and more informed investment decisions.
Find out more at kosec.com.au