Victoria Maclean

The common belief that ESG investing’s popularity is being driven by younger generations including millennials and generation Z is a misconception, according to an ESG investing specialist.

The hunger for more sustainable ESG-style investments is well and truly mainstream, according to Victoria Maclean, Associate Fund Manager for the Pengana WHEB Sustainable Impact Fund. “The demographics on ESG investing are often misunderstood. In contrast to common perceptions, much of the demand for ESG is being driven by older generations who are increasingly concerned about where they are investing their money.

“There has been a big shift in recent years with investors across all age groups driving the ESG push, not just younger people.”

A Responsible Investment Association Australia (RIAA) consumer report from 2021 showed 86 per cent of Australians expect their super and other investments to be invested responsibly and ethically.

The report also showed 62 per cent of respondents believe ethical/responsible super funds outperform over the long term, compared with just 29 per cent of respondents believing this in 2017. “Investors now demand portfolios that help drive positive change in the world around them, or at the very least avoid making things worse.”

More financial advisors, who largely serve an older demographic, are also seeing interest in ESG: a recent report by Australian Ethical and Investment Trends revealed almost half of all financial advisors are now providing ESG advice – a big increase from 2016, when only one in five advisors were covering ESG. The report also found 68% of advisors agree that it’s their responsibility to ensure clients’ investments align with their values.

Ms Maclean referred to the Edelman 2022 Trust Barometer, which found that among the key worries people have, 75% of people are worried about climate change, second only to losing one’s job. “Concerns over climate change have increased and are not confined to the younger generations.

“The move towards ESG reflects a distinct change in investor behaviour, and just as consumers switched to fairly-traded chocolate and free-range eggs in the 1990s and 2000s, investors want to back sustainable solutions.

“Investors want to create deep structural changes in the global economy. They want to avoid environmentally destructive technologies, which are bound to become stranded assets, and they see an opportunity to invest in more sustainable technologies.”

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“The case for sustainable solutions such as wind and solar has only strengthened in the long term, even if short-term performance has not been able to keep up with hard running energy stocks.

“The Ukraine conflict has contributed to this huge spike in energy price rises, but it might also be seen as a catalyst to accelerate the shift towards sustainable, renewable energy sources.

“Europe is already speeding up its decarbonisation programs, and renewables capacity. There are some well-acknowledged headwinds regarding red tape, particularly in issuing permits for renewables. But it’s widely accepted that Europe needs to speed up its adoption of renewables to meet emissions targets.”

Ms Maclean said sustainability must be more than a ‘box ticking’ exercise. “For Pengana, WHEB and our investors, sustainability is about creating deep structural changes in the global economy that are already driving asset prices.

“Investors are driving the ESG push, just as consumers switched to fairly-traded chocolate and free-range eggs in the 1990s and 2000s. Investors now demand portfolios that help drive positive change in the world around them, or at the very least avoid making things worse.”

The push toward ESG investments has increased dramatically since 2020, and since this time the Pengana WHEB Sustainable Impact Fund has seen funds under management grow over five-fold from A$49m to A$269m.

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