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Environmental, Social and Governance & Responsible Investment

ESG & Responsible Investment

Capital markets are moving towards a greater focus on ESG risks and opportunities in their portfolio and investment strategies.

Environmental, Social and Governance risks and opportunities and investment strategies.

There is growing awareness that the decisions made by the financial system has a significant impact on society and the environment as well as the economy.

Beneficiaries, governments and civil society are increasingly looking to investors to reflect long term issues in their investment decisions and invest for long term social and environmental whist still generating returns.

The global context in which these investment decisions are made continues to change with investors having to understand the exposure and investment impact of a broad range of issues like modern slavery, social license, social inequality, climate change and energy transition.

The process of integrating the financial and the wider environmental and social risks and opportunities into investment strategies can be described as Responsible Investment (RI) or more broadly, Environmental, Social and Governance (ESG) driven investment.

There is a growing number of factors that are moving capital markets towards a greater focus on ESG risks and opportunities in their portfolio and investment strategies, including:

  • The Australian Sustainable Finance Roadmap Initiative – the development of which will deliver policy, legislation, regulation and practices that align finance with delivering a sustainable and resilient economy.
  • The Task Force on Climate-related Financial Disclosures (TCFD) – there is a growing expectation that investors are able to understand and report the financial exposure to climate risk across their portfolios.
  • Impact Reporting – Asset owners and managers are beginning to report the environmental and social impact of their portfolios in line with the Sustainable Development Goals (SDGs).
  • The United Nations Principles for Responsible investment (UN PRI) Commitments – signatories need to report how the principles of responsible investment have been applied across portfolios.
  • Green and Social Bonds – significant growth in bonds that deliver positive carbon, energy or social impact.
  • Member demand – 9 in 10 (92%) Australians expect their superannuation or other investments to be invested responsibly and ethically and 4 in 5 Australians would consider switching their super or other investments to another provider if their current fund engaged in activities inconsistent with their values. Faith-based investors are increasingly aligning their investment and wider beliefs1.
  • Solid Responsible Investment performance – RI strategies allow outperformance over the longer term and increasingly ESG/RI funds perform as well or better than benchmarks.

How KPMG can help

KPMG can provide bespoke Responsible investing and ESG services to suit the needs of individual clients ranging from Policy and Strategy to Implementation and Monitoring. Our support typically covers the following areas:

  • Analysis of ESG processes and Investment principles and strategies 
  • Integrating of ESG and RI principles into investment strategies
  • Benchmarking organisational performance against competitors (using SDGs, TCFD, UN PRI) 
  • ESG investor advisory services
  • ESG assessment of investments in all asset classes 
  • Implementation of TCFD recommendations: gap analysis, risk identification and reporting
  • Investment impact measurement and reporting
  • Creation of an RI Report 
  • Assurance of green and social bonds
  • Assurance of ESG disclosures and RI and other industry assessments (e.g. PRI, GRESB)

 

1. RIAA 2017 Research: From Values to Riches, Charting consumer attitudes and demand for responsible investing in Australia (PDF 1.15MB)

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