Environmental, social and governance (ESG) factors strongly influence investment decisions, with almost half (43%) of Australian investors saying they choose funds or companies based on these principles, according to the latest annual Legg Mason Global Investment Survey.
Reflecting growing investor awareness of ESG, 55% of respondents said they avoid businesses with controversial track records, and 88% of investors believe that fund managers should actively “police” companies they invest in to ensure they act responsibly. And almost half (45%) say they will increase ESG investments over the next five years.
But the survey, involving 16,810 investors from 17 markets (including 1000 Australians), also found that investors believe there remain significant barriers to investing ethically.
Australian Managing Director Legg Mason, Andy Sowerby, says the research highlights that a lack of information, understanding or advice is the main barrier to investing more into ESG, with more than half (56%) of Australian investors citing these reasons.
“This is notably higher for Millennials (67%) versus Baby Boomers (48%) and advised investors (61%) versus DIY investors (36%). It is also more likely for those in Asia (62%) or in the Americas (62%), rather than Europe (53%).”
Other impediments to ESG investment are: higher fees, expectation of poorer investment returns, concern that ESG is just a short-term trend, the limited number of investment options and the sentiment that it’s not an important consideration.
Mr Sowerby says ESG investment is rightly growing in prominence, driven not just by investors’ consciences but also by compelling data showing that companies that are well run and focus on ESG behaviours also tend to be those that are the most profitable and sustainable long-term performers. The measure for ESG excellence is far wider than just environmental responsibility.
“In addition, when we asked Australian investors which ESG factors they considered to be the most important, environmental considerations were cited as the most important (30%), with social factors at 19% and governance by 27%, while 24% said the three factors are equally important.
“Companies need to take note of the greater scrutiny placed on them by consumers and investors. For instance, investors are most likely to avoid businesses with a controversial track record (55%), to buy from businesses with a good social responsibility record (49%) and to buy from local businesses rather than those that transport over long distances (56%).”
The study uncovered some interesting intergenerational trends. “For Millennials, responsible investing is more important, as they claim to practice sustainable behaviours more broadly and more often than those who are older, particularly investing in sustainable funds rather than those that don’t consider sustainability factors (70% versus 21% for Baby Boomers).
“They are equally likely as Baby Boomers to feel fund managers should consider a company’s effect on their local community (28% versus 24%) but more likely to feel they should consider diversity of workforce (35% versus 16%).”
Mr Sowerby says the results also reflect a view that ESG investing is an exclusionary approach.
“We don’t see it that way. An integrated approach to ESG allows investors to understand the risks and opportunities presented by ESG factors and ensures a holistic view to help identify the best companies to invest in for long term returns.”
For a full copy of the survey report, please visit: https://www.leggmason.com/global/campaigns/gis-2018.html
The Legg Mason Global Investment Survey has been taking the pulse of investors worldwide for the past six years.
Legg Mason Global Asset Management commissioned Research Plus Ltd to conduct an independent online survey of 16,810 investors in 17 countries worldwide, between 26th July to 24th August 2018.
1,000 investors (aged 18+) were surveyed in each country, except Belgium (n=810); the research defined ‘investors’ as people who will be investing at least €10,000 (or the local equivalent; $50,000 in USA) in the next 12 months and who have made changes to their investments within the last 5 years; these individuals represent the views of investors in each country included in the survey.
About Legg Mason
Guided by a mission of Investing to Improve LivesTM, Legg Mason helps investors globally achieve better financial outcomes by expanding choice across investment strategies, vehicles and investor access through independent investment managers with diverse expertise in equity, fixed income, alternative and liquidity investments. Legg Mason’s assets under management are AUD$1 trillion as at 31 December 2018.
Legg Mason provides centralised business and distribution support for its nine affiliated fund managers that include: Brandywine Global, Clarion Partners, ClearBridge, EntrustPermal, Martin Currie, RARE Infrastructure, Royce & Associates, QS Investors and Western Asset. Each affiliate operates independently under its own brand and investment process and is considered an industry expert in its asset class.
- Legg Mason’s Australian business was established in 1954
- Assets Under Management (AUM) in Australia are AUD$55 billion as at 30 September 2018 (Source: Rainmaker Data. Consists of AUM managed in Australia for Australian and offshore investors and AUM managed offshore for Australian investors)
- Legg Mason Australia was awarded the Money Management/Lonsec Fund Manager of the Year in 2015, 2017 and 2018.
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Disclaimer: The information in this document is of a general nature only and is not intended to be, and is not, a complete or definitive statement of matters described in it. It has not been prepared to take into account the investment objectives, financial objectives or particular needs of any particular person. Legg Mason Asset Management Australia Ltd (ABN 76 004 835 849 AFSL 240827)(“Legg Mason Australia”) is part of the Global Legg Mason Inc. group. Legg Mason Australia does not guarantee any rate of return or the return of capital invested. Past performance is not necessarily indicative of future performance. Investments are subject to risks, including, but not limited to, possible delays in payments and loss of income or capital invested. These opinions are subject to change without notice and do not constitute investment advice or recommendations.