Is a social awakening the legacy of 2020? Why your money decisions matter

A dandelion against a blurred, black/green backdrop.

The coronavirus pandemic has been a wake-up call in many aspects of life. Social injustice has come to the fore for one, including in supply chains and major companies, with people increasingly concerned about what impact their money is having on the planet. They are demanding more from banks, superannuation funds and insurance companies, and are aware of how companies handle their business around environmental, social and governance (ESG) concerns.

What is ESG?

The term ESG has been around for a long time. It refers to a set of standards that companies can use to screen potential investments around environmental, social and governance ideals.  In other words, what kind of impact on the environment does a particular investment have? Are there human rights concerns? Does a business have a good ethics policy?

Demanding more 

Public awareness of the need for responsible investing is growing, too. For example, the bushfire crisis and droughts have led Aussies to increase pressure on superannuation funds to move towards more ethical investments. That’s according to KPMG’s latest report Super Insights 2020.

On top of this, Federated Hermes report ‘ESG Investing: How Covid-19 accelerated the social awakening’ reveals how businesses who focus on these areas tend to perform better financially. In particular the report noted that on average companies with good or improving governance performed 24-basis points better each month on its share price than companies with bad or worsening governance. 

Perhaps even more notable than that figure though, was an increased focus on companies with improved social standards. This refers to factors such as human rights responsibilities and health and safety policies. According to Hermes, companies with a focus on this area performed an average of 17-basis points better than those with weaker social standards.

A head start

Of course there are already a number of Australian financial service providers investing in a better future for all. The B Corp certification is a good place to start when looking for a more socially responsible provider. Some of these include:

In a recent media release it was revealed that Australian Ethical just surpassed $5 billion in funds under management. The superannuation fund which has been around for 34 years, makes a point to choose investments that will have a positive impact.

Chief executive John McMurdo said that it was great to see so many in the finance industry now emulating Australian Ethical’s approach and launching sustainable or ESG products. He says, “Good does better, it’s better for your bottom line, and has a better impact for people, planet and animals.”

So, while 2020 may not have been the best of years, there’s a high chance that it was a turning point toward a more empathetic age, where people, the planet and animals are put before profit. 

To read more articles like this, head to our family finances hub. Here we cover everything from financial bucket lists to what Giving Tuesday is all about.