%20Cutting%20through%20the%20ESG%20backlash%20noise%20-%20header%20image.avif)
1. Why are some people criticising ESG?
ESG as an acronym is often misunderstood. There are many ways that environmental, social and governance factors are considered by companies and investors, but at its heart, ESG integration is a risk-management tool which is now mainstream. Almost all investment managers (81% in Australia, 87% in New Zealand) already implement ESG integration within their investment strategies and for their clients this is ‘table stakes’.
Institutional investors managing peoples’ money have a fiduciary duty to consider long-terms risks, such as that posed by climate change and biodiversity loss, which can materially impact financial performance. Likewise, a diverse employee base has been proved to improve decision-making. It’s also good for large companies to look at opportunities that the rapid global energy transition will bring and opportunities to help assets, companies and economies adapt. ESG isn’t about restricting investments but ensuring risks and opportunities are properly assessed – it is good business and good economic management.
2. Is the ESG backlash a real risk for investors, or just political noise?
The recent criticism of ESG, particularly in some markets, reflects broader political debates rather than a fundamental shift in investment priorities. The reality is that ESG considerations remain mainstream. Investors, regulators and businesses are focused on managing risks related to things like climate change, supply chains and workforce diversity, as these directly affect financial performance. As mentioned in our Part 1 Q&A blog, recent Morningstar data shows global sustainable fund assets have reached an all-time high.
While some may be criticising ESG, many markets are continuing to implement rules related to how companies manage sustainability issues. For example, many jurisdictions (including Australia and New Zealand) have developed, or are developing, definitions of economic activities and assets that contribute to key sustainability objectives. These “sustainable finance taxonomies” can help investors understand when an activity can be considered sustainable, and hence channel investment towards more sustainable practices. In addition, Australia and New Zealand have introduced mandatory climate-related financial disclosures for large companies.
Professional investors remain focused on underlying trends that affect portfolios, such as the energy transition and demographic changes.
3. Are ‘sustainable’, ‘green’, ‘ethical’ labelled funds just marketing gimmicks, or examples of greenwashing?
Recent controversies in relation to greenwashing have meant that consumers are more sceptical of claims being made by the finance sector. 78% of Australians are concerned about greenwashing and 79% say they would be more likely to invest in an investment option that has been verified by a third party.
This highlights the importance of transparency in financial product labelling and marketing. Terms like “sustainable”, “ethical” and “socially conscious” mean different things to different people and are used differently by financial product providers like superannuation funds and investment management firms. The good news is that the growing demand for responsible investment options is pushing financial institutions to be more transparent and to improve their responsible investment practices.
RIAA’s Responsible Investment Certification Program and Responsible Returns website helps everyday Australians and Kiwis find independently certified ethical, sustainable and responsible banking, superannuation, KiwiSaver and investment options that have been through RIAA’s rigorous certification process. It is the leading initiative for distinguishing true-to-label responsible investment products for people who want to match their investments with their values. In addition, the Australian Government is planning to introduce rules around financial product labelling. These initiatives, in conjunction with disclosures (which are now mandatory in Australia and New Zealand) are an effective way to reduce instances of greenwashing.
4. Isn’t ESG just too confusing and resource-intensive?
Risk analysis is complex but there are strong and converging standards of approaches to responsible investment around the world, increasingly being backed up by regulators. A good example of this is the International Sustainability Standards Board (ISSB) that brought together clear global baseline on sustainability and ESG disclosures. RIAA has long advocated for stronger, clearer, more consistent disclosure standards.
Global definitions, taxonomies and frameworks for climate disclosures and nature-related financial disclosures have helped to create common understanding and common disclosure requirements for companies.
Each fund manager will take ESG information and assess it in their own way, with their own view of what is important in the context of the fund / strategy they are responsible for, in the same way investors always have based on financial data and governance data. Companies are improving how they make their own case for why some ESG issues are more or less important than others to their business and bottom line.
5. Can ESG really solve global challenges?
Integrating ESG factors into investment decisions is good risk management, but does not necessarily lead to positive outcomes for the environment or society. Assessing climate risk for one portfolio or asset is not the same as addressing climate change at a global or systems level.
But responsible investment strategies such as engaging with companies to strengthen their net zero strategy, investing in technologies that drive the transition, or supporting impact investment in areas like accessible housing, can contribute to solutions while achieving a financial return.
Investors are also increasingly looking at how they can influence systemic change in support of better financial returns, through stewardship practices that increasingly include not just engagement and voting, but also cross-industry collaborations and policy advocacy.
Investors alone will not solve global challenges. Shifting capital to more sustainable practices needs to be part of a solution, but action is required on many levels. This includes good policy, sensible regulation and the phasing out of harmful products and practices.
Coming up, we will have more Q&As to debunk common misconceptions about ESG and responsible investing.
<hr>
<small>Disclaimer: The above content is provided by Responsible Investment Association Australasia (ACN 641 046 666, AFSL 554110) for information purposes and is not an offer to buy or sell a financial product, and is not warranted to be correct, complete or accurate. For more information refer to our Financial Services Guide on the RIAA website. Any general advice has been provided without reference to your investment objectives, financial situation or needs. If the advice relates to the acquisition of a particular financial product for which an offer document (such as a product disclosure document) is available, you should obtain the offer document relating to the particular financial product and consider it before making any decision whether to acquire the product. Past performance does not necessarily indicate a financial products’ future performance. To obtain information tailored to your situation, contact a financial adviser.
Want to explore these topics further? Join us at the RIAA Conference, where leading local and global experts will unpack these issues and discuss the future on ESG. For more information.
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About the contributors
About the speakers
Estelle Parker
Co-CEO
-
RIAA
With a distinguished 20-year career at the Department of Foreign Affairs and Trade, Estelle Parker brings crucial expertise in government relations, policy-making, and themes important to responsible investors, including human rights and the SDGs. As a leader driving RIAA’s research, certification, policy, standards, and working group programs, her leadership has elevated these initiatives to achieve heightened levels of professionalism, impact, and value delivery for our members, aligning seamlessly with RIAA’s strategic objectives.
Beyond her organisational impact, Estelle is a respected figure in the responsible investment landscape, serving as a strong advocate on influential global and government committees, including the Principles for Responsible Investment’s Global Policy Reference Group, the Global Sustainable Investment Alliance and the Australian Government’s Natural Capital Working Group. Additionally, she serves as the Convenor of the Taskforce on Nature-Related Financial Disclosures official Consultation Group for Australia and Aotearoa New Zealand, and the Steering Committee for the Australian Sustainable Finance Institute. She is also a member of the Council of the Australian Institute for International Affairs (Victoria).
Dean Hegarty
Co-CEO
-
RIAA
Dean is committed to cultivating meaningful engagement opportunities for members and ensuring the delivery of high-quality membership values that significantly contributes to the sector. Passionate about championing ESG investment, Dean collaborates closely with global and local asset managers, super funds, Kiwisaver providers, financial advisors, and wealth platforms to align capital with sustainable outcomes.
His strategic leadership has played a pivotal role in elevating RIAA’s presence in both Australia and Aotearoa New Zealand, resulting in substantial growth and transformative organisational changes. With over a decade of experience leading teams in the not-for-profit sector, Dean has driven remarkable growth in membership and events while forging essential industry partnerships. Dean also serves as a member of the National Advisory Board on Impact Investing in New Zealand and sits on the GovCo of the New Zealand Stewardship Code.
1. Why are some people criticising ESG?
ESG as an acronym is often misunderstood. There are many ways that environmental, social and governance factors are considered by companies and investors, but at its heart, ESG integration is a risk-management tool which is now mainstream. Almost all investment managers (81% in Australia, 87% in New Zealand) already implement ESG integration within their investment strategies and for their clients this is ‘table stakes’.
Institutional investors managing peoples’ money have a fiduciary duty to consider long-terms risks, such as that posed by climate change and biodiversity loss, which can materially impact financial performance. Likewise, a diverse employee base has been proved to improve decision-making. It’s also good for large companies to look at opportunities that the rapid global energy transition will bring and opportunities to help assets, companies and economies adapt. ESG isn’t about restricting investments but ensuring risks and opportunities are properly assessed – it is good business and good economic management.
2. Is the ESG backlash a real risk for investors, or just political noise?
The recent criticism of ESG, particularly in some markets, reflects broader political debates rather than a fundamental shift in investment priorities. The reality is that ESG considerations remain mainstream. Investors, regulators and businesses are focused on managing risks related to things like climate change, supply chains and workforce diversity, as these directly affect financial performance. As mentioned in our Part 1 Q&A blog, recent Morningstar data shows global sustainable fund assets have reached an all-time high.
While some may be criticising ESG, many markets are continuing to implement rules related to how companies manage sustainability issues. For example, many jurisdictions (including Australia and New Zealand) have developed, or are developing, definitions of economic activities and assets that contribute to key sustainability objectives. These “sustainable finance taxonomies” can help investors understand when an activity can be considered sustainable, and hence channel investment towards more sustainable practices. In addition, Australia and New Zealand have introduced mandatory climate-related financial disclosures for large companies.
Professional investors remain focused on underlying trends that affect portfolios, such as the energy transition and demographic changes.
3. Are ‘sustainable’, ‘green’, ‘ethical’ labelled funds just marketing gimmicks, or examples of greenwashing?
Recent controversies in relation to greenwashing have meant that consumers are more sceptical of claims being made by the finance sector. 78% of Australians are concerned about greenwashing and 79% say they would be more likely to invest in an investment option that has been verified by a third party.
This highlights the importance of transparency in financial product labelling and marketing. Terms like “sustainable”, “ethical” and “socially conscious” mean different things to different people and are used differently by financial product providers like superannuation funds and investment management firms. The good news is that the growing demand for responsible investment options is pushing financial institutions to be more transparent and to improve their responsible investment practices.
RIAA’s Responsible Investment Certification Program and Responsible Returns website helps everyday Australians and Kiwis find independently certified ethical, sustainable and responsible banking, superannuation, KiwiSaver and investment options that have been through RIAA’s rigorous certification process. It is the leading initiative for distinguishing true-to-label responsible investment products for people who want to match their investments with their values. In addition, the Australian Government is planning to introduce rules around financial product labelling. These initiatives, in conjunction with disclosures (which are now mandatory in Australia and New Zealand) are an effective way to reduce instances of greenwashing.
4. Isn’t ESG just too confusing and resource-intensive?
Risk analysis is complex but there are strong and converging standards of approaches to responsible investment around the world, increasingly being backed up by regulators. A good example of this is the International Sustainability Standards Board (ISSB) that brought together clear global baseline on sustainability and ESG disclosures. RIAA has long advocated for stronger, clearer, more consistent disclosure standards.
Global definitions, taxonomies and frameworks for climate disclosures and nature-related financial disclosures have helped to create common understanding and common disclosure requirements for companies.
Each fund manager will take ESG information and assess it in their own way, with their own view of what is important in the context of the fund / strategy they are responsible for, in the same way investors always have based on financial data and governance data. Companies are improving how they make their own case for why some ESG issues are more or less important than others to their business and bottom line.
5. Can ESG really solve global challenges?
Integrating ESG factors into investment decisions is good risk management, but does not necessarily lead to positive outcomes for the environment or society. Assessing climate risk for one portfolio or asset is not the same as addressing climate change at a global or systems level.
But responsible investment strategies such as engaging with companies to strengthen their net zero strategy, investing in technologies that drive the transition, or supporting impact investment in areas like accessible housing, can contribute to solutions while achieving a financial return.
Investors are also increasingly looking at how they can influence systemic change in support of better financial returns, through stewardship practices that increasingly include not just engagement and voting, but also cross-industry collaborations and policy advocacy.
Investors alone will not solve global challenges. Shifting capital to more sustainable practices needs to be part of a solution, but action is required on many levels. This includes good policy, sensible regulation and the phasing out of harmful products and practices.
Coming up, we will have more Q&As to debunk common misconceptions about ESG and responsible investing.
<hr>
<small>Disclaimer: The above content is provided by Responsible Investment Association Australasia (ACN 641 046 666, AFSL 554110) for information purposes and is not an offer to buy or sell a financial product, and is not warranted to be correct, complete or accurate. For more information refer to our Financial Services Guide on the RIAA website. Any general advice has been provided without reference to your investment objectives, financial situation or needs. If the advice relates to the acquisition of a particular financial product for which an offer document (such as a product disclosure document) is available, you should obtain the offer document relating to the particular financial product and consider it before making any decision whether to acquire the product. Past performance does not necessarily indicate a financial products’ future performance. To obtain information tailored to your situation, contact a financial adviser.
Want to explore these topics further? Join us at the RIAA Conference, where leading local and global experts will unpack these issues and discuss the future on ESG. For more information.
