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in three people don’t want their money caus- ing harm to the planet – whether via environ- mental degradation, the burning of fossil fuels or logging. Moreover, the majority of people ex- pect their money to go beyond “avoiding harm” and to “do good”. At the same time, financial regulators and central banks across the world have been clear in their view that the risks of climate change are distinctly financial in nature. In early 2020, the Reserve Bank of Australia joined with more than 60 other central banks to warn of the significant financial and economic risks if more is not done to reduce emissions and provide specific guid- ance on the integration of climate risks into de- cision-making. There is no one way to engage in responsible investing and investment managers are apply- ing a range of approaches. Consideration of ESG factors is now the expected minimum standard of good investment practice. This involves the explicit inclusion by investment managers of ESG risks and opportunities into financial anal- ysis and investment decisions. It is this commitment to ESG integration, combined with active ownership from a sizea- ble proportion of Australia’s largest institution- al investors, that has culminated in increasing shareholder advocacy on issues such as Indig- enous cultural protection, sexual harassment, climate change and gender diversity. Where engagement hasn’t managed to influence cor- porate behaviour, shareholder disquiet has played out through large votes against boards, leadership spills and, increasingly, divestment by investors from the most harmful sectors. Negative screening is another important re- sponsible investment approach, with weapons,

tobacco and gambling being the most frequent- ly screened categories. Increasingly, however, it is the broad, system-wide risks that responsible investors are recognising a need to proactive- ly manage if our economy and society are to flourish. The unforgettable year of 2020 has exposed that our economy is vulnerable. The catastroph- ic bushfires and COVID-19 pandemic highlight- ed that our markets are inextricably linked to the health of our environment and society. Long-term investors have recognised these links and, acting in their clients’ long-term in- terests, are now looking to lead in response to issues such as climate change. Recognising the enormous risks that climate inaction poses to the economy – and, in turn, investment returns – numerous Australian su- per funds are committing to reducing carbon intensity in their investment portfolio. This is an important signal that growing levels of capital are seeking to invest in companies making the shift to a lower-carbon economy, a trend that will increasingly influence markets and valua- tions in the decades ahead. At the start of the 2020s, we find ourselves in a period in which the responsible-investment industry has reached a tipping point, poised to reshape not only finance but the very nature of corporate Australia. Simon O’Connor is the CEO of the Responsible Investment Association Australasia (RIAA). He sits as the co-chair of the Australian Sustainable Finance Initiative, chairs the Global Sustainable Investment Alliance, and is a member of the Ao- tearoa New Zealand National Advisory Board on Impact Investment.

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