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Environmental Social Governance (ESG) investing

Investing that supports your values

Page reading time: 5 minutes

Find out what ESG investing is and how it works. So you can choose investments that match your goals and values.

What ESG means

ESG investing is when a fund considers sustainability (including environmental, social and governance factors) to inform their investment strategy.

There is a growing demand for ESG investing, also known as sustainable (or sustainability-related), responsible or ethical investing.

The way ESG is defined may differ from fund to fund. It can cover a range of factors, such as:

Before you invest, make sure you understand the fund’s ESG investment strategy. They can vary greatly. If there’s anything you’re not sure about, ask the fund.

How ESG investing works

An ESG fund aims to maximise financial returns for investors, while pursuing its ESG investment strategy. A fund’s ESG investment strategy may include one or more of the following investment approaches:

Screening investments

A fund may screen investments by:

ESG integration

ESG integration is when a fund considers ESG risks and opportunities in the decision-making process for each asset it considers for investment. A fund may consider ESG risks and opportunities, before including an investment. For example, a fund may consider the risks of climate change and the opportunities of transitioning to renewable energy across its investment strategy.

ESG impact investment

A fund may invest in order to achieve an ESG goal or outcome, like affordable housing or clean energy sources. Or target themes, such as low carbon emissions or sustainable agriculture.

Corporate engagement

A fund may select investments to influence changes in a company’s conduct on ESG-related matters. For example, as a shareholder of the company, it may seek to bring about change by voting at meetings.

Greenwashing is when a fund says its product is more sustainable or ethical than it is. It’s marketing spin. For example, a fund promotes itself as avoiding investment in tobacco products. But doesn’t publicise that it may invest in companies who earn revenue of up to 20% from tobacco products.

Check that what a fund says about investing with it matches what it is actually doing.

Before you invest in an ESG fund

Ask yourself these questions before you invest.

Investment product labels

Look at how the fund describes the investment product:

Investment strategy

ESG products will differ across the market. Check the approaches each fund takes in its investment strategy. For example:

Screening investments

ESG integration

ESG impact investment

Corporate engagement

Look for this information on the fund’s website or in the product disclosure statement (PDS).

Match with your investing goals

Consider your investing goals:

Not sure about how to choose investments to fit your goals? See choose your investments.

Management and fees

Some funds charge you higher fees for an ESG investment, than for a non-ESG investment.

Check how the fund manages the investment and what it will cost:

To find out more about funds and fees, see choosing a managed fund.

Woman wearing glasses using a tablet.

Cara suspects greenwashing

Cara wants to invest to support a healthier world.

She sees an ad for an investment called Zero Tobacco Fund, which says: “The Zero Tobacco Fund contributes towards achieving a healthier world for our investors and the global population. The fund avoids significant investments in tobacco companies.”

In the fine print on the fund’s website, it also says: “From time to time, the fund could invest in companies involved in the manufacture, sale and distribution of tobacco products that earn less than 50% of their total revenue from tobacco activities."

She asks the fund for more information to support these claims. She finds that the fund:

  • doesn’t have a clear investment strategy to achieve its social impact goals
  • doesn’t define what ‘a healthier world’, ‘significant investments’ or ‘total revenue’ means
  • by using ‘from time to time’, is vague about when it will invest in a tobacco company

Cara wonders if the fund is greenwashing by overstating the social impact of the investment. She decides this isn’t the right investment for her.