How can advisers can move beyond the blanket ban approach?
Three asset management firms weigh in on constructing a portfolio that matches a client’s values and goals.
Wednesday, September 24th 2025, 11:32PM
by Ksenia Stepanova
Responsible investing has moved past just avoiding the “bad” companies. Clients now have a raft of different objectives - some want a blanket ban on certain industries, while others are open to engaging with them to try and effect change. Some want vegan-friendly investments only, while others will tolerate the “unethical” below a certain percentage.
Responsible Investment Association Australasia (RIAA) recently hosted a panel on how managers can build investment portfolios for different types of clients, and how advisers can explain the various strategies involved.
Lead through objectives
Tom King, chief investment officer at Nanuk Asset Management said that a lot of different strategies get thrown into the “responsible investment” bucket, but clients often don’t understand that there isn’t a one size fits all portfolio.
“Some don’t want to invest in companies that are doing things they think are bad, but then there are clients who want to make sure the capital that they’ve invested is being leveraged through engagement activities to ensure more sustainable outcomes,” King said.
“That’s a different thing - if you want to do that well, you probably need to invest in the ‘bad’ companies. If you exclude them all, you can’t engage.”
Then there are strategies that invest specifically in companies with low carbon footprints, which King says is best done through banks and tech companies. Others focus on deploying capital to areas where there is a demonstrable social and environmental impact.
Then there’s a broader concept of ‘ESG integration’, which looks at governance structures and whether business models are sustainable. However, the term ‘ESG’ caught some flack during the panel, as it’s an overused term that does little to predict outcomes.
Chris Douglas, principal and co-owner at Māpua Wealth noted that companies with the best governance scores don’t tend to perform the strongest.
“Companies with poor governance scores tend to do badly, and that’s not surprising, but companies with very good governance scores tend to be expensive,” he explained.
“Governance improvement is often associated with better investment performance. So we’re not necessarily investing in the best governed companies - we invest in companies where that might improve.”
Ultimately in client conversations, the key is to establish what the specific objectives are, and to work off of that.
“Different clients have very different wants and needs,” King said. “Depending on who you talk to, you end up talking about different things.”
Adapting to a volatile world
Grace O’Hanlon, sustainable investment specialist at Milford Asset Management, noted that managers are moving away from blanket exclusions of certain industries, instead focusing on a deeper understanding of companies' environmental, social, and governance performance.
This is particularly relevant today, as things can change very quickly. A company going about its business uninterrupted a few years ago may have problematic elements now, particularly in light of things like the Israel-Palestine and Russia-Ukraine conflicts.
This can lead to conversations that advisers and portfolio managers need to be prepared for. O’Hanlan says that ultimately, every decision should balance risk and return.
“You obviously have some clients asking why you have or haven’t invested in something, while other clients are saying that if we invest in it, they’re going to leave,” O’Hanlon said.
“A quote given to me by the CEO of the international corporate governance network was that every decision we make is on behalf of someone’s granny. Is the retirement fund or investment fund secure? What is the risk, and how does that link to your fiduciary duty? Can we be doing something similar with another company? That’s how we make our decisions.”
“Sometimes, maybe we start to forget the investor part, and remembering that you have an obligation to your shareholder to generate a return,” she adds.
“That is your fiduciary duty, and everything must come back to that.”
| « Firms and fundies urge Govt for modern slavery legislation | Rules around ethical investing under review » |
Special Offers
Comments from our readers
No comments yet
Sign In to add your comment
|
|
Printable version |
|
Email to a friend |
