Should ESG be made a regulatory necessity?

The industry funds-backed Australian Council of Superannuation Investors (ACSI) has called on the major parties to commit to strengthen investment stewardship and environmental, social and governance (ESG) considerations for institutional investors.

Among the changes being sought were explicit regulatory recognition of the importance of ESG issues in investment strategies.

The organisation claimed businesses and their boards needed to rebuild trust with Australians and that this could be supported through the responsible management of assets via reform of Australia’s framework for investment stewardship.

ACSI chief executive, Louise Davidson said a stronger stewardship framework would support the quality and integrity of financial markets and contribute to sustainable, long-term value creation for beneficiaries.

Among the remedies being proposed by ACSI were a revision of the Australian Prudential Regulation Authority’s (APRA’s) investment guidance to explicitly recognise the importance of ESG issues in investment strategies.

As well, it wanted a review of the regulatory framework of stewardship to consider appropriate minimum standards of reporting, the appropriate regulatory framework and a stewardship code that applies to all institutional investors.

Davidson said Australia’s regulatory framework lagged behind other developed economies in recognising the importance of ESG factors.

“There is a significant opportunity to bring Australia up to date by clarifying that ESG risks and opportunities are financially material and should be taken into account in risk and return analyses,” she said.