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ESG election: what Labor means for investors

May 26, 2022

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The shift towards progressive politics and climate action that swept Labor to power has important implications for investors. Pendal’s RAJINDER SINGH explains.

THE shift towards progressive politics and climate action that swept Labor to power has important implications for investors, says Pendal’s Rajinder Singh.

While uncertainty remains about the final makeup of the next parliament — including whether Labor will govern with a majority in the lower house and what the Senate will look like — it’s clear that the “tone and atmospherics” in Australia have changed, he says.

“It was an ESG election,” says Singh, who manages Pendal Sustainable Australian Share Fund.

“If you break it down, some of the key policy differences in this election were all about E, S and G.

“On the environmental side, it’s about climate change. For social issues, it was about gender and diversity in workplaces, childcare and Indigenous issues. And a federal integrity commission? Well, that’s governance.”

Singh says investors can view the election as a contest of ideas “and the Labor, Green and teals arguments in each of these areas seems to have won the day”.

Incremental change

Still, for all the hope among parts of the community, the new Labor government’s climate ambitions remain modest and it is unlikely that the new government will go further than its stated policy platform in the first term, Singh says.

“They are arguing for incremental change rather than massive change.

“They have a more ambitious target in terms of reducing overall emissions by 2030, and they have a target of 80% of electricity to be renewable by 2030.

And importantly, a new focus on Indigenous affairs will play out across the stock market.

“The mining industry in recent years has been heavily exposed to these issues and spending time and effort to improve that where it has been mismanaged.

“But this is going to be something for all businesses to be aware and cognisant of — in the same way gender is an issue that companies need to think about, Indigenous affairs is an issue that we also all need to think about.”

Turning to governance, Singh points to the proposed establishment of a federal corruption commission as evidence of these issues becoming more central.

“What we have been seeing is that corporates are being held to a higher level of account from a governance perspective. To some extent, this is the government playing catch up and aligning with what investors have been expecting of the companies they invest in.”

What it means for investors

“This is now a government with policies that are more aligned with the ESG trends that we’re seeing in the market.

“There’s a trend that is already happening and the change in government and some of the new initiatives are supporting that trend.

“Tone and atmospherics are important in markets and companies and investors pick up on that.

“Companies that were on the borderline may now be more likely to be investing in these sort of areas, whether it be something outwardly aligned with ESG such as renewable energy or something like an internal policies on Indigenous affairs, equity and inclusion.

“If anything, it’s going to highlight the laggards across all ESG issues — previously, those that may have had some cover from a government that was not fully supportive. But that’s going to be much harder going forward.”