As ESG investing explodes, are our CPAs up to the task ? Picture: Getty Image
The Ethical Investor: Are our CPAs up to the booming ESG task? We ask CPA Australia’s Jane Rennie
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- Trading in ESG related securities have grown considerably in Australia since 2019
- Millennials and Generation Z are most likely to buy into ESG thematic investments
- We ask CPA Australia’s Dr Jane Rennie on whether our CPAs are up to the task in this fast-changing landscape
Even as the broader market retreats, trading volumes in ESG related stocks in Australia have increased considerably this year.
Aussie investors have poured $1 billion into new ‘green’ sectors so far in 2022 compared to $1.26 billion for the whole of 2019, according to a local leading broker AUSIEX.
Their data shows that Aussie ESG investors have the most preference in trading stocks and ETFs associated with the hydrogen, battery tech and clean tech thematics.
AUSIEX CEO, Eric Blewitt, said that while trading volume was highest in November 2021 (around the time of COP 26 in Glasgow), strong momentum has continued in 2022.
“2021 was the biggest year thus far with nearly $3 billion worth of trades in ESG-related securities – this was more than a $1 billion increase on 2020,” said Blewitt.
“This year, against a backdrop of rising inflation, monthly ESG trading figures have not been as high as 2021 but are still well over 100% higher than in 2019.”
Millennials and Generation Z leading the way
ETFs remain the preferred method of ESG-related investing for Millennials and Generation Z, according to Blewitt.
“A large portion of the trading by these generations has been in ETFs such as BetaShares FAIR and ETHI, and we are seeing a raft of new ESG-related investment opportunities coming into the market”, he said.
Blewitt says that within the Australian demographics, Gen X and Boomers are the most likely to invest in the equities market and support ESG activities.
“COP 26 affirmed the leading role the private sector will need to play to help reduce global warming,” he explained.
“Given this as well as the likelihood of greater focus on climate action as a result of the recent Federal election, it is likely Australian investors’ interest in ‘green’ securities will grow even more dramatically,” he added.
ESG themes most popular
Hydrogen
Hydrogen investments are the most popular green sector across all generations of investors, and represent around 80% of all ESG-related trades placed between 2019 and now.
According to AUSIEX, the strong interest in this sector may have been driven by commitments made by the former Federal Government in early 2020 to create a domestic hydrogen industry.
Battery and clean tech
During 2021, trading in battery and clean tech securities began to outstrip trading in other broader sustainability-themed securities.
These two sectors also found particular favour with older generations.
AUSIEX says that retail investors were more likely to invest in battery and clean tech securities compared to advised clients, who were more likely to select broader sustainability-themed investments.
‘Teal’ traders
AUSIEX’s analysis has also revealed strong ESG-related trading behaviour in suburbs that voted ‘Teal’ independents into Parliament in the recent Fed election.
‘Teal’ candidates are those ‘green’ independents who ran on a strong climate platform in formerly safe Liberal Party seats.
They won nine seats, representing 6% of the 151 seats in the House of Representatives.
According to AUSIEX, trading data between 1 January 2021 to May 2022 shows that ESG-related trading by investors living in the nine Teal seats was 14% of overall trading volume.
This means seats won by Teal candidates contained on average 200% more investors trading ESG-related securities.
“This is an interesting observation, and seems to suggest that Australians are using their power as investors to express their values, not just investing in green sectors for potential return,” said Blewitt.
Does Australia have a skill shortage in ESG?
The explosive growth in ESG investing means there will be a need for more reporting requirements, expert analysis, and ESG know-how in Australia.
This is particularly relevant for the accounting profession, where new ESG regulations and disclosures are expected to be verified by CPAs (certified practicing accountants).
To see if Australia is up to the task, we reached out to Dr Jane Rennie, general manager media and content at CPA Australia.
What role does CPA Australia play in the response to climate change?
“CPA Australia recognises the overwhelming scientific evidence of climate change, and the urgency of global action to achieve net zero carbon emissions by 2050,” Dr Rennie told Stockhead.
“It’s not just CPA Australia recognising the importance of this issue. The global accounting profession, representing over three million accountants, is collaborating to draw attention to the profoundly negative economic consequences of climate change and need for urgent action.
“There’s a strong appetite for ESG knowledge and practical skills within the accounting profession. CPA Australia members see ESG as important to their roles as finance and business advisers.
“Our research tells us that most businesses consider ESG factors important to their business, and many look to the accounting profession for help with managing ESG impacts.”
Will the demand for professionals with ESG skills intensify?
“Knowing how to create value through sustainability is an essential 21st century skill for accounting professionals,” Dr Rennie said.
“Accountants are frequently called on to measure, disclose, assure and assess risks associated with climate related metrics.
“The accounting profession is building its capability to fulfil this demand, but much more capacity is required.
“The demand for accountants with ESG skills will intensify as the focus on environment-related disclosures shifts to biodiversity and ecosystems, and momentum around the social attributes of business gathers pace.”
Does Australia have a skill shortage in this regard?
“Organisations are increasingly required to report on their approach to sustainability,” explained Dr Rennie.
“In some jurisdictions this is being driven by mandatory disclosure requirements, while in others pressure is being exerted by customers, investors and other key stakeholders.
“This is creating strong demand for ESG credentialled professionals.
“Unfortunately, when it comes to ESG knowledge, Australia has a notable skills shortage. This is holding back the maturity of Australia’s ESG awareness and responsiveness.”
Is CPA Australia offering any programs to upgrade current skills of CPAs?
“Until now, a lot of ESG knowledge has been developed on the job,” Dr Rennie said.
“We want to provide formal pathways for accountants to develop this knowledge and, in doing so, to help accelerate ESG skills development in Australia.
“The launch of CPA Australia’s ‘Creating value through sustainability’ micro credential is helping to create skills which can be put to use to protect our environmental heritage.
“We see the creation of a formal pathway and credential for the accounting profession as a key moment in the evolution of ESG awareness in Australia.”
“The skills that accounting professionals will learn in this 20 hour online course can be put straight to use in creating value through sustainability for their employers or business clients.”
How could CPA Australia use its influence to tackle sustainability issues?
“The accounting profession occupies a privileged position in the global economy,” said Dr Rennie.
“As trusted advisers to business and government, we are privy to deep insights about sustainability risks and opportunities.
“This knowledge gives rise to a responsibility to use our skills, and to protect our heritage.
“As one of the largest professional accounting bodies in the world, CPA Australia has a significant ability to influence change.
“We can use our position to support present and future generations of accounting professionals to incorporate sustainability principles into their practice.
Does CPA Australia collaborate with other global bodies?
“CPA Australia collaborates with global policy-makers, organisations and professional bodies to progress pro-sustainability policies,” said Dr Rennie.
“We offer and are developing additional pathways to give accountants job-ready sustainability skills.
“In 2021, CPA Australia was one of a number of national and global professional accounting bodies to commit to net zero emissions.
“As part of this commitment, we undertook to provide training to members to support them to reduce greenhouse emissions in their own organisations and businesses.”
Other ESG news on the ASX this week
As reported by Stockhead’s green expert, Jessica Cummins:
Carnegie Clean Energy (ASX:CCE)
CCE and Stand Hewlett Packard are working together on CETO technology, which works by converting ocean wave energy into electricity and desalinated water.
It operates underwater with a fully submerged buoy that drives pumps and a generator, which looks like a metal balloon on a string tied to the sea floor.
The two companies have been collaborating since 2020 and have delivered improvements in CETO’s performance, particularly in relation to the technology’s Reinforcement Learning-based controller.
GRV says it has secured an “exceptional growth opportunity” in the renewable energy sector through the proposed acquisition of a privately held Queensland-based geothermal energy company.
Greenvale has entered into a conditional agreement to acquire an initial 51% controlling interest in Within Energy, a geothermal energy company based in Toowoomba, Queensland, increasing to 100% ownership subject to satisfaction of agreed milestones.
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