ROGER COLLISON, Money Management
The concept of investing based on ethical, environmental or social factors has gained a strong following in recent years. Indeed, despite the market volatility of the past two years – which many commentators predicted would damage its credibility – the concept has in fact gained strength and acceptance, with environmental issues in particular gaining importance politically and socially.
Investors increasingly understand that, when assessing a company’s investment potential, taking into account ‘ethical’ considerations such as the environmental or social impact of its activities also enables a better understanding of the company’s long-term plans and, thus, viability and worth.
Another good example is Gunns. Looking at just the traditional measures, such as short-term profitability, highlights only half the picture in an ESG investor’s view. Gunns has created controversy with its wood chipping of Australian native trees in Tasmania and its proposed Bell Bay pulp mill.
Such activities have the potential to create disruption to the group’s other operations, as well as generating political risks and decreased customer demand both from its domestic sawn-timber customers and its Japanese woodchip customers.
In effect, a question is raised about whether the company has a “social licence to operate”. These issues should, and do, impact the market’s assessment of value.