OPINION: Getting ethics right for future earnings prosperity

OPINION PIECE: By Nathan Parkin, Investment Director and Co-Founder of Ethical Partners

High profitability across numerous Australian industry sectors, many of which are largely consolidated with few players and perform with higher margins than global peers, has led to much wealth creation for shareholders.

However, questions remain over where to from here for earnings growth and can the market achieve higher profit growth from our current base?

There are three broad conditions that could help sustain and potentially increase the rate of earnings growth.

Firstly, companies need to have their Environmental, Social and Governance (ESG) house in order to have the social licence to continue to expand and seize new growth opportunities in a rapidly changing world.

The escalation of ESG awareness, conversation, technology, regulation and news flow are all contributing to ESG issues becoming more visible and company reporting more transparent.

While market and public reaction to poor ESG outcomes can be swift – as in the recent cases of AMP, Westpac and Rio Tinto – by contrast, good ESG practices can contribute to lower risk and the ability to achieve higher growth over the long term.

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