Ethical avenues a growing segment
ARE you the kind of person who recycles? Cycles to work? Turns off the lights when you are not in the room? In short, do you care about the world around you and the state you will leave it in for the next generation?
Composting and darning socks is one thing, but what of your investment portfolio or your superannuation? Do you know whether it is working for the things you believe in, or do you just hand it over to the investment company — set and forget’’?
How do you know your superannuation money is not being invested in, say, tobacco, gambling or weapons manufacture? If you are concerned about climate change, how do you know that your savings are not financing new coal- fired power stations?
If you’re concerned about these issues, you are not alone. There is an entire investment industry out there catering to those, like you, who want to leave the world a better place, and want their money to do some of the work for them. And it is growing fast. According to the Responsible Investment Association Australasia, responsible investment portfolios grew by 43 per cent in the 2007 financial year to $ 19.39 billion — more than twice as fast as the investment industry as a whole.
The marketplace is definitely gaining traction,’’ says David Buckland, CEO of Hunter Hall Investment Management, a manager of six ethical funds. I think better- educated Australians, particularly younger executive females, are becoming very interested in where their money is invested.’’
There have been a number of factors that have boosted the profile of ethical investment management over the last few years, says Buckland. These include the sevenyear drought, Al Gore’s Inconvenient Truth and Australia’s ratification of the Kyoto Protocol with the change of Government late last year, as well as the high profile Sea Shepherd whaling story that dominated headlines earlier this year.
Five or 10 years ago, these issues weren’t on the front pages, but now you can’t ignore them.’’
With this wholesale raising of consciousness has come a flood of investment funds into the responsible investment sector. Buckland’s business is twice the size it was four years ago, and the country’s largest ethical investment fund, the AMP Capital Sustainable Share Fund, has doubled each year for the last three years to about $ 2.3 billion today.
Michael Anderson, director of Alpha Sustainable Funds at AMP Capital Investors, says this growth has been driven as much by investors seeking return as well as the ethical pay- off investing in a responsible fund offers them.
Over the last five years, to the end of last year, we have been in the top quartile of investment funds in Australia,’’ he says,
because the way we integrate environmental, social and governance performance into our financial analysis seems to provide a better evaluation of the stock.’’
He gives the example of AWB, the wheat exporter which was bogged down in corruption charges for its conduct in Iraq several years ago. It was quite obvious that this company operated in many countries where there was a high likelihood of corruption — a huge red flag for us. It would have had to demonstrate to us that it had extremely rigorous risk controls in place, which it clearly did not.’’ And what of performance? AMP Capital is not alone in providing both good feelings and good returns. Research by the RIAA shows that the average responsible investor in Australia is getting better returns than those who only look at the money.
In the year prior to June 2007 — before the global financial meltdown kicked in — the average mainstream investment fund earned a 27.41 per cent return, as against the S& P/ ASX 300 index’s 29.21 per cent. But ethical funds earned on average 29.1 per cent. These results were similar over longer time periods, says the Responsible Investment Industry Association.
So the growth in responsible investment funds is not only being driven by people who want to feel good about themselves, it is also being driven by good old self- interest.
Still, there is room for growth. Investment research group Morningstar puts Australia’s total investment pool at $ 916.5 billion last June. At just $ 17.1 billion, the ethical investment market makes up only 1.87 per cent, but it is growing faster than the investment pool as a whole — from 1.56 per cent in 2006 and 1.15 per cent in 2005.
But, says Hunter Hall’s David Buckland, with all investment markets in a state of flux, ethical investment managers will find it as difficult as their mainstream competition to attract money at all these days.
Everyone, it seems, wants to hold cash.