Eth­i­cal av­enues a grow­ing seg­ment

The Weekend Australian - Review - - Investments - Mike Hanley

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.

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