Ethical Investment Association Conference

Hockey not swayed by ethics

The Federal Financial Services Minister, Joe Hockey’s knock back of a proposal for disclosure of ethical considerations taken by investment managers is “disappointing but not surprising” according to one of the proposal’s authors, David Kerr.

"It is yet another sign that both he and the current Government are out of touch with the emerging trend in corporate governance that requires greater transparency in the way corporate Australia is doing business," Kerr says.

Kerr, a legal advisor to the Australian Conservation Foundation, helped draft the proposed amendment to the Financial Services Reform Bill (FSRB) calling for compulsory disclosure of; "the extent (if at all) to which, environmental, social or ethical considerations are taken into account in the selection, retention and realisation of the investments".

Hockey has described the proposal as an "unnecessary piece of legislation" signalling its likely rejection.

Kerr says if Hockey is serious about implementing best practice disclosure legislation for the financial services industry, the legislation should reflect growing consumer demand for ethical investing.

"Without such disclosure how will consumers be able to determine what is and what is not an ethical product whilst also being able to differentiate between the range of ethical products on offer?" Kerr says.

"It would seem that Mr Hockey's position is not shared by the financial services sector."

Kerr says the proposal has support from Westpac, HESTA and the NSW local government superannuation scheme and many other financial services companies have shown an interest.

At his presentation to the first Ethical Investment Association conference, Kerr said consumer demand worldwide for socially responsible investing (SRI) was growing.

He said in the US ethical portfolios grew from US$529 billion in 1997 to $1,497 billion in 1999, which was a growth rate twice the general market.

"In the UK, the ethical investment market has seen similar growth experiencing a 47.7 per cent growth rate between 1997 and 1998," Kerr said.

"In Australia, it is estimated that $250 million is invested in ethical funds. Industry experts believe that ethical investment in Australia will follow US and UK trends."

Kerr said that the demand for ethical investments was also being driven by imminent changes to the superannuation industry and "the new and emerging role of the financial services sector as a vehicle for wider corporate environmental and social responsibility".

Mercer gets SRI vehicle

W M Mercer is in the process of developing a socially responsible investment (SRI) vehicle.

Tony Cole, Mercer managing director, said the company is still designing the SRI product but will offer the option in a master trust later this year.

Cole made the comment during his presentation to the Ethical Investment Association conference giving an asset consultant's view of SRI.

"The Mercer view is that we are happy to assist clients to codify their concepts of a socially responsible policy into investment policy and manager mandates," Cole said.

He said retail investors, charities and superannuation fund trustees all approach ethical investing in a different way.

"Retail investors make their own decisions on what is ethical investing based on their own standards. One person's taboo is another's sacred cow."

Cole said in the US a variety of ethical funds have sprung up appealing to different sectors such as Christian, Islamic and gay groups.

"In Australia, however, the market would be more suitable for funds with common screens."

For charities, an SRI approach can be almost obligatory, a "best of class" approach to ethical investments is suitable.

However, for superannuation fund trustees, the decision to choose an ethical fund is made more difficult by their obligation to take decisions in the best interests of the beneficiaries.

"Trustees can take into account social, moral and environmental issues only if they are satisfied it will not materially affect risk weighted returns," Cole said.

He said the evidence for performance of SRI funds to date is thin but it appears that the ethical approach has shown "no systematic advantage or disadvantage over periods of a number of years".

Investing with a clear conscience

The working relationship between insurance group Australian Unity and research giant KPMG appears to be on shaky ground, following an alleged breach of a confidentiality agreement between the groups.

Last month a number of financial services groups including Australian Unity commissioned KPMG to devise the Resnik-KPMG report, a survey of Australia's ethical investment growth. The report was officially launched at Ethical Investment Association annual conference recently held in Sydney.

The alleged breach occurred last week when results of the report were leaked to a metropolitan newspaper without the approval of Australian Unity. At the same time the insurer and the other co-funders involved were not credited for their involvement in the report.

Australian Unity's John Carnohan was not willing to comment on the breach or whether there would be any future involvement between the two companies.

The report states that investors are often willing to trade off financial performance for a fund's ethical focus when it comes to investing outside the family home.

The report, titled 'Money where your mouth is' was released at the recent Ethical Investment Association first annual conference in conjunction with Resnik Communication and KPMG.

KPMG ethics director, Attracta Lagan officially launched the report while Nolan Norton Institute's title?? Tania Pacecca presented the results in detail.

The survey was conducted last month through 500 interviews with participants in the 25-59 age group with investments other than their home.

Pacecca said the main finding from the survey was that financial performance is not top priority for investors where ethical investments are concerned. The survey also found some confusion still exists around what makes up an ethical or socially responsible company.

The research found that 80 per cent of those in the 25-39 bracket and 72 per cent in the 40 to 59 bracket would consider using ethical investments for their superannuation.

Three quarters of respondents would also like to know the types of companies in which the funds would be invested.

This was contrasted with the result of only 58 per cent who would be swayed to invest in a company if its ethical performance was endorsed by green or community groups.

Pacecca said that at the same time, 60 per cent said an ethical focus was important while over 75 per cent had put that into action purchasing products in the last twelve months based on social and environmental issues.

"The findings concluded that 37 per cent of those surveyed use a financial adviser. With 47 per cent saying they considered themselves 'knowledgeable' about investments, and 64 per cent saying they have more than one type of financial investment," Pacecca said.

The survey also found that women are becoming more interested in social areas, with 60 per cent of female investors choosing the environment, human rights and Aboriginal rights as their top ethical investments.

The report was devised after discussions with Westpac, Australian Unity, Perpetual and ethicalinvestor.com.au.

SRI's on the increase in Australia

There has been a wide range of reaction from UK fund managers to the growth of ethical investing according to Mark Campanale, director of the UK Social Investment Forum.

"There are the dedicated, the opportunists, the pragmatic and the lazy," Campanale says.

He says dedicated managers have enthusiastically adopted socially responsible investment (SRI) strategies, others - while not necessarily believing in the ethics - have identified a business opportunity and some take a pragmatic approach - instigating an SRI fund because their clients want it.

"But I'm amazed that some of the big fund managers are more than willing to let their clients leave rather than do something about ethical investing," Campanale says.

He says these 'lazy' fund managers create opportunities for others with a more proactive SRI policy.

However, with a new SRI disclosure law introduced in Britain this July, fund managers are probably going to have to sit up and take more notice of the growing demand for ethical investment.

The law, which the UK Social Investment Forum helped instigate, requires SRI disclosure from occupational pension schemes, local government and other stakeholder pension funds.

"The law requires these funds to disclose their ethical investing policy," Campanale says.

"It doesn't require them to have an SRI policy but if not they must explain why."

Issues such as corporate "fat cattery", environmental impact, child labour and trading with oppressive regimes have been driving the demand amongst UK investors for an ethical alternative.

Campanale says similar trends are occurring in Australia and surveys in both countries appear to confirm this.

"The recent KPMG survey here agrees with UK surveys that show schemes should be ethical if there is no loss of financial returns," Campanale says.

He says Australia can learn from how the UK implemented the new law and gained some backing from the funds management industry.

"Will the Government here in five years time be able to say it has the support of the fund managers for an ethical investing policy?" Campanale says.

"I hope so."