SRI investors to grow their influence
SOCIALLY Responsible Investment (SRI) is not just a fad and will continue to grow in the next five years, according to Corporate Monitor executive director Michael Walsh.
“SRI will be at about three per cent of Australian funds under management in three years time,” he says.
“The SRI funds under management have grown from $217 million in June 1996 to $1.6 billion in May of this year.”
Speaking at the annual Equity Trustees Ethical Fund Series in Melbourne, Walsh says SRI fund performance is also in the top quartile.
“While SRI fund returns are in single digit, like the rest of the markets, in the last three years many funds have outperformed the ASX 300 index,” he says.
“Looking at 11 SRI Australian equities funds, eight have outperformed the ASX 300 index over three years and four have outperformed the index over five years.”
The ASX 500 index over three years has returned 6.22 per cent while the Challenger SRI fund returned 7.14 per cent over the same period.
Over five years, the index returned 7.04 per cent while the SRI top performer, Australian Ethical, achieved an 8.44 per cent return.
Walsh is predicting there will be 20 SRI Australian equity funds by 2005 and 15 international share funds because of growing demand for these types of products.
SRI funds are also becoming significant shareholders in Australian companies and will soon have the power to influence the companies’ decisions.
“SRI funds will be valuing companies on how they look after people, if they have the right corporate culture and whether the corporation is socially responsible,” he says.
“If the company will not be socially responsible, it might find it difficult to raise capital from the markets in the future.”
Walsh says SRI shareholders will also lobby companies that suddenly become involved in a controversial area, such as stem cell research.
“In five years time, companies will be researched on their SRI compatibility because that is what investors will want,” he says.
“Investors interested in SRI investing will want confidence in the processes used to check companies and they will want constant reassurance about the investment.”
“Today we give investors a consolidated report on companies, but in the future I think people will want to see value and how the company works, before investing.”
Corporate honesty and transparency will be high on SRI investors’ check-lists and they will not want lots of corporate activities put on offside balance sheets, he warns.
“A lot of what the SRI investors want, coupled with screening by researchers, will eventually be added to mainstream investing,” Walsh says.
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