Climate Advocacy Fund & Ethical Investments

The effects of climate change, the scarcity of food, future energy sources and how businesses treat the environment and their workers are all significant global issues that companies and investors can no longer ignore. It is little wonder then, that so-called responsible investing – also referred to as ethical, green or sustainable investing – is striking a chord with a growing number of individuals and fund managers. Sustainable investment advocate Kassia Klinger, an active environmentalist, is also a keen advocate for change through the newly established Climate Advocacy Fund set up by Australian Ethical Investment.

Sydney Morning Herald (1 May 2011):

The rise in ethical investment heralds an era in which people are preferring clean, green industries, writes Bina Brown.

THE effects of climate change, the scarcity of food, future energy sources and how businesses treat the environment and their workers are all significant global issues that companies and investors can no longer ignore.

It is little wonder then, that so-called responsible investing – also referred to as ethical, green or sustainable investing – is striking a chord with a growing number of individuals and fund managers.

At a time when many people are still reeling from the effects of the global financial crisis, the consumer demand for responsible investment products has almost doubled.

The Responsible Investment Association Australasia (RIAA) reports ethical adviser portfolios grew from $972 million to $1.46 billion in 2010, following a decrease of 21 per cent in 2009.

Managed responsible investment portfolios rose 10 per cent, from $14.02 billion to $15.41 billion.

While small compared to the overall funds management industry, the trend towards responsible investment is growing.

The executive director of the RIAA, Louise O’Halloran, says there are three main reasons people invest responsibly. The first is the improved investment returns from picking companies with strong governance, a robust culture, good management of people and progressive environmental strategies.

The second reason is how an investor thinks about the future for their children and grandchildren and any difference it may be possible to make.

Finally, some investors want to invest in line with their values and beliefs, avoiding companies that do harm to people and the environment and supporting those trying to make a difference.

Significantly, there is no reason returns should be sacrificed just because you want to invest responsibly.

The RIAA’s figures show the average responsible investor in Australia made better returns than investors in mainstream funds over one, three, five and seven years, in both Australian and international shares, as at the end of 2010.

Follow your beliefs

You may be more passionate about some issues than others. Your strategy then would be to make investment decisions based on your beliefs. You may wish to avoid supporting companies that profit from activities such as tobacco, gambling or uranium.

This method is known as a ”negative screen” – making a decision at the very start to exclude all such businesses from the investments you would consider for your portfolio.

Meanwhile ”positive” screening actively favours investment in companies that make products or engage in activities expected to benefit people or the environment.

Professional investors may differ in the way they construct a portfolio of responsible companies but generally they start with negative and positive screening.

Before the Perpetual Ethical SRI Fund will invest in a company, it must first pass four quality filters identified as sound management, conservative debt, quality of business and recurring earnings.

It then applies an ethical screen, which excludes companies that earn more than 5 per cent of their revenue from alcohol, gambling, tobacco, uranium and arms.

Its ”socially responsible investment” screen then assesses companies based on their performance in areas such as human rights, the environment, occupational health and safety, work and labour standards, animal rights and corporate governance.

Investing sustainably

There is no strict definition of what is sustainability or any uniform standards in reporting on environmental, social and governance issues, so a lot of what goes into a direct ”responsible” share portfolio will come down to an individual’s values.

The managing director of the specialist financial planning firm Ethinvest, Trevor Thomas, starts by asking his clients what issues are critical to them before he builds a share portfolio that meets those requirements.

”Most people don’t have any desire to invest in companies in breach of environmental or social standards,” he says. ”They want to be able to sleep with a good conscience.”

If a client doesn’t want to invest in a big bank or mining company for ethical reasons, he looks for ”proxies” in order to put together a diversified portfolio of companies.

An alternative to a mining company might be Sims Metal, which recycles metal. Financial services companies that aren’t banks include Computershare and the listed ethical fund manager, Hunter Hall.

”The idea is that you don’t have to sacrifice return to invest sustainably,” Thomas says. ”You can find ethically and sustainably screened alternatives in most asset classes. It depends on your criteria but you can put together a good diversified portfolio of sustainable companies.”

Backing her passion

SUSTAINABLE investment advocate Kassia Klinger made a decision 11 years ago to align her shareholdings with her beliefs.

”I have a strong desire to be able to sleep soundly at night, leave the world a better place than the one I found, manage risk and maximise returns,” she says.

With a specialist ethical investment adviser’s help, Kassia, who is studying for a master of management in sustainable leadership at the Macquarie Graduate School of Management, directs a family investment portfolio towards companies engaged in activities that benefit people or the environment.

Kassia is a baby boomer born on the cusp of Generation X. At a time of a significant intergenerational wealth transfer, she believes it is especially important to invest according to her strong values when making investment decisions on behalf of others.

As such, there are no mining companies in the portfolio and any energy-related stocks are involved in gas, sustainable-energy solutions or the infrastructure associated with it.

The industrial companies are all screened for the positive contribution they are making to the environment and society.

As an active environmentalist, Kassia is also a keen advocate for change through the newly established Climate Advocacy Fund set up by Australian Ethical Investment.

Rather than screen out companies based on their environment, social and governance (ESG) principles, the fund is an index fund that weights companies on their economic footprint (sales and cashflow) rather than the total value of their listed shares. The fund’s members and selected individuals then engage with companies and put forward resolutions at annual general meetings to bring about better ESG outcomes.

”It’s not just about avoiding the so-called ‘sin stocks’ but encouraging the big investors, like superannuation funds, to put their money where their mouths are,” Kassia says.

”I reckon they should put up or shut up.”

Source: www.smh.com.au

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