Australians investors are not finding it as simple as they’d like to locate information about the stocks involved in their super funds. Investors and shareholders don’t have a convenient way to gather information from a single source, and that’s becoming more of a problem as investors become increasingly engaged.

Investors care deeply about the social and environmental impacts of their investments, as research by the RIAA recently revealed. An overwhelming majority (86%) of Australians believe it is important for a super fund to invest money responsibly. They expect managers to investing in companies that build clean energy infrastructure or avoid investments that can harm communities such as weapons manufacturing. This preference has already increased from 69% in 2013.
Despite massive and growing interest, serious problems with available information remain.

Australia’s problem with investor information

Engaged investors need information to act on their values. Understanding the impact of a super fund in Australia requires gathering information from infrequent and exhausting sources. Some investors are getting the only information they can by engaging with company boards during Annual General Meetings (AGMs). Of course, these meetings happen only once a year, and there is only limited time for questions.
Others have tried writing or calling fund managers directly to discuss stock investment or divestment, but super funds can involve hundreds or thousands of stocks to talk over.

Clearly, a more accessible solution is needed for investors. As more of them choose to engage, they’ll start expecting better access. That access is most likely to come from either a legislative solution or from funds and advisors manoeuvring to better serve their clients.

Is a legislative fix on the way?

Many countries already have Portfolio Holding Disclosure laws on the books that require companies to collect and provide information about each fund to investors. In fact, Australia is now the only market in a recent study by Morningstar that didn’t have any form of legislation requiring disclosure in place. That study rated Australia’s transparency at a D+, compared to other nations.
It’s not that a legislative solution to disclose holding lists hasn’t been considered. In fact, the draft of that legislation has been moving through parliament for years. Just recently, it was pushed back for the fourth time, and won’t be considered again until 1 July, 2019. It seems for the time being, Australians may be stuck with incomplete disclosures and limited access to information from executives.
Without hope for a legislative solution for at least another year, the question of how engaged investors can be better served falls to the private market.

How should super funds respond to rising engagement?

There is much that super funds and their managers can do to better serve engaged investors, and plenty of reasons to get started as soon as possible. If funds cannot build trust with investors, they may find

themselves reliant on independent organisations for credibility. At this point, more than half of all Australians (56%) believe there is not enough independent information available about switching to a responsible ethical super fund, or such an option within a fund.
One possible path could be to step in front of future legislation by ensuring that reporting requirements are already met before the law goes into effect. In addition to providing information that engaged investors are hungry for, this path has the added benefit of future proofing the fund’s practices so that eventual changes in the law are easier to weather.

Ultimately, a relationship with an independent certification organisation may also be necessary. 86% of Australians agree that they would be more likely to invest in an organisation, fund or product if it had been certified by an independent third party. If a certification organisation already has more trust among investors, it’s practical to take advantage of that by beginning a relationship, and meeting the standards for certification.

What does this engagement mean for the future of investing?

Now that investors are starting to care deeply about the impact of their stocks, they aren’t likely to stop. The demands for more information and more accurate reporting will likely be a major feature of stockholder meetings and AGMs, at least until Australia mandates more comprehensive reporting through legislation.

Until then, fund managers and investment advisors must develop their own means of meeting their client’s demands. Creating strong reporting standards and forging relationships with independent certification organisations can help bridge the gap between what investors want, and the reporting that’s available for engaged investors right now.

Picture: Richard Whitfield

The Australian
May 26, 2018

Reporter
Melbourne
@RichAFerguson

Has the Banking Royal Commission proved there are ethical investors and unethical investors?

The banking sector needs to figure out how they align their values and understand what their customers actually want. The Responsible Investment Association has surveyed consumers and they expect super and other investments to be invested responsibly. They don’t want their CEO to be unfairly renumerated or doing things that are illegal. When banks and other financial institutions align their values with their customers, people may start trusting them again.

Some ethical ETFs have already dropped bank stocks. Is there is a case for taking banks and insurers off ethical investment lists?

We always look to write either a letter to the board, or a resolution at an AGM. And if nothing comes of that, divesting that stock. We’re about supporting or rewarding companies that do the right thing. We’re looking at how banks are responding to the commission, who is doing the right thing, and why are they doing it.

Can ethical investing make money?

The returns have been quite strong and been outperforming the average mainstream counterparts year on year. In 2017, the benchmark report showed that these funds had been outperforming competitors over three, five, and 10-year horizons. Responsible investment is not something that’s new. It’s something that’s been consistently setting ethical funds apart.

So you are saying that are you all doing well?

The reason for that is we know the companies we’re investing in so much better. We’re not just looking at a set of numbers. We’re looking at how they’re viewed by the community, how other stakeholders view them, how they treat their customers and what the diversity is like on their boards. And how they respond to questions — that speaks volumes about a company.

Tell us about your main fund.

We’ve run a mid-cap model portfolio for roughly four years which is fossil free, and we deliberately have a positive screen on that fund. We’re looking at companies that do good in the world as well as excluding all the obvious things. And it’s done 8.29 per cent since inception, as about July 30. For the past 12 months, it’s done 5.94 per cent. And for three years, it’s done 6.96 per cent. If there’s anything there that clients don’t like, we can exclude them from it. It’s only happened once or twice, but we want customers to know they have that freedom. Listening to clients is something the financial sector clearly needs to do more of.

What ASX-listed stocks are you interested in?

The majority is in renewables: companies like Meridian Energy are doing very well. There are stocks that are not necessarily aligned to an environmental output. Hub 24 (an investment platform) is a stock we own — it’s a financial tech company that helps ethical investors to invest in stocks that have just come to the country. Separately, we like stocks such as blood products group CSL, Freedom Foods and Select Harvest.

Coal is going for another run on the stock market. When will it no longer be an investment option?

It’s estimated there won’t be any coal-fired power in the electricity market by 2030. That’s quite soon really if you’re an investor. I can’t say when a coal stock will be suitable to sell, but I would be a bit concerned.

Do you invest in nuclear or uranium stocks?

My clients and I don’t support these stocks. There simply hasn’t been a decent response to how we deal with the waste. It’s not something that’s of interest to us when we have free sun and wind to back power (laughs).

It seems like ethical investing is becoming more built into the broader financial market now … would you agree?

One-hundred per cent. I don’t even mention it most of the time; it’s just part of what we do. We care about corporate governance and we do look at diversity on the boards. Not just gender diversity but diversity of expertise. You don’t want a board that agrees on everything, that would be boring, and gender and ethnicity are a part of that.

How did you get into ethical investing?

I was working at a large financial institution that helped wealthy individuals invest their money and I became dismayed at the lack of understanding in issues beyond finance. Investing my clients’ money in Coca Cola and tobacco seemed to me against the things I wanted to support. I couldn’t see why I wanted to invest in a company that hurts people’s health. The light bulb moment for me was watching Al Gore’s first film. I realised I could make a difference by helping people help the planet.

What are your own personal investments?

A lot of my money is in our mid-cap fund (laughs). My super and my personal assets are in there because that’s where my values lie.

What was your first big investment?

Starting this business I suppose, about 13 years ago, and just understanding that I could break away from traditional financial services. I’d encourage advisers who consider moving into ethical investment to do it. There’s better work-life balance and there’s great satisfaction in influencing and changing things like water scarcity and energy efficiency. It’s unbelievably rewarding.

This article was published in The Australian Weekend

If you strongly believe that your investments should be managed responsibly and ethically, you aren’t alone. In fact, recent research into consumer attitudes by the Responsible Investment Association of Australasia showed that an overwhelming majority of Australian investors (92%) expect it. That research also revealed many other ways that values are likely to dominate investing trends for the next decade.
Below are some of the most important findings of that research, and some information on how these attitudes are likely to change investing.

Young Investors are driving a change in attitudes

Perhaps not surprisingly, young investors are the most committed to acting on their principles. Compared to Gen X and the Boomers ahead of them, they are significantly more likely to prefer responsible funds over funds that maximise returns. Nearly 9 in 10 millennial investors claimed that they would move their investments if they found that their current fund engaged in behaviour that violated their values.

Women (millennial women in particular) felt strongly that they should expect ethical behaviour from their funds. Women are a rapidly growing portion of Australia’s investors, and their strongly-held beliefs are no doubt contributing to the fact that ethical investing has gone beyond a preference and become an expectation.

Preferences for ethical investing have become expectations

Australian investors are no longer just shopping around for ethical investments; they are expecting ethical behavior as a standard. More than half of all Australians already expect that their advisers are considering societal and environmental values before making decisions about their accounts.
Moreover, it has become a priority for investors that their funds not merely avoid harmful practices, but actively seek out ways to accomplish good through investment. Investors cared most about renewable energy, but cared almost as much about societal issues such as the treatments of laborers.
Yet, ethical investors don’t believe they’re being given all the information

Australians care about making ethical investments, but many of them still feel that they aren’t getting as much information as they need to make these decisions. Nearly 60% of Australians claim that the independent information available is not sufficient. This may signal a coming demand for a legislative or 3r d -party solution.

Amid this uncertainty, certifications have become an important signal for marking ethical investments. A high percentage of Australians (86%) believe that certification by a third party is a good mark of safety for an investment. They are far more likely to prefer an investment that has been certified over one that has not.

Funds need to adapt fast

Value-based investors have become a significant amount, even a majority, of all investors. As this new generation looks for more options and more information, those who are able to create solutions that speak to those needs have the potential to carve out a powerful place. At least for the time being, investing on values may be the most profitable proposition.

Now is an important time in human history to be aware of how your consumption affects the world. Many resources may be in crisis in the next few decades, so it’s important that habits begin to change now. One way you can help is by becoming a conscientious consumer—someone who is self-aware of their habits and makes changes in those habits that are better for the earth or other people.

Here are 10 steps you can follow to become a more conscientious consumer…
Choose to do with less: One of the first things you can do to consume more ethically is to consume fewer items. Cut out the items that you don’t need.

Learn about the names behind the products you buy: The manufacturers of your products are easy to find. Research their names with your preferred search engine to learn more about them. Stop buying brands that aren’t in line with your values.

Create a list of manufacturers/brands you trust: To make ethical consumption easy, make a list of the brands that you trust based on the research you’ve done.

Continue to hold your favourite companies responsible: Make an effort to be aware of the companies you choose to purchase from. If their behaviour changes and they are no longer consistent with your values, make sure that you stop buying from them.

Choose products that are produced sustainably: There are many companies that produce products in a sustainable way, or craft them from sustainable materials. Try to choose these companies whenever possible.

Choose products that can be recycled: Recycled products are always marked with the international recycling symbol. Watch for it to help you choose recycled products.

Choose locally-produced products: Choosing local products allows you to support your own community while ensuring that products don’t have to travel far. A lot of waste is produced shipping products around the globe, so a local preference can.

Network with friends to share used products: Instead of throwing out used products, create a network to share items that are no longer needed with your friends. Baby clothes, child’s toys and old furniture are great trading items. Donation to a charitable organisation is another option that avoids waste.

Choose durable products: Whenever possible, choose the products that are designed to last. Even if it means paying more once, not needing to replace an item for a longer amount of time means both lower costs and less waste in the long term.

Provide proper maintenance for your products: Another part of choosing durable products is giving them the maintenance they need to last for their full lifetime. Even if it’s inconvenient, the proper maintenance guidelines for anything from cars to appliances should be followed closely.

Start Becoming an Ethical Consumer Today

Changing habits can be hard, but the reward for responsibility is a better world for all of us. Make an effort to become a more conscientious consumer today.

When you choose your investments based upon your personal principles instead of profitability alone, you are acting as an ethical investor. Ethical investors look at the practices of a company or fund before considering it as an investment. You should consider factors like a company’s impact on the environment, its relationship with its labor force or its interaction with the local community. If you care about how your investment will be used, and what kind of impact it will have on the wider world, then you are an ethical investor.

To understand ethical investment, it’s important to also understand how every investor can behave as an ethical investor. To invest ethically is to…

Support companies who share your values

Everyone has values. If you know the values that are more important to you, then it makes sense that you would also care about investing ethically. Ethical investors feel a sense of personal responsibility for how their investments make money. Most Australians would not deliberately choose to invest with companies that exploit children or pollute the environment. But often that is just what happens if you don’t ask where your money is invested. Ethical investors know that some companies have poor environmental and labor practices. They want to avoid these companies and put their money with businesses who are doing the right thing. By investing with companies who share your values you can successfully invest ethically.

Hold companies accountable

Even after your initial investment, ethical investors continue to hold companies accountable. You may choose to withdraw an investment from a company that has recently acted irresponsibly. Ethical investors know that irresponsible corporate behaviour does not bode well for share prices. You may instead choose to write a letter to the company. By writing letters to companies, either as an individual or with other investors, you can ask companies to improve their operations, and avoid certain business practices. By having open and clear communications with companies, ethical investors feel empowered as investors. This means that you will often be more informed of the plans and operations of your investments. Which means you can better make decisions on whether you remain invested, or divest.

Enjoy better returns!

That’s right. Ethical investment funds have outperformed mainstream funds—not just this year, but for the past 10 years! (Source: ABC NEWS, Ethical Investment funds outperforming mainstream counterparts: study, 25 July 2017). The latest research from the Responsible Investment Association Australasia again shows that Australian share funds have actually outperformed their mainstream peers over the last 10 years. Most of these better-performing investments are focused on ethical sectors such as clean energy and health care. Whilst avoiding weapons, tobacco, gambling, and fossil fuels. Ethical investors know that cleaner, greener investments are better for the planet and they also make better economic sense as long-term investments.

Start investing ethically, today

Investing ethically is taking off. In Australia today, $1 in every $2 invested has some form of ethical or responsible investment strategy. You can invest ethically too! If you aren’t sure where to invest ethically, a specialist ethical investment adviser will build and maintain an environmental and socially responsible portfolio based on your values and financial needs. We make it simple and rewarding to invest ethically.