What is Australian Ethical?
Australian Ethical has been around for 25 years. It was one of pioneers in the ethical investment space. We are a retail super fund and we have a range of active managed funds as well. We distribute both direct to the retail market and through the advised network as well.
How do you invest?
We invest in Aussie equities, international equities, we have property, and we have fixed income – a whole range of assets.
[But] as a general philosophy and in terms of how we are positioned, we believe you invest where you can get long-term competitive returns whilst having a positive impact on society and the planet. That is our general philosophy.
Our investment process is just as important as our ethical process, so the two are very much hand in hand. We have a 23-point ethical charter that applies to everything we do. There are 12 positive elements to it and 11 negative elements to it... It sets out a broad bunch of principles that we need to take into account. We then apply a certain interpretive framework over those charter elements, such as we will seek out companies that will have a positive impact on human dignity and under that element we will invest in healthcare, for example, or medical research companies. In the negative elements [we make sure] we will avoid companies that pollute the environment or unnecessarily harm animals for example. [We have] those principles and we then apply a whole set of interpretive frameworks.
Beyond that, we are left with a certain universe. [But] ultimately it leaves us with a portfolio that avoids long-term systemic risk – for example climate change.
How do you differ from Environment, Social and Governance (ESG) investing?
Unlike a lot of mainstream companies that operate in ESG, our approach is as genuine long-term investors, and we can generally take whole system impacts into account...They [ESG managers] will take similar things into account and if it is a genuine short- to medium-term risk to their revenues then we probably have similar attitudes. However, when there is a longer term issue, such as the long-term impacts of climate change, or the longer term impacts of coal seam gas [we might differ]. For example, [the dangers inherent in] the long-term impacts of coal seam gas on the great artesian basin, it is more difficult for them to translate [those] long-term risks into medium-term valuations... From our point of view, we can make those decisions a little more clearly.
Do you think the ESG framework is a good one?
I think the ESG is a good framework. It has got mainstream managers taking these things into account and having ‘the’ conversation. The ESG though does have its impediments and those sorts of impediments [are the ones I spoke about earlier]. For example, we are genuinely concerned about climate and we are effectively coal-free and oil-free, and we also have no coal seam gas in our portfolio. Whereas with the ESG managers, they also might be genuinely concerned about climate risk, but you still find coal and oil in their portfolio.
What is the appeal of an ethical portfolio?
From our point of view, we believe it is a myth that one can’t invest in an ethical way [as well as achieve] long-term competitive returns. The only argument people give is when tracking the mainstream benchmarks, but for us mainstream benchmarks are irrelevant.
[Also] there is a growing social consciousness where people do care. They really don’t want to see the world polluted, they really believe in climate change, they don’t want to see the world pumping out emissions more than the world has agreed it can handle. They do not want to see their investments profiting from that. They do not want to see cruelty to animals [and] they care about human rights issues.
It is a values choice, but with a rigorous investment strategy. We just believe the two can work hand in hand.
What about other ethical investment options in the market?
There are quite a lot of ethical products in other people’s portfolios. We are possibly the only fund that is as committed as we are at an organisational level. Right across the business and right the across the company, the entire super fund, and the range of investment funds, we are committed in that way.
What about people who say you miss out on returns in sectors like mining?
That is a short-term view. You are approaching investing [thinking that] as long as you can get out before the next guy, you will be OK, and we don’t take that view.
There is a bit of that that applies to climate change. There is an argument to be made with climate change that there is an asset risk in relation to coal and oil reserves on balance sheets, and if that is the case, the fact the investment market is hanging on to those assets is driven by fact they can effectively get out before the next guy.
You give a portion of your profits to charity. Can you tell me more?
We give 10 per cent of our profits to charities. We think it is very a good way to operate. The whole ethos of our company is it is just as important for us to have a social and environmental impact as it is to generate returns. That is effectively a commitment at a shareholder level that 10 per cent of our profits will go to having that social and environmental impact.
