'Best in class' not enough for ethical investors

By Tim Stewart

— 1 minute read

01 February 2018

The funds management industry has made a mistake by focusing on "materiality" thresholds and "best in class" approaches when it comes to ethical investment, says Future Super.

Speaking in Sydney yesterday, Future Super managing director Simon Sheikh – whose company excludes stocks that invest in fossil fuel, tobacco, gambling and live animal export – said the funds management industry has failed ethical investors.

"Things like materiality thresholds don't make much sense to the retail investor," Mr Sheikh said.

"If the retail investor is concerned about gambling but they invest in a company that has exposure [to gambling] like Woolworths to 11,000 to 13,000 poker machines, that doesn't add up.

"But a materiality threshold that might say 'well if it's less than 30 per cent of their revenue it's okay'. That's been the practice of many of the large institutional investors in the past."

But encouragingly, he said, that is beginning to change – with the latest Responsible Investments Association of Australasia report indicating that 'core' responsible investment strategies are the fastest growing products in the space.

Future Super Investments chairman Mark Woodall said that Millennial investors, who make up a larger percentage of Future Super members than the typical super fund, want transparency – and they want their investment products to be "true-to-label".

"They are going to want to see that when you say no coal, you mean no coal. When you say no animal cruelty, you mean no animal cruelty," Mr Woodall said.

"Not '25 per cent of a company’s activities can fall into the bad stuff, because the other 75 per cent is OK'. That’s not OK.

"They want to put their money to work in things that they think are going to do well financially and morally ... Millennials don't want dirty wealth, they want good wealth.

"And that's why you're going to have an ever increasing allocation from this investor group to these types of true-to-label ethical products."