A deeper shade of green SME profile

A Canberra-based organisation is catering to the increasing preference of Australians for investments which consider social and environmental factors – as well as a clean profit. Fiona Stewart reports.

Although managed investment funds have taken a battering of late with returns often way below expectation, a Canberra-based public company is faring much better despite political and economic uncertainties. What's more it is the only such company solely devoted to ethical investment in Australia.

Australian Ethical Investment began trading on the ASX at the end of last year. Described as "deeply green", the company, has a trading history of 16 years.

According to CEO Anne O'Donnell, its business is solely the management of ethical investments.

"The difference between AEI and conventional investment lies in the application of the principles of the Australian Ethical Charter, which guides all investment practices of the trusts," O'Donnell says.

"The company aims to give many small investors an opportunity to pool their funds, to allow meaningful investments into activities that support the environment and society generally, while generating sound financial returns."

O'Donnell maintains that in the three months to the end of February 2003, the share market has fallen by 8 percent. During that same period AEI's Equities Trust has risen by 3.2 percent, its Income Trust by 1.2 percent and its Balanced Trust by one percent while the Large Companies Trust has fallen by only 2.4 percent.

Some investors would be delighted if their funds managers were doing as well.

Ethical investment had its contemporary beginnings in the Vietnam War protests and the anti-apartheid movement in the US during the 1960s. Growth since the 1970s has been profound, though the focus has progressively altered to encompass and emphasise an ethic of environmental responsibility.

Financial performance has been admirable due to a capacity to foresee constraints which impair company performance. For example, refraining from investing in the nuclear power industry on environmental and pacifist grounds has kept funds clear of the disastrous investments offered in that industry over the last few decades. More recently the same holds true for the tobacco industry, and its declining fortunes.

AEI was established in 1986 and originally managed a private ethical trust, until 1989, when the August Investments Managed Trust (now called the Australian Ethical Investment Trust) was opened to the public.

Today, AEI operates four public unit trusts and a superannuation fund, with a shareholder base of 135 and serves a rapidly-growing client base of around 10,000 ethical investors with approximately $200 million in funds under management "Investments in the Australian Ethical Trusts are selected in pursuit of a just and sustainable society, the protection of the natural environment and the provision of a competitive financial return to unit holders," said O'Donnell. "These objectives are put into practice through the Australian Ethical Charter – the principles guiding the assembly and expansion of a portfolio of more than 70 broadly based environmental and socially responsible investments.

"The charter is unique in the Australian investment scene in several important ways," she said. "By combining 12 facets of corporate activity to be actively sought out and supported with investment, it provides a positive balance to the 11 facets which it lists as things to be avoided. It is applied in an integrated manner; not just as an 'ethical screen' to vet and veto financially selected investment proposals.

"As a consequence, AEI investments go beyond some of the more common ethical practices of avoiding investment in repressive regimes, militarism, uranium mining, tobacco and alcohol production, gambling, rainforest/old growth logging, woodchipping or animal exploitation. The company also provides support to environmental and socially responsible activities. These include recycling, conservation, energy efficiency, preservation of endangered species, animal welfare, and a range of related issues," said O'Donnell.

In the US, some $25 trillion is held in ethical investment portfolios and in Australia ethical investment funds are growing at something like 12 times the rate of the wider managed funds sector.

Based on figures compiled by the EIA, assets in Australian managed funds which adhere in some form to socially responsible investment guidelines increased by 522 per cent between 1996 and 2001.

That growth, the EIA report claims, reflects "the increasing preference of Australians for considering social and environmental factors".

There is also "clear evidence that financial returns of socially responsible investments can match and often exceed those of more traditional investment".

Last year AEI was awarded the second annual Socially Responsible Investment Banksia Environmental Award, said to be the country's highest accolade for environmental achievement.

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