Taking a more ethical view

ETHICAL business is becoming big business, with a range of special interest groups bringing ethics to the forefront of government and industry decision making.

At the national level, the Federal Government’s new Financial Reform Act has imposed new reporting requirements on financial product advisers, requiring them to spell out what role labour standards, environmental, social or ethical considerations play in the selection, retention or disposal of an investment.

The new requirements put sustainability at the forefront of fund managers’ minds, even those that traditionally used sustainability and ethics as a measure of a company’s or fund’s performance.

Westpac, itself a newcomer into the ethical investment arena (after making a conscious decision in December to address bad community perceptions towards banks in general), this month acquired Rothschild Australia Management.

This week, Westpac was heralded as the first organisation to abide by the new Financial Reform Act requirements, releasing a report on its investments in light of the new rules.

Addressing a Chamber of Minerals and Energy breakfast last week, Ernst & Young environmental services leader Sean Kildare said a whole industry had sprung up around the issue of sustainability.

“It comprises a collection of academics that publish tonnes of management theory and spend a lot of time inventing new words to re-badge old concepts,” he said.

Mr Kildare said small niche consultancies had suddenly appeared with expertise in the area, as had “isolated activists”.

“And (there are) commercial interests like the socially or ethically responsible investment funds who offer us the opportunity for wealth creation without compromising our personal values,” he said.

Already more than $400 million has been captured within the ethical funds net. Glebe Asset Management, which recently received a star rating upgrade from Corporate Monitor for two of its trusts – the Pan-Asian Growth Trust and the Glebe Blue-Chip Equities Trust – is the largest ethical fund manager with more than $336 million invested.

Hunter Hall is the second largest with more than $276 million, while Westpac, following the acquisition of Rothschild, has been placed as the third-largest ethical fund in Australia with more than $235 million in ethical funds under management.

Rothschild Australia Asset Management this month celebrated its first anniversary since its foray into ethical investing.

Rothschild ethical funds product manager Leanne Bradley said a survey of financial advisers and asset consultants held last year indicated there was a definite demand for such funds, particularly if mainstream fund managers offered them. But there was still a need for great education of investors, she said.

“Australian investors are still going through the educational process about ethical investing and while only 1 per cent of the population is currently investing in ethical, we believe this could be 10 per cent of the population within the next five years, if the overseas experience is any indication,” Ms Bradley said.

“Much of the demand will be determined by the quality of existing and future ethical funds and how ethical investments perform in the medium to long-term future.”

Findings from a survey of 2,000 Australians, undertaken recently by ASSIRT and fund manager Challenger International, indicate there remained a general lack of knowledge in companies and ethical investment alternatives that balance financial performance with social and environmental concerns. Ethical investment was the one investment sector that was being largely ignored by the financial services community, the survey says.

But according to Mr Kildare, the community is far from naive when it comes to evaluating a fund or company’s performance on sustainability and ethics.

“The ability of collective community action – even small groups – has become very powerful in influencing project development outcomes.

“They are developing good media skills and have sympathetic media attention.”

Disenfranchised community groups make good stories – ask Alcoa.