22 January 2010

Australian Super Waves Goodbye to Ethical Investing

You know you have not properly integrated sustainability into your practices if, at the end of the day, you trade it off citing 'fiduciary responsibility' - exactly how much more volatile can returns be from 'sustainable' options than the rest, given the recent economic chaos?

Maybe their sustainable investment strategy wasn't as strong as that of Australian Ethical [est. 1986], widely regarded as the 'deepest green' ethical fund in Australia, whose investment process applies both negative and positive ethical screens, as well as looking at the financial performance of the company ['best of sector' is not good enough - it can mean investment in the 'least worst' of an undesirable sector such as cluster munitions manufacturers, surely one of the most abhorrent industries - warning, graphic image].

Excerpt from Ethical Investor, 20 January 2010

'Australian Super has removed its ethical screen for its $270 million Australian Sustainable Share and Sustainable Balanced options, citing the need to meet its fiduciary duty to members and to smooth out volatile returns. The country’s largest super fund said it instead wants to ensure members continue to be provided with “sustainable investment options” that are both competitive and have the potential to provide strong long-term growth...

In the past, Australian Super’s investment manager, Perpetual, excluded from its sustainable options companies that it believed to receive at least 5 per cent from the manufacture or sale of alcohol or tobacco, the operation of gaming facilities or the manufacture of gambling equipment, uranium extraction or the manufacture of weapons or armaments.

Now, the investment manager will employ a ‘best of sector’ approach, seeking out sector-leading performance against environmental, social, governance (ESG) criteria.

Nicholas Taylor, principal of independent research consultancy Outcrop, says the announcement by Australian Super was especially significant, “not just because of its size, but because it had arguably gone further by offering its members an ethical option, only to then slip into the murkier waters of ‘sustainability’.”

“For instance, having previously excluded weapons manufacturers from their investment portfolio, now firms that produce cluster munitions — which are currently being addressed under international law — could find their way into the fund's investments,” he says in an article published in New Matilda.

Australian Super chief investment officer and deputy CEO Mark Delaney says using ethical screening gives the super “a very narrow investment universe, which to some extent made the product volatile.”...

Delaney says the change will more closely align the investment philosophy and the name of the option, ensuring they are ‘true to label’.

Asked if Australian Super has any concerns that its funds now may go some way to funding firms that produce, among other things, cluster munitions — which are currently being addressed under international law – Delaney says the ‘best-of-sector’ approach acts as a “positive incentive” for companies to improve their performance against the benchmark.

“AustralianSuper is required to maximise members retirement incomes, we endeavour to cater for member preferences by offering a range of investment options and from time to time adjustments need to be made to these options to enable us to continue to meet our fiduciary duty.”

He notes Australian Super is a signatory to the UNPRI and actively works with its fund managers to encourage companies to consider ESG issues.

Australian Super has been unable to determine in the timeframe (the switch was quietly announced on 18 December) the number of members switching in and out of the option “but I do know that the amount of money being switched in and out is about even,” Delaney says.'

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