Conscious capitalists cash in

Published in, June 2014

Superannuation research company SuperRatings agrees that ethical and sustainable funds often outperform market averages.

Its annual analysis of super funds found that those with responsible investment standards outperformed the average balanced fund in the three main performance periods of one, three and five years.

Sustainable share funds also outperformed standard Australian shares during the same periods by almost 2 per cent in some cases, SuperRatings research manager Kirby Rappell says.

“Overall we would say ethics and profits can be combined and generally we would suggest most funds are slowly moving along the path of making their investing more sustainable,’’ Rappell says.

Specialist fund manager Australian Ethical says there is $153 billion currently managed in responsible investment portfolios throughout Australia, representing about 16 per cent of all assets under management.

Ethical funds, in particular, make up about $15.2 billion within these portfolios.

Australian Ethical spokesman Paul Smith says the profit versus ethics debate is long settled, with responsible investment funds often outperforming the others.

“Ethical funds have been outperforming mainstream in not just shares domestically but also international share funds and multiasset funds,’’ he says.

“You do not have to compromise returns to be an ethical investor — ethical investors are like anyone else, they mostly invest in listed companies and listed companies obviously need to make profits.

“The universe of investments is different to a mainstream investor and not everybody’s ethics are the same, so there are several different types of ethical investments and screens.”

Smith says the two main styles of ethical investment strategies are a negative or positive screen.

\Negative screens specifically exclude companies involved in unethical or harmful products or services such as fossil fuels, animal cruelty, defence contractors, pollution or human rights issues.

A positive screen actively looks for companies which make a positive impact. “They will be heavily in to clean energy, health care, sustainable products, public infrastructure,’’ Smith says.

Fund manager Wealth Within analyst Dale Gillham says responsible and ethical investing is becoming more popular.

“Since the global financial crisis and the washout of corporate greed and dubious practices, the investing public has become more and more interested in ethical investments and less trusting of corporations,’’ Gillham says.

“The GFC provided the public with a very real and stark reminder that ‘profit at all cost’ means that someone loses.

“Can ethics and profits mix? Absolutely. However, it will only be wide spread if the investing public continue to develop a bigger and louder voice by demanding it — or putting their money where their mouth is.”

AMP’s Shane Oliver says investors are increasingly demanding more options that involve responsible investing, and this is leading to more fund managers adjusting their assets and portfolios to ensure they meet the demand.

In Australia, however, he says the demand has been slower than in Europe and the US. International investors have been quicker to realise that companies with reduced exposure to things like unethical practices, pollution, war and environmental hazards also reduce the risk to a company’s profits, Oliver says.

Back to Articles