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Bill Sharp helped pioneer the use of ethical investments in Australia. He contributed
to the first Australian book on the subject, later published by Choice and
has been a member of the Responsible Investment Association Australasia since its inception.
He regularly gives seminars hosted by Adult Education and the Tasmanian Environment
Centre. In 2006, 45% of his clients had an ethical motivation in their choice
of investments.
The SRI Symbol is a trade mark of the Responsible Investment Association Australasia(RIAA). The
SRI Symbol signifies that Bill Sharp of Financial Life Planners offers SRI products;
has undertaken continuing professional development on SRI; and conducts inquiries
regarding client sentiment about labour standards and/or environmental, social
or ethical issues. The SRI Symbol also signifies that Bill Sharp had
adopted SRI disclosure practices required under the SRI Symbol Certification
Program for the Category Financial Adviser.
Detailed information about the RIAA, the SRI Symbol and Bill Sharp can be found
at http://www.eia.org.au/, together with
the details about other SRI products certified by the RIAA.
The SRI
Symbol does not constitute financial product advice. Neither the SRI
Symbol northe RIAA recommends this financial service to any person or that returns
are guaranteed. The RIAA is not a financial services business and does
not hold an Australian Financial Services Licence issued by ASIC.
What can Ethical Funds offer you?
The increasing popularity of ethical investments is a worldwide trend that has led to an increasing number of domestic and overseas fund managers offering this type of investment. So what are Ethical Investing Funds and how do they work.
While the term ‘ethical’ may be a subjective one, there is general agreement on the overall principles of ethical investing. Ethical investors are those who seek out companies that are good citizens and do not invest in harmful industries. Ethical investing excludes companies which are active in ‘unethical’ or
environmentally harmful activities.
Some funds go beyond this, not only avoiding unethical investments but actively seeking out companies which are contributing to the common good. Often called Socially Responsible Investments (SRIs), they favour investments in companies which promote sustainable development, environmental standards, social and ethical considerations.
Investing for a sustainable world
Although ethical investments have been around since the mid- 1980s, it is only in the recent past that a real expansion in this area has occurred. In Australia, the growth of superannuation means that a lot more people are becoming investors and are taking an interest in how their money is being used. As people became more interested, more funds have been developed to meet the demand.
In 2003, the Australian Senate passed an amendment to the Financial Services Reform Act requiring superannuation funds and investment managers to disclose their policy on ethical investments. This includes the extent to which labour standards, environmental, social and ethical considerations are taken into account in their investment decisions.
Types of Ethical Funds
There are three main types of ethical fund, based on the fund manager’s approach to screening investments. These screens are known as “Negative Screens” “Positive Screens” or “Best of Sector Screens”.
Negative Screens
Negative screens, as the name implies, exclude from the portfolio of investments all companies involved in what are considered unethical activities. This will cover activities such as uranium mining, production of armaments, tobacco or alcohol, or manufacture or provision of gaming facilities.
Positive Screens
Positive screens go one step further than negative screens. Ethical funds engaged in positive screening will actively look for investments that they believe will have good ethical, social or environmental consequences. This means that the manager cannot invest in companies that are ethically neutral. This makes it more difficult to operate a fund using a positive screening process.
Some of the areas which positive screening will look at are:
- Environment
- Human rights
- Workplace practices
- Animal welfare
- Corporate governance.
Best of Sector (BOS)
This approach, by its nature, avoids the problem of diversifying investments that can arise in other ethical portfolios. The Best of Sector screening technique examines all areas of economic activity in a market against a given set of social or environmental criteria and screens out those companies that are relatively worse performers than their industry peers.
Some funds use a mixture of screening methods.
Why is ‘Screening’ important to the investor?
Each type of screen will appeal to different investor needs. Ethical funds tend to follow a more transparent investment approach than many other types of funds so that investors can feel confident that their own particular investing ethics are being met and maintained by investing in a particular fund.
How have Ethical Funds performed?
To date, ethical funds have performed quite well compared to other funds, although many of them are too new to have much of a track record.
It should be kept in mind that, because of its more stringent screening process, an ethical investment fund is not using the whole share market and may be looking at criteria other than profitability. The performance of such a fund may therefore not follow the performance of other non-ethical funds in the same sectors.
Those in favour of ethical funds, however, point out that factors such as good labour relations and the use of renewable resources are more likely to add to a company’s productivity and profitability in the long run.
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Click here to visit our ethical investments links page
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