Ethical Investment for Charities

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Ethical Investment for Charities

• Philanthropy Australia
• Investment Conference
• 24 May 2005
• Louise OHalloran
• Executive Director
• Ethical Investment Association
• Phone [phone]
• Email louiseo_at_eia.org.au
• www.eia.org.au

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Ethical Investment for Charities

• Ethical investment is about aligning your
  charitys investments with its goals.
• It is based on achieving the greatest impact from
  investments by both pursuing maximum financial
  return and using investments for non-financial
  gain

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What is Ethical Investment?

• Positive Screening
• Negative Screening
• Engagement

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Fiduciary Implications of Ethical Investment

• Recently the UK Charity Commission imposed a duty
  on trustees to develop an investment policy in
  relation to how social, environmental and ethical
  issues are addressed in their portfolios
• Regarding trustee fiduciary duty - UK Charity
  Commission recognises that ethical investment may
  be entirely consistent with maximising return on
  investment

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Fiduciary Implications of Ethical Investment

• The Charity Commission acknowledges and promotes
  three situations where an investment strategy can
  be governed by considerations other than the
  level of investment return

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Fiduciary Implications of Ethical Investment

• These are where
• Investment in a particular type of business would
  conflict with the charitys aims
• An investment might hamper its work, either by
  making potential beneficiaries unwilling to be
  helped because of the source of the charitys
  money or by alienating supporters

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Fiduciary Implications of Ethical Investment

• Even if an investment does not fall into either
  of these two previous categories, trustees can
  still accommodate the views of those who
  consider it to be inappropriate on moral grounds,
  provided that they are satisfied that this would
  not involve a risk of significant financial
  detriment

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Why choose ethical investment?

• Provides a framework for trustees to make
  investment choices that are in line with the
  organisations charitable objectives
• Opportunity to strengthen loyalty by
  communicating the depth of your good work to your
  stakeholders
• Enhance reputation, boost public perception
• Strengthen the organisations work and outcomes
• Prevent negative publicity

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Considerations

• Charitys size and investment objectives
• Consider members attitudes to Ethical Investment
• Discrete mandate - fees, entry level requirements
• Ethical pooled funds
• Types of ethical funds available to suit your
  goals
• Engagement and voting strategy - alone through
  mandate, collaborative or via fund manager?
• Availability of asset classes
• Shares, fixed income, property, bonds

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Performance

• Corporate Social and Financial Performance A
  Meta-analysis Orlitzky, M., Schmidt, L. Rynes,
  S.
• The study concludes that the link between
  corporate social performance and corporate
  financial performance varies from highly positive
  to moderately positive
• New investment style designed to give rise to
  positive alpha

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Performance

• Carbon Disclosure Project
• Association of British Insurers SRI Guidelines
• Institutional Investors Group on Climate Change
• Equator Principals
• 40 of top 20 super funds in Australia have
  ethical strategy

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Performance

• AMP study - is corporate social responsibility a
  reliable predictor of company financial
  performance?
• Active share management such as SRI designed to
  give rise to higher rates of return
• Does SRI active management improve the pool of
  investible stocks by helping analysts to identify
  better manage companies?
• Removed potential biases
• Result - gt3 outperformance over 4 and 10 year
  years for companies with high CSR

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Ethical goes mainstream

• 85 of all Asian and Australian Fund Managers
  predict that Ethical Investment will be
  mainstream in 10 years.
• Ethical Investment practices include
• 1. Share voting and engagement
• 2. Positive and negative screening
• 3. The incorporation of social and
  environmental factors into corporate performance,
  usually known as triple bottom line reporting.
• 2005, Mercer Investment Consulting, 2005 global
  Fearless Forecast Survey

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Performance

• "Boards of directors don't have a mandate from
  their shareholders to spend the money in that
  way Stephen Matthews, Australian Shareholders
  Association
• Companies that operate in developing nations
  have to help create growth and stability. I don't
  believe any corporation can have a license to
  operate unless it has a community program of some
  description. Don Argus, BHP Billiton

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Next Steps

• 1. Review and fact find
• Where are current assets invested?
• Assess legal position regarding charitys
  Articles of Association
• Assess expertise and competencies of current fund
  manager
• What are other charities doing?

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Next Steps

• 2. Set Aims
• Why should you invest ethically?
• What do you seek to achieve?
• Does ethical investment link with charitys
  objects, strategy and investment aims?
• How can value be added to the charity?
• What do your stakeholders and beneficiaries think?

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Next Steps

• 3. Agree policy
• Identify investments which conflict with
  charitys aims
• Find viable financial alternatives
• Identify positive investments which further the
  aims of the charity
• Assess cost, strategy and viability for
  engagement
• Decide on style and agree resource allocation
• Produce written policy with aims, content and
  focus focus

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Next Steps

• 4. Implement policy
• Decide aims of policy and resources required
• Ensure compliance with charitys governing
  document and legal requirements
• Sign off on SRI policy
• Agree implementation strategy and appoint
  managers and advisers
• Monitor the implementation and impact of the
  policy

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Next Steps

• 5. Report and Review
• How will Trustees assess and review policy?
• Monitor performance, costs, style best suited for
  the charity, are key ethical issues being
  addressed?
• Has policy achieved aims? If not, where and how
  can improvements be made?
• Ensure policy and impact on charity is reported
  to to relevant stakeholders

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SRI Symbol
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SRI Symbol

• Accredited, independently verified provider of
  ethical investment products or services

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SRI Symbol

• Stage One SRI Symbol license available to
• Individual Financial Advisers
• Dealer Groups
• Managed Funds
• Superannuation Funds

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SRI Symbol

• Three Symbols types
• Ethical Investment
• Sustainable Responsible Investment
• SRI

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Symbol Eligibility Requirements

• Fund Manager
• Fund applies a systematic SRI methodology in
  selecting stocks
• PDS has been reviewed by Grant Thornton and meets
  key requirements
• Fund has disclosed performance and stock holdings
• Is a member of the EIA

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Symbol Eligibility Requirements

• Superannuation Fund
• Offers members an ethical investment option that
  is accredited
• OR invests 5 or more of fund in accredited
  ethical product
• Provides educational information
• Is a member of the EIA

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Symbol Eligibility Requirements

• Dealer Group
• Has SRI accredited products on its approved list
• Has included SRI questions in its Fact Find
• Supports adviser network with SRI training
• Is a member of the EIA

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Symbol Eligibility Requirements

• Financial Adviser
• Has completed the full EIA training course on SRI
• Includes SRI questions in Fact Find
• License renewal requirement - can provide
  evidence to demonstrate SRI practices such as
  Fact Find questions and model portfolios
• Is a member of the EIA

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SRI Symbol - how will charities benefit?

• Most comprehensive marketing and profile-raising
  initiative ever undertaken for Ethical Investment
  in Australia
• The Symbol is a world-first, providing you with a
  compelling reason to communicate with current and
  potential donors and stakeholders
• Provides an opportunity to promote the integrity
  of your charity to potential donors and
  current donors

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SRI Symbol - how will charities benefit?

• Engenders trust in potential donors
• Provides a tangible method by which to
  demonstrate, exemplify and promote the values of
  your organisation
• Qualification for the Symbol strongly
  differentiates you from other charities,
  increasing your competitive advantage
• The Symbol demonstrates that you are up to up to
  date with leading edge investment practice

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Thank you

• NSW Department of Environment and Conservation
• Ys Communications
• Grant Thornton
• AMP Capital Investors
• Hunter Hall International
• Baker McKenzie
• InvestorInfo

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Thank you!

Louise OHalloran Executive Director Ethical
Investment Association Phone [phone] Mobile
0412 924 014 Email louiseo_at_eia.org.au Website
www.eia.org.au