Putting Money Where Your Mouth Is // Investing Green
The startlingly provocative framed image of wind turbines caught my attention as a postcard collected during one of my weekend coffee trips through the inner suburbs. Turning it over I discovered an interesting advertisement for a company known as Australian Ethical Investment, which describes itself as a firm which places money in “a clean energy future instead.” This prompted me for this particular post to look at the wider social implications of sustainability and opportunities for investment.
We often talk about living sustainably, as responsible citizens, we try to sort our garbage for recycling, we turn off electrical appliances we are not using and we take short quick showers to reduce water consumption. We are clearly aware that sustainability is not merely a process for institutions and processes, but also a way of living in urban environments. At the same time however, Australian Ethical’s discussion on superannuation however raises for me an interesting question: Where is your money actually going?
I think this is a question we don’t really ask ourselves and is not often sold as part of investment packages by banks or institutions. We may not realise it, but it is almost certainly the case that we are unknowingly being unsustainable, regardless of how sustainably we live. A level of ignorance has meant that we have invested blindly, blissfully unaware of how we maybe in fact, indirectly investing in the destruction of our own environment. The first thing to recognise therefore is that Australian Ethical has created a new level of consciousness, bringing in sustainability not only to the forefront of your potential investment portfolio but recognising that we can in fact use our money to support a more sustainable future.
With a total accumulated estimate of AUD$ 1.8 trillion (ASFA, 2014) currently floating in the local market for superannuation funds (AUD$ 3.0 trillion including overseas funds), Australian Ethical’s 20 000 investors and AUD$ 800 million (Australian Ethical, 2013) certainly seems like an insignificant amount. Upon first glance however, it was pleasing to note that there is clear incentive to investing in systems within the construction industry, two examples being the following:
SIMS Metal Management Ltd (Australia) - a firm which collects and recycles computer, industrial and construction waste metals.
Herman Miller – interior design solutions, most systems designed using recycled/bio-degradable or ethically sourced materials and processes.
While I of course recognise that most of this information has been obtained directly from Australian Ethical, and that therefore a certain level of corporate bias will exist, the major financial services company Standard & Poor’s once commented that “Australian Ethical Investment is arguably the only true green fund operating in Australia.” (Sydney Morning Herald, 2007). Disregarding a debate of how biased some of the information may be, it is nonetheless commendable that companies developing creative ideas and systems for a sustainable future can now be directly invested by any person such as you or me.
Increasing awareness of environmental issues through mass media has also precipitated an increased criticism of stakeholder-value maximisation (that is, profits, regardless of potential socio-environmental harm) in investment specifically because of a lack of accountability (Renneboog et al., 2008, p. 1730). As a result, there has been an increased belief in Socially Responsible Investment (SRI), now marketed by many firms as promoting “socially and environmentally sound corporate behaviour” and through a process known as ‘negative screening’, investors avoid companies linked with exploitation and/or industries which potentially produce health harming products (Renneboog et al., 2008, p. 1730).
In a way the now increasing acceptance of the end of the so-called ‘resources mining boom’, which has for many years desecrated and exploited Australia’s apparently unlimited natural resources may be viewed as having a silver lining, and hope is certainly present and there is an increasing interest in sustainable investment opportunities. In an age where we can no longer necessarily rely on government incentives to fund innovation, companies such as Australian Ethical can help individuals make their choices clearly, helping to develop an industry of sustainability. It was found in 2012 that while mainstream Australian share funds had net returns at 18.00%, Australian Ethical investments had returns at 21.45% (Collet, 2013), indicating a slowly increasing profitability in the market and perhaps finally, existing businesses will also see the virtue of investing in a sustainable future.
References
Association of Superannuation Funds of Australia (ASFA). “Superannuation Statistics: Statistics for February 2014”. Accessed 8 April 2014 via: http://www.superannuation.asn.au/resources/superannuation-statistics/
Australian Ethical Investment Ltd. “Our Ethical Approach”. Accessed 8 April 2014 via:
http://www.australianethical.com.au/our-ethical-approach
John Collett. “Ethical Funds Outperform.” The Sydney Morning Herald (12 July 2013).
“Keen to be Green? Follow your Values with your Money.” The Sydney Morning Herald (22 April 2007).
Luc Renneboog, Jenke Ter Horst, Chendi Zhang. “Socially Responsible Investments: Institutional Aspects, Performance, and Investor Behaviour.” Journal of Banking & Finance 32 (2008): 1723-1742.