Ethically Invest

“In South Africa, we could not have achieved our freedom and just peace without the help of people around the world, who through the use of non-violent means, such as boycotts and divestment, encouraged their governments and other corporate actors to reverse decades-long support for the Apartheid regime”.

Desmond Tutu’s words on Apartheid are as relevant as ever when applied to climate change and fossil fuel divestment. Sure, most Australians don’t debate that climate change is real and we’ve got to move to renewable energy sources. But the harsh reality is that whether they know it or not, most Australians invest in the companies who are the biggest contributors to climate change, via their superannuation funds.

It’s been proven that burning all of the worlds’ current reserves would have catastrophic results for our climate (If you haven’t yet read ‘Global Warming’s Terrifying New Math’ by Bill McKibben in Rolling Stone magazine, check it out. Written in 2012, the ‘Math’ has become even more terrifying today). But Rex Tillerson, CEO of Exxon Mobil, the world’s largest oil company, earned approximately $68m USD in salary in the last two years, on the back of record profits. Is there really enough incentive for him to change?

The super funds will probably change, right? That’s a dangerous logic to use. For example, look at HostPlus Super – the $15bn industry super fund for over a million members in the hospitality, tourism, recreation and sport industries. These industries have done so much to exclude smoking from their workplaces – but why is their super fund still investing so much of their money in tobacco companies1? Super fund trustees have certain responsibilities and obligations when acting on behalf of their members. One of those obligations is to maximise investment returns for their members. Some trustees seem to conveniently regard this rule as ‘to maximise investment returns at any cost’, without considering ethics – how else could Gunns (now defunct), Monsanto, and Exxon, among others, appear in so many portfolios?

Australia’s superannuation system is the fourth biggest in the world2, and internationally our system is highly respected as a successful model. However it suffers from a lack of transparency of investments. Government regulations aimed at full disclosure of investments in super were due to commence 1st July 2014, but were delayed until next year, with super funds citing administrative headaches in implementation, among other issues.

Super fund members will probably change, right? But many Australians are disengaged from their retirement savings. Why? After all, it’s just an investment with a different set of rules around accessibility and tax. We’ve created a system where for many investors it’s just a bit too confusing to comprehend, so it goes into the mental too hard basket’. So we’re left with the conundrum that many of us commit to living sustainably, whilst ignoring their investments in some of the most unsustainable companies in existence! It seems contrary to common sense that super fund members have to opt out of investments which, to most of the population, seem questionable. Why don’t we instead take a starting point of – for example – avoiding investment in tobacco, alcohol, gambling, armaments and fossil fuels, and then give members the opportunity to opt in if they see fit?

The issue certainly isn’t that ethical investments suffer from lower returns. In July, the 2014 Annual Benchmarking Report was released by RIAA (The Responsible Investment Association of Australasia) which showed (again) that ethical investments perform better over most timeframes, whether Australian, International or diversified investment funds3.

There is a new rapidly expanding movement, uniting people globally to act on climate change before it’s too late. Organisations such as are calling people to action by divestment from banks that lend to fossil fuel projects as well as companies operating in that area. The next national Divestment Day is on 18th October, and it will be a

big event around the country. And it works… the banks have started to realise that it’s not a good look having queues of people outside of their branches waiting to close their accounts.

The Minerals Council of Australia has recently stepped into the debate, suggesting that the coal divestment campaign “may breach Australian law”4. This conflicts directly with experts such as former vice-president of the US, Al Gore, and his colleague, highly respected fund manager David Blood, senior partner at Generation Investment Management. ‘Blood and Gore’ have written extensively on the coal divestment campaign. They say that the call for investors to divest from coal assets has been largely based on harmful social and environmental outcomes, and that these would by themselves be enough to convince many investors to sell coal assets. However, they suggest that it is also a smart investment decision for purely financial reasons because the transition to a low carbon economy will mean that the repricing of carbon-intensive assets is likely to happen more suddenly and turbulently than many investors expect, and the market’s reaction will be neither gradual nor linear5.

As a Financial Planner and Board Member of the Ethical Advisers’ Co-op, I’m promoting the view that ethics should be part of the investment discussion for every client. It just makes sense. I’ve met with Mums and Dads, students, retirees, business owners and universities to talk about investing in line with their ethics and divestment. Whether you have $5,000 or $500,000, it doesn’t matter – your voice can make a difference.

Don’t be part of the silent majority. Be a part of the (growing) vocal minority!

By James Baird B.Com, Fdn DFP, MBA

2Deloitte ‘Dynamics of Superannuation 2013’ report coal_divestment_campaign

5Strong economic case for coal divestment’ Al Gore

Be the first to comment on "Ethically Invest"

Leave a comment

Your email address will not be published.