Aussie trillions driving climate change

By Jack Derwin

November 08 2016
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Investors are increasingly looking to invest ethically and Australians find themselves at an acute disadvantage with trillions of their money invested in undisclosed sectors.

Ethical investment, otherwise known as impact investing, is on the rise with a recent whitepaper from New Standard Life Investments finding that 80 per cent of respondents in the UK rate human rights, equality and eradicating poverty as important considerations when investing.

However, here in Australia, where superannuation accounts for well over $2 trillion, the vast majority of that investment remains undisclosed.

Environmental finance campaigners Market Forces told nestegg.com.au that this places Australian investors who want to invest their money ethically at a huge disadvantage, especially when it comes to sectors contributing to climate change.

“There are investors that would love to go fund by fund and see what their exposure is to the fossil fuel sector but it’s virtually impossible,” Market Forces analyst Daniel Gocher said.

“How do you invest ethically if you don’t know where your money is going? With a lot of super funds, you might be able to say, ‘I know where 10 per cent of my investment is going, but how about the other 90?’”

According to Market Forces’ research, 83 per cent of assets under management in Australia’s 50 largest super funds, totalling nearly $1 trillion, are undisclosed.

This makes a striking contrast with the 86 per cent of Australians who believe they should have a right to know where their superannuation is invested.

“What we’ve heard from super funds about this when we’ve asked them about disclosure is that publishing their holdings is a cost and time-consuming. Those excuses were fair ten years ago but now we live in a digital age that argument is complete nonsense,” Mr Gocher said.

“They know what their holdings are, they do it every day. I’d be very surprised if super funds aren’t cutting a daily unit price these days and to argue that publishing that information is going to cost members is absolutely ridiculous. They should be able to put up a file every day if they wanted to, and that can be done in an almost automated process, if not entirely automated,” he said.

“Disclosure means a more free market, more information and better decision making for everyone.”

According to Standard Life head of responsible investment Amanda Young, investors don’t expect to sacrifice ethics for returns, as a growing number of ethical options are created to cater for this market.

“The case for impact investing is strong. It represents a tangible way for socially and environmentally aware investors to deploy their capital in a manner that meets their environmental, social and financial goals,” Ms Young said.

“As we move forward, we will no doubt see a wider range of investment vehicles, as well as more diverse impact targets. Measurement will also become increasingly sophisticated and standardised.”

This was reinforced by the 2016 Responsible Investment Association Australasia annual report, which found that responsible investment equities funds outperformed both the ASX 300 and the average large cap Australian equities funds across one, five, and 10 years.

“The evidence is there that if you do invest ethically, you can outperform other investors,” Mr Gocher said.

“We’d ask, why would you invest in an industry that clearly has an end life? We have to draw a line in the sand somewhere and can’t keep investing in these industries anymore. If you’re looking at long-term growth, it’s clearly not going to be in fossil fuels.”

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