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It's easy being green. Australasia investments
By Anthony Keane / November 09, 2007 12:00am
THESE days it's easy being green. Consumers who want to do something to help the environment have many options, such as solar power or water, environmentally-friendly light bulbs, rainwater tanks, or even purchasing some of their home electricity from renewable energy sources.
Investors and superannuation fund members also have a fast-growing list of options to ensure their money helps make the world a better place, or at least does not damage its fragile environment even further.
Ethical investments, also known as socially responsible investments, are booming in popularity. The good news for investors is that returns have been as good or better than those provided by traditional investments.
Research by the Responsible Investment Association Australasia shows total funds under management in the responsible investment sector grew 43 per cent last financial year, from $12 billion to $17.1 billion.
The Responsible Investment 2007 report said mainstream fund managers were also integrating environmental, social and governance issues into their financial analysis and stock selection.
So what is responsible investment and how does it work?
"Responsible investment is an umbrella term to describe an investment process that takes environmental, social, ethical or governance considerations into account,'' the RIAA said.
Some funds have negative screening processes, meaning they avoid putting money in companies involved in areas such as tobacco, armaments, alcohol, uranium, gambling or animal testing.
Other funds have a greater focus on industries that have a positive effect on society or the environment, such as water and waste management, renewable energy, mass transport, health care, sustainable agriculture or education.
Not all funds are created equal. South Australia's biggest superannuation fund Statewide said definitions could differ between funds and investment managers.
"As a guide, investors should look for investment managers or super funds that have signed the United Nations Principles for Responsible Investment,'' Statewide chief executive Frances Magill said.
"By becoming a signatory, organisations agree to consider social, ethical and sustainable practices when making their investment decisions.''
An example of different views is whether uranium mining is included or
excluded from an SRI fund.
It has been estimated that half the ethical funds in Australia hold investments with uranium interests. These funds are potentially delivering higher returns through their exposure to mining giant BHP Billiton, which owns South Australia's Olympic Dam copper and uranium mine and has had share price gains of about 100 per cent since January.
JP Morgan vice-president David Jones-Prichard said "the jury's still out'' on whether uranium miners should be included in ethical funds.
However, other forms of alternative energy are a walk-up start, he said.
"Looking globally, alternative energy has done well relative to benchmarks. Alternative energy has been the flavour of the year. A lot of people have woken up to what's going on in the world.''
He said the outlook for the sector was positive.
"Ethical investment has been around for a long, long time but it's really taken off in the last two or three years, and I think we are going to see more money flowing into ethical funds,'' Mr Jones-Prichard said.
"If you ask yourself, `Am I going to give up performance by investing ethically?', I think the answer could be `No' and that's the key question.''
Statewide's Frances Magill also sees a bright outlook for socially responsible investing.
"Already we're seeing banks and mining companies promoting their strong focus on sustainable investment practices as they recognise that sustainability holds the key to doing business in the future,'' she said.
"Studies have shown that companies engaging in sustainable practices are more likely to perform better over the long-term, and this will create benefits for shareholders.''
Finding an ethical investment fund is easy. Investment companies offering socially responsible investment (SRI) funds include AMP, BT Financial Group, Hunter Hall and Perpetual.
By searching under "ethical'' or "SRI'' on the Morningstar.com.au website, people can compare ethical funds' performance and fees.
It can be tricky in superannuation. While Australian Super, the nation's biggest industry super fund, has SRI options, not all super funds do.