Invest with conscience and reap the rewards

Adelaide Advertiser
Monday 5/11/2007 Page: 33

INVESTORS who take a socially responsible view of where their money goes are doing better financially than those who focus purely on profits, new research has found. Returns from socially responsible investment funds have outperformed the broader market in both Australia and offshore. According to separate studies by AMP Capital Investors and the Responsible Investment Association Australasia.

SRI funds typically screen out sectors such as tobacco, alcohol, gambling, weapons and in some cases uranium mining. Some give a heavier weighting to sectors such as wind farms, solar energy and waste management. AMP's study found the median SRI fund had climbed 28.3 per cent annually over the past two years, compared with 26.3 per cent for the ASX200 index. Over a five year period, SRI funds slightly outperformed the ASX200, up 19.3 per cent compared with 19.2 per cent. "There is an ever-growing body of evidence that if a company manages its social and environmental issues well, it will also be more likely to deliver better financial performance," AMP said.

The RIAA study, released late last month, reported similar results in Australia and found the difference between SRI funds and the broader market was even greater overseas. The average responsible investment fund achieved almost double the returns of standard international funds over the year to June 30. This came in at 20.2 per cent compared with 10.8 per cent. Over five years, international SRI funds averaged 15.8 per cent annually while regular funds averaged 6.3 per cent.

RIAA executive director Louise O'Halloran said the performance of responsible investment this year had been "outstanding." "The truly transformational growth in recent years has come from institutional investors, particularly those in the superannuation sector," she said. "Analysis of environmental, social and governance issues helps them to fulfil their fiduciary duty as long term investors, because its over the long term that these issues really start to impact portfolio value." The RIAA, which has changed its name from the Ethical Investment Association, said the nation's fastest growing and largest responsible investment fund manager was AMP Capital Investors, whose responsible investment assets under management grew from $1.55 billion to $2.89 billion last financial year.

A recent report by AMP Capital Investors says issues driving the international SRI sector included cleaner energy, environmental services and water. "While there are a range of factors at play here, one of the drivers in this area has been the formalisation of carbon markets," the report says. "In Europe after establishment in 2005, the carbon market has grown rapidly, with $US24 billion of trades occurring in 2006. "It will be interesting to see the impact of a carbon trading regime in Australia on local securities. This trading regime is mooted for 2012, regardless of which political party is in power."