This emphasis turns conventional ethical/sustainable investing on its head via an ‘inclusive’ policy – addresses ‘laggards’ A product focusing on advocacy and shareholder activism - a philosophy of active ownership to influence ESG issues.
The resolutions are intended to be largely unobjectionable. The aim is to address issues relevant to the ongoing good business practices of the company - to comprehensively consider the range of influences and impacts a company’s operation generates.
James Thier Executive Director Australian Ethical Investment TBLI Conference, London 11-12 November 2010
Disclaimer <ul><li>Please be aware that this presentation provides general information only, and is specifically for the purposes of professional review of the investment capabilities of Australian Ethical Investments Limited. It is not intended for general distribution or use by advisers and personal investors. You should refer to a copy of the Product Disclosure Statement and our website before considering investing. </li></ul><ul><li>Units in the Trusts are issued by Australian Ethical Investment Ltd (ABN 47 003 188 930, Australian Financial Services Licence No. 229949). Interests in the Australian Ethical Retail Superannuation Fund are offered by Australian Ethical Investment Ltd by arrangement with its subsidiary and Trustee of the Fund, Australian Ethical Superannuation Pty Ltd (ABN 43 079 259 733, Registerable Superannuation Entity Licence No. L0001441). The registration number of the Australian Ethical Retail Superannuation Fund is R1004731. </li></ul>
Overview of Australian Ethical <ul><li>Listed ASX independent funds manager </li></ul><ul><li>Sustainable/thematic/ESG boutique specialist </li></ul><ul><li>Established over 20 years, with an aim to pool investor savings to create a more fair and sustainable society </li></ul><ul><li>6 public trusts and similar pension/superannuation fund </li></ul><ul><li>A$640M FUM (October 2010) </li></ul><ul><li>Over 20,000 investors </li></ul><ul><li>More than 140 diverse environmental and socially responsible investments </li></ul><ul><li>Unique ‘deep green’ manager recognised domestically and internationally for its rigorous and stringent approach </li></ul>
A rising tide lifts all ships Passive index, all-inclusive
<ul><li>A breakthrough way to influence corporate behaviour via ESG </li></ul><ul><li>A constructive new way to engage with companies on environmental and governance issues </li></ul><ul><li>Addresses the issue from the point of view of inclusion </li></ul><ul><li>– ‘ a rising tide lifts all ships’ </li></ul>Shareholder Advocacy
<ul><li>'Climate change is the biggest issue facing this generation. Some would say it’s the most important issue to face all generations. </li></ul><ul><li>The scope and potential of climate change – environmental, humanitarian, health, political - makes it an overarching issue to rival the consequences of war in magnitude.' </li></ul><ul><li>James Thier, Climate Change Summit, Sydney, 2007. </li></ul>Why Climate?
Climate Advocacy Fund Retail and institutional investors who want an index like return and want to have their voice heard/pursue the UNPRI principles. Who? <ul><li>Passive portfolio construction using “economic footprint” weighting </li></ul><ul><li>Explicit legal obligation on RE to pursue “ESG charter” aims </li></ul>How? To benefit investors, society and the environment Why? A fund whose mission is to match or slightly better index returns and pursue improved ESG performance What?
How is the new fund distinct from existing screened funds? <ul><li>It potentially owns all of the companies in the ASX 200 </li></ul><ul><li>It does no active stock selection to enhance return </li></ul><ul><li>It may use its shareholdings to engage with any listed company </li></ul><ul><li>It is structured so as to “unscramble the voting power” </li></ul>Company Power to put resolutions regained Company Power to put resolutions lost 100 Nominees for AEI Still one RE - AEI AEI RE of Fund Fund Fund Climate Advocacy Fund say 1,000 investors Screened funds say 1,000 investors
<ul><li>describe their carbon emissions footprint </li></ul><ul><li>Aquila Resources Ltd and Paladin Energy Ltd </li></ul><ul><li>have a plan to reduce their overall emissions to a publicly stated, targeted level (or at least to target a reduced level of emissions intensity) </li></ul><ul><li>Oil Search Ltd </li></ul><ul><li>ensure investment decisions and balance sheet valuations are based on publicly stated, reasonable assumptions about future carbon emission pricing and regulation </li></ul><ul><li>Woodside Petroleum Ltd </li></ul>Resolutions
<ul><li>Two further enhancements are used: </li></ul><ul><ul><li>Weights are reduced in firms that have low debt coverage ratios. </li></ul></ul><ul><ul><li>They are also reduced for firms that have a cumulative pattern of earnings in excess of cashflow from operations. </li></ul></ul><ul><li>These enhancements are measured as at the most recent annual report. </li></ul>“ Economic Footprint” is calculated using 4 fundamental measures of firm size averaged over the past 5 years <ul><li>Book value (Each weighted 25%) </li></ul><ul><li>Gross dividends paid </li></ul><ul><li>Cash flow </li></ul><ul><li>Sales </li></ul>
Source : Research Affiliates, LLC. Th e simulated enhanced RAFI time series are meant to illustrate the risk and return characteristics of the current set of RA quantitative enhancements applied to the RAFI strategy over the entire simulated sample period. As we research new enhancements and refine existing enhancements, the simulated time series could look different over time. These time series are not to be interpreted literally as results from a live historical portfolio. The simulated time series can only be used to give you a representative illustration of the likely strategy behavior gross of fees, implementation slippage and transactions costs. Hypothetical or simulated performance results have certain inherent limitations. Unlike actual performance records, simulated results do not represent actual trading. Realindex Australia Value Added 1984–2010 simulated data Real index Investments
Realindex Underperforms in Irrational Bubbles 1962 – June 2009 simulated data RAFI US Large vs. S&P 500: Annualized Rolling 3 Year Return Source : Research Affiliates, LLC., based on data from Bloomberg, CRSP and Compustat. THE INDEX DATA PUBLISHED HEREIN IS SIMULATED, UNMANAGED AND CANNOT BE INVESTED IN DIRECTLY. PAST SIMULATED PERFORMANCE IS NO GUARANTEE OF FUTURE PERFORMANCE AND IS NOT INDICATIVE OF ANY SPECIFIC INVESTMENT. ACTUAL INVESTMENT RESULTS MAY DIFFER. The simulated data contained herein is based on the patent-pending non-capitalization weighted indexing system, method, and computer program product first published in an article written by Robert D. Arnott, Jason Hsu, and Philip Moore (2005), “Fundamental Indexation,” Financial Analysts Journal (March/April): 83–99. Simulated RAFI Outperforms S&P 500 S&P 500 Outperforms RAFI Real index Investments
CAF and the PRI <ul><li>We will incorporate ESG issues into investment analysis and decision making processes. (passive) </li></ul><ul><li>We will be active owners and incorporate ESG issues into our ownership policies and practices. </li></ul><ul><li>We will seek appropriate disclosure on ESG issues by the entities in which we invest. </li></ul><ul><li>We will promote acceptance and implementation of the principles within the investment industry. </li></ul><ul><li>We will work together to enhance our effectiveness in implementing the principles. </li></ul><ul><li>6. We will each report on our activities and progress towards implementing the principles. </li></ul>
Conclusion <ul><li>Individual </li></ul><ul><li>Likely better returns than the sharemarket index, same risk </li></ul><ul><li>Voice for improved corporate performance on ESG issues – specifically climate change </li></ul><ul><li>Foundation/NGO/Charity etc </li></ul><ul><li>Likely better return, similar risk </li></ul><ul><li>Chance to participate in investment actions which resonate with organisational aims </li></ul><ul><li>Super Fund/Institutional (take $ from index fund) </li></ul><ul><li>Likely better return, similar risk </li></ul><ul><li>Tangible UNPRI response </li></ul>
CLIMATE ADVOCACY FUND FUND NAME 0.2% each side (Not payable in regards reinvested distributions). Buy/Sell Spread: Nil Exit Fee: Nil Entry Fee: Nil Performance Fee: Up to 1.0% p.a. payable quarterly Advisor Service Fee: 1.1% pa - For amounts in excess of $50,000 – 0.85%pa.. Fees accrue daily. Management Fee Financial - Half Yearly Statements, Unit Pricing – Daily, Engagement - website updated quarterly. Reporting to Unitholders: $5,000 - Discounted fees available for investments in excess of $50,000. Min Initial Investment: In excess of that paid by the ASX 200 over the long term. Potential Return: Less than that exhibited by the ASX 200 Volatility of Returns: Minimum 7 years Recommended Timeframe: The Trust is structured as a public unit trust. Legal Nature of Investment: Portfolio management will be passive. “Economic footprint” weightings of companies listed on the ASX will be used to construct the portfolio. Investment Style: To enable investors to simultaneously: earn a return in excess of that paid by the ASX 200 participate in active ownership policies pursuing improved corporate performance on ESG issues . Fund Objectives:
<ul><li>James Thier, Executive Director, Australian Ethical Investment </li></ul><ul><li>[email_address] </li></ul><ul><li>Climate Advocacy Fund </li></ul><ul><li>www.climateadvocacyfund.com.au </li></ul><ul><li>Australian Ethical Investment </li></ul><ul><li>www.australianethical.com.au </li></ul>Contact