Taking stock

Businesses now have greater incentive to improve their environmental and social performance, thanks to new socially responsible investment products developed by researchers. JUNE YU reports

In today’s lucrative financial marketplace, there is a growing trend to put money into socially responsible investments (SRI).

Through the development of the Australian Eco-Share Fund, the Monash Centre for Environmental Management (MCEM), in conjunction with Westpac Investment Management (WIM), is meeting the demand to identify such companies.

The MCEM rates the top 162 companies on the Australian Stock Exchange to produce the Eco Index, which rates listed companies on criteria including their environmental strategy, management, operations, products and stakeholder relations.

The Eco-Share Fund then invests in those companies that rate highly, using a ‘best-of-sector’ approach to compile its portfolio – the first of its kind in Australia.

At this point, only 51 per cent of the rated companies have made it into the EcoShare Fund’s investable pool.

The Faculty of Arts’ MCEM was founded in 1991 as a research and consulting unit of the Graduate School of Environmental Science.

MCEM director Mr Doug Holmes says research shows that socially responsible investors look for investment strategies that reward improvement in environmental or social performance – such as reductions in greenhouse emissions and wastes.

“The best-of-sector approach provides an element of competition that motivates other companies with a lower rating to start looking at their own performance,”

Mr Holmes says. “When people invest in the Eco-Share Fund, they are selecting companies that demonstrate above-average environ-mental performance.”

Mr Holmes says evidence suggests that companies with good social responsibility records perform better on the stockmarket.

“We think this is because companies that have good environmental and sustainability management probably have good management overall,” he says.

For its work in developing the fund, Monash University this year won the prestigious Banksia Award for Socially Responsible Investment. To date, the fund has attracted $55 million in investments from leading superannuation funds HESTA, UniSuper and Australia’s largest master fund, ASGARD.

“That amount is a drop in the bucket in the Australian market – or any market for that matter,” Mr Holmes says. “But this is only the thin edge of the wedge – by the end of 2001, up to 10 super funds will have made a financial commitment to various socially responsible investment products.

“Those 10 are significant participants in the $500 billion superannuation industry. While the super funds are likely to commit relatively small amounts to SRI strategies, it’s significant that such big industry players are taking an interest in SRI.”

And businesses are getting the message, Mr Holmes says. “We’ve sat down with some senior members in very large companies who have called us to discuss their rating and ask for advice about how to improve it,” he says. “Businesses are now contacting us when something new arises – they might have set up a new environmental policy, won an award, developed some new technology, or done anything else that might affect their rating.”

While the fund is now only available to large institutions or wealthy individuals, it will soon be expanded to allow the average person to invest, via the introduction of a sustainability fund.

WIM senior manager (screened investment) Mr Erik Mather says Westpac has been researching global trends relating to the environment and financial services since 1997 with a view to developing SRI products for the Australian market.

“About 10 per cent of the US market takes into account social ratings or ethical considerations when making investment decisions – that amounts to a massive US$2.2 trillion,” he says.

Mr Mather says WIM, with the help of Monash, wants to meet anticipated demand for environmental and socially tilted investment options in the Australian market.

“The proportion of small investors in share ownership in Australia has become one of the highest in the Western world,”

he says. “Individual responsibility for financial services is increasing with more and more superannuation funds offering members some form of choice in how their money is invested.”

Monash University Accident Research Centre researcher Professor Tore Larsson is also working with Westpac to rate companies on their management of occupational health and safety issues as the basis for a soon-to-be released OHS fund.

Professor Larsson is a representative of the Commission of Occupational Health, which has about 2000 OHS experts in 95 countries who can report on the OHS performance of many companies on the Australian Stock Exchange.

For more information about socially responsible investments, contact Mr Doug Holmes on +61 3 9905 2043 or visit www.arts.monash.edu.au/ges/mcem/ or www.hesta.com.au/ecopool/

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