Some of our clients have specific investment approaches that they wish to adopt. These may be for religious, environmental, philosophical or many other reasons. We are experienced in this area, and will assist you to work through and implement an approach that is most suitable for your particular objectives.
As an indication, there are broadly two types of approach to this area: removing particular types of investments you do not wish to hold (a negative screen), and favouring specific types of investment that you do wish to hold (a positive screen). Ethical investors may adopt either approach, or a combination of them.
Through this process, the potential investments will be reduced to an appropriate universe that meets the agreed ethical definitions and screens. These investments can then be assessed in terms of their quality and appropriateness under normal investment considerations. This will involve application of a variety of qualitative and quantitative techniques.
The key parameters used to assess individual companies cover a broad range of issues. Examples of positive screens are:
- Environment management. This includes environmental considerations arising from operations including pollution control and using renewable energy in the production of products.
- Corporate governance and ethics. This assesses the manner in which organisational values are established, embraced and reported both internally and externally, as well as the engagement of stakeholders.
- Workplace management. This involves human resources management, occupational health and safety and how labour standards are applied. Factors considered here include a review of a company’s track record on prosecutions in the areas of human resources, industrial relations and occupational health and safety. In addition, priority is given to companies who have the labour standard accreditations (e.g. AS/NZ 4804 – Guideline for workplaces to establish good occupational health and safety management systems).
- Regulatory compliance. This involves an analysis and assessment of the role of regulation in an organisation’s sustainability and the manner in which it organises resources and responds to its particular regulatory compliance regime.
- Product quality and stewardship. Each company is assessed on strategies and actions taken when addressing issues arising from its operations. This includes analysis of company products with respect to their environmental and social considerations including the extent to which companies aim to develop and integrate with more durable, recyclable or renewable alternatives.
Negative screens are applied such that companies which engage directly in the following industries can be excluded from the portfolio:
- activities harmful to human life, including for the unborn;
- loggers of old growth forests; and
- inhumane testing on animals.
Implementation of ethical investment approaches requires some care. There is a narrower selection of investment approaches, including both Australian and international elements.
In terms of the broad parameters, we continue to adopt the Hub Wealth investment approach for ethical portfolios. However, the choice of managers and/or direct holdings may be very different for ethical portfolios. Therefore, access to quality research, a clear agreement on the ethical parameters, and effective ongoing interaction are crucial to achieve both the desired ethical stance and effective investment outcomes.