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Ethical investing: profit and purpose no longer head to head

When Peter Hall founded Hunter Hall in 1993, his was one of only two ethical investment funds in Australia. He launched his first fund in 1994 managing $1 million. Australian Ethical held $60 million. Today, the company is one of Australia’s largest dedicated ethical funds in a sector worth over $629.5 billion.

Half of the money in professionally managed investments in Australia today is held by funds that claim ethical, socially responsible or good governance status. It’s a global thing. Global sustainable investing assets have risen 61%. They were worth $21.4 trillion at the start of 2014. I don’t know how many zeros there are in 21.4 trillion, but it’s a lot of money and represents more than 30.2% of professionally managed investments.

With all this money invested in ‘good’ things, you’d think the we’d have changed the world by now. But that remains a work in progress.

Ethical investing: when companies and sectors are screened out, and not included in portfolios if they make or sell certain products.

Peter Hall’s personal motivation to create an ethical investment fund reflects a life-long commitment to animal welfare and a belief that our current economic model is simply not sustainable. “We live in a physically limited environment, but our economy is managed as if there are no limits to the planet. Growth, growth, growth is an incessant mantra.”

The challenge, he says, is to reconcile “the needs of the economy and the needs of the environment.” But has changing the world become a happy by-product of the ethical (socially responsible, impact) investment sector? After all, there’s money to be made. Perhaps there is an element of common sense money management behind it. Firms that use corporate jets underperform the market by 4%, according to research by Stern School of Business, 2006. Companies that generate the least waste relative to product value – have a high ‘eco-efficiency’ – outperform, says a study out of RSM Erasmus University, the Netherlands. Companies with greater shareholder rights where the chief executive holds a large stake, outperform.

The Wall Street Journal argues that socially responsible firms are good investments because they have long been undervalued. Sales growth and profits are reflected in the stock price. Less tangible measures – like eco efficiency – are harder to evaluate and easier to miss, and so there are bargains for astute investors.

Hunter Hall’s own Value Growth Trust fund has returned 13.5 per cent a year since 1994, compared to 6.1 percent for the global equity benchmark index, MSCI World. But an ethical label does not guarantee high returns. Hunter Hall’s Global Deep Green Trust has underperformed the benchmark MSCI Global by 2.5% since its inception in 2007. “The playing field is continually being changed and morphed by shifts in government policy. Frankly, we have lost a lot of money in dark green investments. but we’ve made a lot in medical technology,” says Hall.


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