'Ethical' investment is booming

A recent Corporate Watch Australia survey reveals that many so-called ethical investment funds invest in uranium mining. The number has in fact risen significantly in recent years. This is sometimes justified with questionable arguments about nuclear power and climate change, but the primary reason is probably BHP Billiton's entry into the uranium mining industry with its 2005 acquisition of WMC Resources - and thus its acquisition of the massive Olympic Dam uranium deposit in South Australia.

Of 16 ethical investment funds studied:

• just two have policies that allow no investment in uranium or nuclear power - Australian Ethical Investment and Perpetual Investments;
• two have no policy - Sustainable Asset Management and Sunsuper;
• nine have policies that allow limited investment - AMP, Ausbil Dexia, BT Financial Group, Challenger, CVC Sustainable investments, Hunter Hall Investment Management, ING, Just Super and Local Government Superannuation Scheme;
• one is pro-nuclear - Atom Investment; and
• two had closed their ethical funds.

Of the funds that have limited investment:

• four allow investment in companies that get below a certain percentage of their income from uranium - AMP (5 per cent), Ausbil Dexia (50 per cent), ING (5 per cent) and Just Super (5 per cent);
• three screen out uranium mining but have no policy on other parts of the nuclear cycle - CVC Sustainable Investments, Hunter Hall Investment Management and Local Government Superannuation; and
• two screen out uranium mining for weapons production but have no policy on other uses of uranium - BT Financial Group and Challenger.

This information only relates to the companies’ “ethical” funds; most do not apply equally rigorous policies to all of their funds. A company can have an “ethical” fund as one of a range of different options, reducing ethics to a matter of consumer choice.

There are obvious ethical problems with this: for a start, it leaves decisions on whether to invest in a sector in the hands of the consumer, rather than the people whose land is being mined.

The “ethical” investment sector

Ethical investment is booming: from its origins in 1984 with a fund nicknamed “Brazil” - because you'd have to be nuts to invest in it - the sector is now worth $2 trillion worldwide. According to the Responsible Investment Association of Australasia, "Core responsible investment ... grew by 43 per cent in 2006-7 from $13.52 billion to $19.39 billion."

The same report states that from 2004 to 2007 in Australia, managed responsible investment portfolios grew from $4.5 billion to $17.1 billion.

However, this growth is accompanied by a crisis of definition and a dilution of its original principles. The concept “ethical investment” is vaguely defined, with no agreed set of rules. Fund managers make their own rules, and their definitions of “ethical” vary. Many funds now call themselves “sustainable” or “responsible” rather than ethical, but this has not resolved the lack of clarity. Any potential investor who wants to avoid certain sectors must do their own research and read the small print.

The sector is now more commonly termed “Sustainable and Responsible Investment” (SRI). In Australia it is represented by the peak body, the Responsible Investment Association of Australasia (RIAA). RIAA describes SRI as “an umbrella term used to describe an investment process which takes environmental, social, ethical or governance considerations into account”.

RIAA manages Australia's certification program for providers of responsible investment products and services. Certified companies can display RIAA's “Responsible Investment” symbol: however, there is nothing to stop any other fund calling itself sustainable, responsible or ethical without going through the certification process, and they frequently do.