A new Australian green investment fund was launched yesterday, amid claims it is the first climate-change advocacy fund in the world. Green funds typically work by investing only in renewable energies or companies which maintain high ethical standards with regard to environmental issues, but the joint venture between Australian Ethical Investments and the Climate Institute will take a different approach.
The ‘Climate Advocacy Fund’ (CAF) is an index fund that attempts to induce positive behavioural changes in companies on the ASX 200 by putting shareholder resolutions forward at AGMs to exert influence on companies over environmental issues, such as whether companies are properly disclosing sustainability and carbon emissions reports.
Shareholder resolutions have been used unsuccessfully in the US in an effort to effect corporate policy change, such as in the case of the BP tar sands projects, but Australian Ethical Investments and the Climate Institute say that the laws in Australia will give shareholder resolutions a much better chance.
For a shareholder resolution to be forwarded at an AGM in Australia it requires the support of 100 shareholders. The resolution becomes binding if it is supported by more than 50 per cent of the shareholder votes, giving such resolutions a fair chance of success.
Australian Ethical Investments executive director James Thier told Crikey the fund will initially focus on companies in the mining sector.
“We’ll identify the actual companies that we’ll be targeting around the end of August and beginning of September, but at this stage there’s a higher likelihood that it will be the mining sector” he said. “Companies will be selected for engagement according to how they measure up against key criteria, which includes not just their emissions footprint, but climate change policy and governance, their track record of reporting emissions and strategies and management on climate change.”
Mr Thier said major interest in the Climate Advocacy Fund is expected to come from superannuation funds, but the fund is open to everyone from mum-and-dad investors to charities and non-profit organisations.
“I think industry and major superannuation funds who are increasingly involved in environmental, social and governance issues through the United Nations Principles of Responsible Investment (UNPRI) will see this as risk mitigation and a way to understanding the company better, which is fundamentally important to them and to their members returns,” says Thier.
More than half of superannuation company managers in Australia are signatories of the UNPRI, which is a framework set up by the United Nations to provide guidance to investment institutions, such as superannuation firms, to make investment decisions based on principles of environmental, social and corporate governance issues.
Mr Thier said the CAF will have a positive influence on the value of ASX 200 companies by putting forward resolutions that will prepare the way for the eventual implementation of carbon-related legislation, such as an emissions trading scheme.
“By looking at climate-related issues these resolutions are a way in which the companies can adjust to possible changes in a proactive way — rather than waiting for a regulation to come, prior to an emissions trading scheme (or whatever its going to be) I think that there is opportunity for companies to react positively, and I think that even when a system comes in it’s a way for stakeholders and the broader public to make their views known so that the companies can act and keep ahead of what the basic regulation might say, and therefore avoid reputational risk issues” Mr Thier said.
Riskmetrics ESG analyst Drew Fryer believes the fund will have a positive impact on corporate attitudes to disclosure in relation to climate change, by causing ASX200 companies to pay more attention to their shareholders.
“It’s important that green investments get funded by the institutional investor community and the private investor community, but this is another part of the landscape that I think is a very positive development as well, and I bet a whole lot of those companies in the ASX 200 have stood up and taken notice. When these things do get public attention then the companies in question are usually concerned about their reputation as they do not want to be seen as laggards,” Fryer told Crikey.
Executive director of the Responsible Investment Association of Australasia, Louise O’Halloran has been following the development of this fund for some time, and is quite enthusiastic about the opportunity it offers to small private investors.
“At the moment there are a lot of opportunities for institutional investors to collaborate and to engage with corporations, but retail investors don’t get to have a say, and it’s a really great way to bring them together under the banner of one fund and present a case so that it does get heard. It’s a milestone for Australia, I really mean that,” says O’Halloran. “This advocacy fund is the first of its kind in Australia.”
As for the companies that should be targeted first, Stephen Mayne speculated, “If you were after uranium plays then BHP, Paladin, Toro, Oz Minerals. If it was coal miners then MacArthur, Whitehaven, Centennial, Coal & Allied, BHP, Rio etc.”
“They really should go after Alumina,” says Mayne, “given it’s the biggest user of dirty brown coal fired power in Victoria courtesy of Portland and Point Henry aluminium smelters.”
By all means put Alumina and coal miners under the hammer. But no ‘Climate Advocacy’ fund worthy of the name should “go after” uranium plays, except in an affirmative sense, since uranium represents our best hope of minimising climate change. Most “ethical” investment funds are still hopelessly stuck in 1970s green philosophy, with policies eschewing uranium investment. This is the main reason I have hitherto avoided them. With such wrongheaded “ethics”, they are part of the problem.
It is excellent that such a fund, professionally managed and with access to the decision makers, exists.
My only concern is echoed by Mark Duffett, above. Uranium is almost certainly unavoidable in the quest to rebalance the world’s climate, and climate is, after all, at the root of all green investment strategies.