Contents at a Glance...
Investing Ethically, Saving Forests
Things that a few years ago seemed ridiculous, are today deemed self-evident...
Nothing in this world ever gets done without people who are visionaries. These are the individuals who can see beyond the everyday problems, can plan long-term and look at the big picture. Ethical Investment or Directed Investment is about being a visionary with your money. It is about changing the way you invest so that your money will help both the environment and society rather than destroy them.
In the mid-eighties, investors attempting to assemble a portfolio of ethical investment prospects would quite likely have been ridiculed. The consensus would have been scepticism: could a company which, say, removed pollutants from the environment make money? Surely it would be better to invest in companies like Qintex, Bond Corp or Rothwell Bank - that would be where all the 'smart' money was!
CAN ETHICAL INVESTMENT SAVE FORESTS?
Commercial plantation investment in Australia has not been a raging success. To date, there are few groups that have been able to make headway in this area. Some of the drawbacks have been:
1. Time required to mature
Not many fund managers are willing to wait 25-plus years before obtaining a return on their outlay. Many are driven by results and impatient investors. Even superannuation managers have avoided forest-based businesses.
2. Nervous investors
There have been many crop and forestry-related schemes that have 'gone to the wall', taking investors' funds with them. So, naturally people are more cautious about where they place their money.
There have been no guarantees that 25 years hence, the trees will be sold at the prices and volumes required to give investors a reasonable return on their investment.
4. Government intervention
Often, State Governments have been a hindrance when it came to getting new projects up and running. On the other hand, they have appeared quite happy to allow large, private corporations to decimate public native forests.
There are now a few fund managers who have financed the establishment of monoculture tree plantations in south-eastern Australia, using such species as Tasmanian Blue Gum. These particular plantations are proving to be commercially-viable and an initial crop can be anticipated at around the 10-year mark, which makes them a quite attractive proposition. The wood that they produce will be used to replace natural hardwood quotas. The plantation land on which they have been established was previously degraded farmland. The trees will thus help to stem wind and water erosion, as well as control excessive salinity and algae problems.
It is not the perfect solution. In fact, the trees will all be chipped, but it is a step in the right direction. It is what the forest industry needs to do to prove to the public that it can be done. Similar, monoculture-type plantations of radiata pine are being tended in NSW and Victoria that already provide timber for the building industry. Again, this is not truly ethical investment, but it will provide an impetus for future sustainable projects.
Obviously, as ethical investment advisers, we would like to direct investors to support truly ethical and sustainable forestry. This would require that any new plantation be comprised of mixed-species, with the ability to provide short-term income through say, fibrous cover-crops, bush-tucker or leaf fodder, etc, whilst the diverse variety of species would provide medium to long-term income. This could be achieved by the management of existing private or government-owned plantations and implementing ecological management controls. A plantation would need to be sustainable from both an ecological and economic standpoint. To be successful, sustainable forestry needs two groups: foresters with the expertise to establish and maintain the projects, and investors who are willing to put their money into such long-term ventures.
By law, investment advisers are restricted to a list of recommended investments. Potential investments have to comply by their directors issuing a prospectus, which is a costly and time-consuming undertaking. Another way for ethical investors to participate in a forestry project is for an ethical investment-fund manager to take a shareholding in, or loan money to the project. The Australian Ethical Investment Trust has one such scheme within its funding portfolio.
In the future, government support in the guise of additional tax-breaks and possible underwriting of some projects could make forestry far more attractive and accessible to investors. There are already millions of dollars invested in companies like Boral Ltd, who are making handsome profits, but are employing unsustainable forestry techniques. Our job as ethical investment advisers is to move the investment away from companies like Boral and towards ecologically and economically-sustainable companies. It is a slow process, but one that is gaining momentum - because it is an idea whose time has come. Some people are investing today in what will be the obvious choices of tomorrow.
CAN ETHICAL INVESTMENTS MAKE MONEY?
The company which decontaminates water and recycles the filtered matter as mentioned above is Memtec Ltd. In September 1985, their share price was 84 cents. Currently, shares are at $2.25, giving a 267 percent return on the purchase price after 10 years, which does not take into consideration any dividends paid. If the Bond, Qintex or Rothwell shares were owned by environmentally-conscious investors, they would have been mulched or hung from a nail in the dunny by now. But at least then, such companies could be said to have performed one environmentally and socially-useful act.
In 1994, superannuation funds in Australia controlled more than $189 billion - twice as much money as they managed the previous year. This could be the financial energy which holds the key to a greener, more viable future for our economy.
Little of this, however, finds its way into ethical investment porfolios. That may be about to change. With the government insisting on all supported employees being given the superannuation guarantee of at least four percent of salary, and looking at the option of employees having to contribute an additional three percent of salary, there is a huge potential for even the lowest paid workers in Australia to invest ethically.
There are two or three Master Trusts that have an ethical investment strategy, and one of the major insurance companies is boasting of a potential wholesale ethical investment fund.
Master Trusts are set up like an insurance-based superannuation, the only difference is that the investor has more choice about the investments in which the superannuation is placed. They have low entry and management fees, are very flexible, and have all the add-ons which other super funds have.
"If you are not going to receive any benefits from your superannuation until well into the next century, you may wish to ask whether your investments are helping to sustain a planet habitable enough for you to enjoy the benefits during your retirement years", says Robert Rosen, ethical investment researcher and environmental activist.
2. See Ethical Investment in Australia under Books - Finance, Ethical Investment in the Directory.
3. Conscious Living Magazine is now defunct, unfortunately.