Disclosure of Ethical Considerations in Investment Product Disclosure Statements A review of current practice in Australia

Transcription

1 Disclosure of Ethical Considerations in Investment Product Disclosure Statements A review of current practice in Australia August 2004 Charles Berger Law & Corporate Responsibility Coordinator, Australian Conservation Foundation Level 1, 60 Leicester Street Carlton VIC 3053 Tel: Fax: c.berger@acfonline.org.au

2 Disclosure of Ethical Considerations in Investment Product Disclosure Statements A review of current practice in Australia Introduction Since 11 March 2004, issuers of investment products have been required to disclose the extent to which labour standards or environmental, social or ethical considerations are taken into account in the selection, retention or realisation of the investment. (For brevity, those considerations are referred to in this report as ethical considerations.) This requirement is set out in section 1013D of the Corporations Act. The Australian Securities & Investments Commission (ASIC) has issued a set of guidelines on how investment product issuers should interpret and apply the new requirements. 1 ACF had a look at 25 of Australia s top investment managers to see how they re complying with the ethical disclosure laws, and what their disclosures reveal about their approach to sustainability. All disclosure statements discussed in this report were examined on product issuer websites between 26 July and 4 August Summary of Findings ACF s review of investment product disclosures reveals that many mainstream investment managers still do not appreciate the relationship between ethical corporate behaviour and long-term financial performance. By failing to integrate these considerations into investment decision-making, Australia s investment community is still not doing enough to look out for the long-term interests of investors and the Australian environment, community and economy. Some managers appear not to appreciate the impact of ethical issues on a company s financial performance at all, while others understand these solely as risks and not opportunities. Several managers seem to take a strictly reactive approach to long-term sustainability issues. Most mainstream investment managers state either that they do not take into account ethical considerations, or claim that they are taken into account to the extent they financially affect the value of underlying investments. All of the product disclosure statements that we examined address labour ethical considerations in some way. However, many are misleading or do not address all the matters required under the guidelines. For example, nearly all disclosures for products that claim to take ethical considerations into account if they affect financial performance fail to provide any further detail on the methodology by which this is accomplished, as required by the guidelines. Issuers of investment products with an explicit focus on socially responsible or ethical investment generally provided clear and thorough information on how they take these considerations into account in making investment decisions. 1 The relevant legislation and the Guidelines can be found at 1

3 Part I: Misconceptions about ethical considerations in investing Misconception #1: Taking ethical considerations into account in investing means substituting idiosyncratic personal views over sound financial judgment, and results in lower investment returns. The view that ethical investing means lower returns has been soundly rejected time after time. There is a growing consensus that screening investments based on sustainability concerns is simply another investment style, or another way of limiting the universe of possible investments. In this sense, it is a tool like any other investment screen, such as choosing to invest only in large capitalisation stocks. Nevertheless, some issuers persist in thinking that the only reason for considering ethical issues is to satisfy the idiosyncratic, personal moral positions of individual investors. For example, Colonial First State s Managed Investment Funds PDS states: We do not specifically take into account environmental, social or ethical considerations when making an investment decision for the fund, as unitholders have differing views about such issues. As responsible entity for the fund, we therefore cannot take into account individual unitholders particular interests if doing so may have a financial impact on the returns for other investors. Echoing these concerns, Platinum Asset Management states in the PDS for its Platinum Trust: The Manager regards the subject of ethical investing as highly complex and points to the contradictions and conflicts that are an essential element of the capitalistic system. The Manager has no way to assess the individual beliefs and values of our investors. Cognisant of a diversity of views on this subject, the Manager is therefore unable to take into account labour standards or environmental, social or ethical considerations when investing, retaining or divesting. Both Colonial and Platinum seem to equate any consideration of ethical factors with a decrease in investment performance, while apparently disregarding the fact that a company s valuation can be objectively and ascertainably affected by these issues. Environmentally unsustainable companies, for example, face higher legal and reputation risks, are more exposed to new regulation and resource scarcity, and generally miss out on business opportunities arising out of efficiency and new technologies. Taking these factors into account is just plain good investment sense, whatever the manager s or the investors personal views on the environment may be. Misconception #2: Ethical considerations are relevant to investment only insofar as they create risks to be avoided. This is a more enlightened misconception one than the first, because it at least acknowledges the financial impact of ethical issues. However, risks are only half of the picture: sustainability issues are risks for those companies that ignore them, but also opportunities for more visionary companies. Many investment managers appear to understand at least some of the risks, but do not appreciate the opportunities. The disclosure of Maple-Brown Abbott for its Australian Equity Trust is a good case in point: We do not explicitly take labour standards or environmental, social or ethical considerations into account when making investment decisions. However, valuations of companies we analyse may well be negatively affected by poor labour standards or activities considered environmentally, socially or ethically harmful and this 2

4 in turn may lead us not to invest in such companies. Therefore these considerations may sometimes be implicitly taken into account when investment decisions are made. The references to companies being negatively affected by ethical issues suggests that Maple- Brown Abbott might miss investment opportunities in companies with a long-term competitive advantage arising out of a focus on sustainability, such as renewable energy. They are not alone in this. Disclosures by Suncorp Metway and Merrill Lynch, among others, betray a similarly narrow view of ethical considerations, referring only to downward valuations or adverse effects and not positive effects of sustainability on business performance. One suspects that investment managers taking this approach will pay attention to ethical considerations only if they involve a serious legal breach or major public oppositional campaign, and not to the more long-term (and less frequently reported) issues of long-term strategy, regulatory risk and competitive advantage. Misconception #3: Existing financial metrics are adequate to reflect the long-term investment implications of sustainability. In the PDS for its investment funds, UBS Global Asset Management states: We do not take into account labour standards or environmental, social or ethical considerations when choosing investments. If a company's policies fall short of labour standards or its activities are considered environmentally, socially or ethically unacceptable and as a result, the company's earnings are adversely affected, we may not invest or choose to divest ourselves of the investment. This means that we do not screen out companies solely on the basis of these considerations. If the disclosure is accurate, than UBS apparently would consider ethical issues only if the company s earnings are adversely affected. But why only earnings? Ethical considerations can also affect risks, reputation, long-term business prospects and other matters that should factor into an assessment of the company s overall valuation. Furthermore, the use of the word are implies a reactive attitude in other words, the manager will wait until earnings are actually affected before taking these matters into account. Of course, by the time earnings are affected, it is too late; the manager s job should be to attempt to gauge the effect of ethical concerns before they hit a company s bottom line. Part II: Review of Disclosures Products that claim not to consider ethical issues at all Some issuers claim simply not to take ethical considerations into account at all in investment decisions. A typical disclosure is that of State Street Global Advisers, who state in their Australia Investment Funds PDS: Decisions about the selection, retention or realisation of investments in the Funds are based primarily on economic factors and SSGA does not take into account labour standards, environmental, social or ethical consideration when making these decisions. Statements like this have the appearance of forthrightness, if nothing else. However, one wonders whether product issuers making such statements are taking the disclosure seriously. For example, are we really to believe that State Street, in deciding whether to invest in a company, would ignore news of a long-term, bitter industrial dispute, or a catastrophic toxic pollutant spill, or a major boycott of a company s products for ethical reasons? It hardly seems plausible. 3

5 A more likely account is that most managers do take into account environmental, social and ethical issues at least when those issues could materially affect the prospects of the business but do so only sporadically and without any set methodology. For some products, such as certain index funds or mortgage trusts, such considerations may rarely or never come into play. However, most equity investment funds do not fall into this category. A product issuer should not be able to dodge the difficult issues of how they consider environmental, social and ethical issues by stating that they don t if, in fact, they do (at least where those issues affect the value of the investment). Products that claim to take ethical considerations into account to the extent that they affect financial performance Many investment products claim to take ethical considerations into account if the affect the value of the underlying investment. The phrasing varies from product to product, but a typical disclosure is that of AMP for its Flexible Lifetime products (excluding the SRI option): The primary focus of the fund managers is on economic and financial outcomes. SRI considerations are not taken into account except where they may have a material influence on the value of the underlying investment. Another variant is Perpetual s disclosure for its wholesale funds (excluding the Ethical SRI Fund): For all Funds apart from the Wholesale Ethical SRI Fund, the investment manager uses an investment approach that considers each investment based on its individual merits. When making investment decisions, social, ethical, environmental considerations and labour standards are not explicitly taken into account. However, from time to time, these factors may impact the purchase, sale or retention of an individual investment if they are believed to impact returns. Unfortunately, most disclosures of this variety provide little or no information about how the manager actually goes about assessing whether a particular ethical issue affects the value of the investment. This approach is not only less than illuminating, but also not fully in compliance with ASIC s guidelines. Guideline 1.25 specifies that, if a product claims to take the considerations into account, it must at a bare minimum disclose a general description of the methodology (or a statement that there is no set methodology), a timeframe for monitoring investments, and a description of what happens if an investment does not meet any specified criteria. The above two disclosures, among many others, claim to take ethical considerations into account to some degree, but include no information about methodology or the other required matters. An example of a disclosure that better complies with the guidelines is that of Barclays Managed Investments: We may take into account Socially Responsible Investments (SRI) considerations - including labour standards or environmental, social or ethical considerations - from time to time where they may materially impact on the performance objectives for the purpose of selecting, retaining or realizing investments. However, we have no predetermined views about what we regard as SRI considerations and how far those considerations are to be taken into account, other than taking them into account where we become aware of them and to the extent they may financially affect investments. We have no set approach or timeframe to monitor or review the methodology for taking SRI considerations into account, and will determine on a case by case basis the approach to take when investments no longer match their investment objectives. 4

6 Where the Funds aim to track the performance of the various market indices, investment decisions for the Funds are independent of SRI considerations. Barclays disclosure addresses all the matters required by the Guidelines, although their ad hoc approach might not inspire confidence in an investor who would like to see that their investment manager takes the financial implications of environmental and social issues seriously. Colonial First State has a similarly detailed disclosure for its FirstChoice funds. For its other funds, it gives no indication of methodology or monitoring, although it claims that such considerations are taken into account to the extent they affect sustainability of earnings. The reason for the differing levels of disclosure between the FirstChoice and other products is unclear. Even for the relatively detailed disclosures, there remains considerable room for improvement. For example, investors (even those who care only about financial returns) might be interested in answers to the following questions: How does the manager gather relevant information about the prospects of a business? Does the manager actively seek out information about environmental and social risks and opportunities, or does the manager rely solely on the financial press for such information? What information does the manager request from analysts when assessing the prospects of a business? How does the manager assess environmental risks (such as exposure to higher costs as a result of a carbon trading regime) that do not yet show up on a company s balance sheet? These are questions that may show some real differentiation even among non-sri funds, and ASIC should consider amending the guidelines to include some discussion of these matters. Under the current guidelines, the Barclays disclosure is the minimum acceptable level of disclosure for products that claim to take ethical considerations into account, insofar as they affect the valuation of the investment. ASIC should clarify these obligations with the issuers of non-complying disclosure statements. Products that explicitly take ethical considerations into account A number of product issuers explicitly take ethical considerations into account in making investment decisions. Australian Ethical Investment, Hunter Hall and Glebe offer only ethical or SRI investment products, while others, including AMP, Challenger, ING, IOOF, MLC, Perpetual, and Westpac / BT offer ethical options among their mix of products. A detailed review of the disclosures of each of these products is beyond the scope of this report. In general, the disclosures provide detailed information on the criteria used to make investment decisions. For some products, more information on actual assessment methodology would be useful. Further detail and commentary on individual product disclosures is set out in the Appendix. The disclosures by Australian Ethical Investment are particularly noteworthy for the inclusion of brief investment profiles on 43 of its investments, which gives investors a very clear idea of the nature of the manager s criteria and approach to investment, above and beyond a clear statement of principles and methodology. AMP also stands out for producing a very thorough SRI Research and Engage- 5

7 ment Handbook, to which the relevant PDS documents refer. The Handbook contains an extremely detailed discussion of the manager s approach, criteria and methodology. Investors should take care to select a fund that truly matches their ethical standards. Some investors might be surprised to find, for example, that some ethical funds have invested in Rio Tinto (uranium mining), Newcrest Mining (mining in protected areas and alleged human rights abuses in Indonesia), Transurban (unsustainable transport projects), and James Hardie (asbestos claims). Furthermore, many funds invest in large financial institutions, including the big four banks, all of which have been and continue to be involved in financing environmentally harmful activities. A good resource for investigating these issues is Ethical Investor magazine, which regularly publishes the Corporate Monitor tables listing holdings in the ASX 200 of various SRI funds. Multi-Investment Manager Products For some investment products, the actual selection of assets is made by a number of different investment managers. Indeed, managers such as MLC specialise in selecting other managers for various asset classes, and do not themselves directly select any investments. For such multi-investment manager products, the interesting issue is the extent to which the primary manager takes ethical considerations into account in selecting the other managers. With one exception, issuers of such products state that they do not take ethical considerations into account in selecting managers. Often they provide no information on whether the selected managers take ethical considerations into account, as in the PDS for MLC s Masterkey Unit Trust: When we appoint individual investment managers, we contract them to achieve specific performance objectives. Although the investment managers may take into account environmental, ethical or social issues and labour standards when making their investment decisions, we do not use these criteria when we select investment managers, or when we evaluate their performance. Nor do we use these criteria to influence any decisions the investment managers make when managing their investment portfolios. Other funds, such as the BT Lifetime Super Employer Plan, state that the selected managers do not take into account such considerations, unless they financially affect an investment. A third approach, taken in the PDS for the BT Personal Super Plan, is to refer the reader to the PDS s for the third party investment managers. This approach is preferable, particularly for on-line PDS s. IOOF s MIM Ethically and Socially Responsible Fund is the only multi-manager product that we reviewed that specifically considers ethical issues. The relevant disclosure for that product states: In the case of the IOOF MIM Ethical & Socially Responsible Fund, IIML reviews the investment process of prospective managers. The managers appointed avoid investing in companies that derive their profit from alcohol, tobacco, pornography, armaments or gambling. Typically managers apply screening techniques to identify investments either for their exclusion from a portfolio or for inclusion due to the company s positive contribution to ethical/socially responsible issues. Several pages later, the PDS adds: The Fund will invest via a selection of specialist equity managers with processes that benefit the environment, society as a whole and promote best practice industry standards. Generally the managers appointed seek to avoid investing in companies that derive their profit from alcohol, tobacco, pornography, armaments or gambling. In our view, this disclosure is vague and inadequate. It does not include a clear statement of what is regarded as an ethical consideration, and fails to provide information the methodology actually used to 6

8 select managers or to monitor their performance. Furthermore, it is inconsistent in parts do the managers avoid investing in tobacco companies, as initially stated, or do they only generally seek to avoid such investments, as stated later on? The disclosure provides little certainty to an investor with strong objections to tobacco investments. It should be noted that IOOF released this PDS on 10 March 2004, one day before the disclosure guidelines came into effect. Conclusion A number of product issuers are not complying with the spirit or the letter of Section 1013D and the new disclosure guidelines. ASIC should take action to ensure that mainstream investors make accurate and full disclosure whenever they claim (even implicitly ) to take ethical considerations into account. More fundamentally, much of Australia s mainstream investment community does not appear to recognise the link between environmental and social performance and long-term investment returns. The continued direction of capital into ecologically and socially unsustainable uses threatens the long-term health of Australia s environment and economy, and creates suboptimal investment returns especially for investors with long-term investment horizons, like superannuation funds and insurers. 7

9 Appendix: Summary of Disclosures for Individual Products AMP Flexible Lifetime Investments Flexible Lifetime Superannuation AMP offers three SRI options through this product. For the non-sri options, AMP states that the primary focus of fund managers (including AMP Capital Investors) is economic and financial outcomes, and ethical considerations are not taken into account except where they may have a material influence on the value of the underlying investment. For the SRI options, the PDS include a short (1/2 page) discussion of AMP Capital Investors SRI assessment approach. This disclosure is very general, but refers the reader to AMP s 20-page SRI Research and Engagement Handbook, available online. This handbook contains a very detailed and thorough description of AMP s ethical investment philosophy, criteria and methodology. Australian Ethical Investment Unit Trusts Superannuation Australian Ethical Investment offers investment products that are specifically screened and selected on the basis of ethical and financial criteria. The PDS for these products address in detail the selection criteria and assessment methodology, and all other matters set out in the guidelines. In addition, AEI in unique is providing a short profiles of 43 of its investments, making clear why each was selected and how they conform to AEI s ethical charter. AXA Asia Pacific Assure Select Australian Property Fund Australian Share and Multi-Sector Funds Investment Funds Wholesale Funds Super Directions AXA states that neither it nor its investment managers explicitly take ethical considerations into account in investment decisions. Barclays Global Investors Australia Barclays Managed Investments Barclays states that they may take into account ethical considerations where they may materially impact on performance objectives. They have no predetermined views, methodology or approach for doing so. Challenger Financial Services Cash Management Trust High Yield Fund Diversified Income Fund Australian Share Fund Orion Australian Share Fund Boutique Australian Share Portfolio Financials Sector Fund Global Share Fund Howard Mortgage Trust Socially Responsive Investment Challenger states that ethical considerations are not generally taken into account by it or an external investment manager (as applicable), but that they may do so to the extent that we believe those matters may affect the value or performance of an underlying investment. They state that they have no predetermined view on what constitutes an ethical consideration. No information is provided on how Challenger ascertains whether the value of an underlying investment may be affected. For this fund, Challenger states that ethical considerations are not taken into account. For this fund, Challenger explicitly applies positive and negative screens for various ethical considerations. The criteria and methodolo- 8

10 Fund gy are clearly explained, and Challenger additionally refers readers to the website of its external SRI adviser, Corporate Monitor. Commonwealth / Colonial First State Unlike most other large Australian banks, Commonwealth / Colonial First State does not offer access to any ethical investment products. It has several forms of disclosure, but the reasons for the differences are not apparent. For example, for some products it states that ethical considerations are not specifically taken into account, for others it states that they definitely are, where they have a financial impact. Cash Management Trust Premier Cash Management Trust Managed Investment Funds Personal Pension Plan Rollover & Superannuation Fund Global Diversified Strategies Funds Pooled Superannuation Trust Wholesale Hedge Funds FirstChoice Funds (8 total) CFS states that it does not specifically take ethical considerations into account when making investment decisions. For these funds, CFS states that it does not specifically take ethical considerations into account, but adds that investments could be divested if such consideration impact the sustainability of earnings of the company. The disclosure claims that such factors are taken into account where they have a financial impact, but there is no discussion of methodology, criteria or monitoring. For these funds, CFS states that ethical considerations are not explicitly taken into account, but claims that they may sometimes be implicitly taken into account if investment returns are adversely affected. The FirstChoice funds state that ethical considerations are taken into account in selection of managers to the extent that Colonial First State considers that these factors may affect a manager s organisational stability, performance and investment process. Where CFS is the investment manager, it claims that ethical factors are taken into account where sustainability of earnings is impacted. CFS states that it has no explicit methodology or set approach or timeframe for doing so. Credit Suisse Asset Management Australia Cash Management Trust Private Investment Funds Wholesale Funds Allocated Pension Plan Select Investment Funds Super & Rollovers CSAM states that investment decisions are based primarily on economic factors and ethical considerations are not taken into account except to the extent that they impact on the financial value of the investment. There is no explanation of how CSAM goes about determining whether that is the case. For these funds, CSAM states that ethical considerations are not taken into account, full stop. The reason for the difference between these disclosures and the preceding set of disclosures is not clear. Deutsche Asset Management Australia Investment Funds (12 total) Deutsche states that their investment decisions are primarily based on economic factors and that ethical considerations are not specifically taken into account. Glebe Asset Management Glebe Investment Trusts Retail Funds Wholesale Funds (5 PDS) Glebe explicitly seeks to identify investments that are consistent with our Christian values and genuinely benefit society. The PDS for its investment trusts indicates that Glebe will carefully assess investments that, in its view, do not genuinely benefit society, and gives some examples of investments that it may exclude. The PDS acknowledges that Glebe has no predetermined view on what constitutes an ethical consideration and does not impose screens or fixed levels of holdings based on ethical criteria. 9

11 Hunter Hall Investment Management Value Growth Trust Australian Value Trust Global Ethical Trust Hunter Hall applies a negative screen that excludes companies deriving revenues from the sale of armaments or tobacco, gambling, cruelty to animals, destruction of the environment and uranium mining. The matters set out in the guidelines are all addressed in the PDS. However, greater detail on Hunter Hall s environmental screen in particular would be helpful, as currently no information is provided on how Hunter Hall determines what is environmentally destructive, other than that the Directors use their judgment. ING / ANZ OneAnswer Investment Portfolio Allocated Pension Personal Super Corporate Super ING Sustainable Investments Australian Share Trust ING / ANZ state that, except for the ING Sustainable Investments option, ethical considerations are not taken into account in investment decisions, but they are implicitly taken into account where they materially impact financially on a company. There is no discussion of methodology, criteria or monitoring. Disclosure for this explicitly ethical investment product includes two pages of good information on criteria for exclusion and inclusion, but could use more detail on actual assessment methodology (such as how various inclusion criteria are weighted), how and over what timeframe the fund monitors investments, and what happens if an investment no longer fits their criteria. INVESCO Retail & Wholesale Funds Wholesale Cash Management Fund INVESCO states that it may take ethical considerations into account to the extent they may affect the performance of investments, but has no policy of selecting investments based on such issues. IOOF Personal Superannuation Allocated Pension Employer Superannuation Multi Investment Manager Trust Pooled Superannuation Trust Flexi Trust Wholesale Trusts (10 PDS) Supersaver Options For these funds, IOOF states ethical considerations are not taken into account in selecting managers and investment options. For the options where IOOF is the responsible entity for an investment option, it states that the manager does not specifically take ethical considerations into account, but it may do so implicitly. There is no further explanation of what implicitly means in this context, or the methodology through which the manager might consider such issues. Through these funds, IOOF also offers access to the MIM Ethical & Socially Responsible Fund. The details of this fund are set out in the PDS for the Multi Investment Manager Trust. This trust includes access to the MIM Ethical & Socially Responsible Fund. The disclosure regarding this fund is incomplete and ambiguous. There is no clear statement of what IOOF regards as an ethical consideration. Initially, the PDS states that the managers appointed avoid investing in companies that derive their profit from alcohol, tobacco, pornography, armaments or gambling, but later the PDS states that the managers merely generally seek to avoid such investments. The criteria and methodology that IOOF uses to select and monitor the managers are not clearly stated. It should be noted that IOOF last released this PDS on 10 March 2004, just one day before the ethical disclosure guidelines came into effect. For these funds, IOOF states that it and its investment managers generally do not take ethical considerations into account, but that investment decisions may be affected where investment returns are adversely affected by ethical considerations. 10

12 Macquarie Investment Management Macquarie Investment Funds Macquarie ADF Superannuation Fund Macquarie SuperOptions Macquarie states that it does not take into account ethical considerations, except to the extent that they have an effect on the price or value of investments. No information on methodology is given. For this fund, Macquarie states that ethical considerations are not taken into account, full stop. It is unclear why they are they re not considered for this fund, since Macquarie states that they are considered (to the extent they affect the value of investments) in its other investment funds. For this multi-manager product, Macquarie states that it does not take into account ethical considerations, and that the other managers may have their own policy on such matters. Maple-Brown Abbott Investments Pooled Superannuation Trust Diversified Investment Trust Australian Equity Trust Australian Equity PST Asian Investment Trust Asia Pacific Trust MBA states that it does not explicitly take ethical consideration into account, but notes that valuations of companies can be negatively affected by such considerations, and that they may sometimes be implicitly taken into account. There is no discussion of methodology. The PDS for this product is identical to the disclosure for the above products, with the addition, We have not adopted any particular standards for this purpose. It is not clear why this additional sentence appears for this product only. Merrill Lynch Investment Managers Investment Funds Professional Investor Funds Superannuation and Pension Funds Wholesale Funds (18 total) Merrill Lynch states that ethical considerations are not taken into account, except to the extent that we consider these issues when they have the potential to materially impact on the merits of investment decisions. It goes on to state that it may choose not to invest or to divest itself of investments if the sustainability of earnings is adversely affected by ethical issues. However, there is no discussion of methodology or monitoring. NAB / MLC Note that all of MLC s products that we reviewed are multi-manager funds. MasterKey Unit Trust MasterKey Superannuation MasterKey Allocated Pension MasterKey Cash Management Trust MLC states that it does not take ethical considerations into account when selecting investment managers or assessing their performance, although the managers selected may have their own policies. It further states that MLC does not use these criteria to influence any decisions the investment managers make when managing their investment portfolios. The disclosure for this trust is similar to that for the other trusts, but it adds that MLC does not impose a screening policy for [ethical considerations] on the decision that the investment managers make in regards to the selection, retention or realisation of investments. The significance of the variation in wording between this statement and the corresponding statement in the Unit Trust and Superannuation products is unclear. 11

13 Ethical SRI Option For the Superannuation and Allocated Pension products, MLC offers access to Perpetual s Wholesale Ethical SRI Fund. In the PDS for each of those products, the initial general disclosure on ethical considerations does not mention this fact; MLC states, without qualification, that ethical considerations are not taken into account when selecting fund managers. The initial disclosure (page 7) in each PDS is thus not entirely accurate in this regard. The availability of an SRI option is mentioned at a later point (page 13) in each PDS. MLC states that In the selection of an ethical fund for inclusion as a Single Manager Fund, MLC also considered the extent to which the fund manager considers environmental, ethical or social issues and labour standards in making their investment decisions. However, MLC gives no indication whatsoever of what it regards as ethical considerations, and how it went about taking them into account in selecting the manager. In this respect, MLC s disclosure does not comply with section 1013D and the guidelines. MLC does not disclose how Perpetual goes about taking ethical considerations into account, although it does refer readers to Perpetual s website for more information about that option. Perpetual Investments WealthFocus Investor Choice Fund Wholesale Funds Pooled Superannuation Trust Cash Management Fund Monthly Income Fund Term Deposit Fund Wholesale Ethical SRI Fund Perpetual states that ethical considerations are not explicitly taken into account in investment decisions (except for the Wholesale Ethical SRI Fund), but that they may impact on investment decisions if they are believed to impact returns. Perpetual offers its Wholesale Ethical SRI fund as a stand-alone fund, and also as an option within its WealthFocus product. The approaches to disclosure are very different between these two ways of investing in the fund, however. The PDS for the Fund itself includes a very thorough 3-page disclosure that fulfils the ASIC criteria. However, the PDS for WealthFocus, which offers access to the Fund as one of several options, provides little more than a brief outline of the criteria and assessment procedure. It omits much detail and some of the material required under the guidelines, such as information about monitoring and review, weighting of criteria, and use of third-party sustainability specialists. Platinum Asset Management Platinum Trust Platinum states that it is unable to take into account ethical considerations. This disclosure in unique among those we examined in asserting the inability of the manager to consider ethical matters, and many other funds (including non-sri funds) state that these issues are taken into account in a variety of ways. An investor could easily understand the disclosure as implying that Platinum is barred by law from taking these matters into account; in this respect, the disclosure is misleading. (It seems likely that Platinum actually does consider such matters, to the extent they affect financial performance.) Schroder Investment Management Investment Funds (15 total) Schroder states that investment decisions do not take into account ethical considerations. 12

14 State Street Global Advisors Australia Investment Funds SSGA states that investment decisions are based primarily on economic factors and do not take into account ethical considerations. Suncorp Metway Investment Management Investment Funds Easy Super (3 PDS) Suncorp states that ethical considerations are not taken into account, but that investment decisions are revalued downwards if it is perceived that poor labour standards or activities considered environmentally socially or ethically unacceptable would be detrimental to the future value of investments. There is no discussion of methodology or monitoring that could lead to such downwards revaluations. The PDS s for these products are similar to the above, but they state in addition that ethical considerations may be taken into account when making investment decisions. UBS Global Asset Management Australia Cash Management Trust Investment Funds Emerging Companies Fund UBS states that it does not take into account ethical considerations for this trust. For these funds, UBS states that it does not take into account ethical considerations in choosing investments, except if a company s earnings are adversely affected. UBS clarifies that this means that we do not screen out companies solely on the basis of these considerations. Vanguard Investments Investor Funds Index Funds Australian Shares High Yield Fund Personal Superannuation Fund Vanguard states that it does not take into account ethical considerations in making investment decisions. Westpac / BT BT s disclosure documents are not entirely consistent. For the first set of funds listed below, as well as the classic investment funds (excluding SRI options), BT implies that ethical considerations may be taken into account to the extent that they financially affect an investment. For the wholesale, business super and investor choice funds (excluding SRI options), however, BT states that ethical considerations are not taken into account, without qualification. It is unclear whether this indicates a difference in approach between those funds or merely an inconsistency in the phrasing of the disclosure. Investment Funds Private Investment Funds Premium Cash Fund Lifetime Personal Super Lifetime Allocated Pension Lifetime Super Employer Plan Classic Investment Funds Wholesale Funds BT states that it does not take into account ethical considerations when making investment decisions, but notes that such issues may financially affect an investment, in which case it would influence investment decisions. For multi-manager products, it also states that such considerations are not taken into account in selecting external investment managers. For this fund, the disclosure is as above, except for the BT Ethical Share Fund. That fund applies explicit positive and negative screens based on ethical criteria. The PDS contains adequate disclosure of the criteria and assessment methodology, but does not discuss monitoring or review procedures, or what happens if an investment no longer fits the investment criteria. BT s wholesale funds include two funds that explicitly invest according to ethical criteria BT Wholesale Ethical Share Fund and BT Whole- 13

15 Investor Choice Funds Business Super sale Ethical Conservative Fund. For other wholesale funds, BT states that ethical considerations are not taken into account. For the ethical options, positive and negative screens based on ethical criteria are applied. The PDS contains adequate disclosure of the criteria and assessment methodology, but does not discuss monitoring or review procedures, or what happens if an investment no longer fits the investment criteria. For BT s investor choice and business super funds, access is offered to two sustainability funds that explicitly consider ethical issues. For the other funds, BT states that ethical considerations are not taken into account. For the sustainability funds, BT provides a detailed description of the criteria, assessment and monitoring procedures used. 14