Fund managers choose ethical companies to invest in - conference

Delegates at a Responsible Investment conference have been told how ethical business practices can be enforced.

Friday, September 30th 2022, 6:00AM

The conference was the occasion for the release of a Stewardship Code, two years in the making.

The code has nine basic principles and aims to create and preserve inter-generational value, to direct capital to where it is most needed for resilience and to move towards a decarbonised economy.

The code was developed by the Responsible Investment Association of Australasia and is voluntary.

But officials of the association say it will carry a lot of weight with investors, and a portfolio manager at the investment firm, Devon Funds gave an explanation of how this would happen in practice.

Victoria Harris said her firm had an exclusion list of companies which it refused to put money into.

“There are a number of industries and sectors that we will not invest in,” she said.

“We review every company on that list on a fortnightly basis to see if anything has changed.”

Harris then went on to describe a company that was dropped by her firm - the manufacturing and distribution company DGL - after derogatory remarks made about a rival CEO.

“In this case, things have only gotten worse, not better,” Harris said.

But she was at pains to say companies which were ruled out could win re-approval.

“It is not a case that you are on the list and you are gone,” she said.

“The market changes every day, companies change, leaders of companies change and you want to invest in companies that are progressing and progressing well, and you have got to get in there and help them make those changes sometimes.”

Harris said investing in ethical companies was something that her own team wanted, based on its own ESG commitments.

But so did the clients.

“There is definitely an increase in the active investor, we are seeing a much more vocal, and much more engaged investor, wanting not just a financial return on their investment, but wanting to know that their money is invested in a responsible way..”

Another investment expert at the conference made a similar point.

Frances Sweetman is head of sustainable investment at Milford Asset Management and she says her firm also has an exclusion list.

But she argued it had not been actively excluding companies - in the last 12 months Milford had only struck off one company.

Instead, matters tended to be sorted out in advance.

“We assess every company for their ESG credentials before we invest in them,” she said.

“There are lots that we don’t think are great performers, but we don’t add them all to the exclusion list because we have an engagement approach first.

“If we did an assessment on a company and it did not meet any kind of minimum standard, we could put them on the exclusion, but we have a bias towards good quality companies that we want to own, so it doesn't come up that often.”

The only company struck off the Milford list recently was the Australian firm, Star Entertainment, which was found not to have fully complied with anti money laundering rules by the New South Wales Casino regulator.

Meanwhile, New Zealand has joined about 20 other countries in having a stewardship code.

Tags: funds management