Ethical fund seeks to influence behaviour of top companies.


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If climate change is important to you, take a look at a new investment fund set up to influence the behaviour of Australia's biggest 200 companies.

The Climate Advocacy Fund is from australianethical, which first opened its doors 24 years ago, and the Climate Institute.

It aims to put pressure on the top 200 companies that are responsible for around half of Australia's carbon pollution, according to Julian Poulter, the Climate Institute's business director.

ethical investment fund

Poulter says these companies typically don't have strategies that line up with the Copenhagen accord. The fund will put forward shareholder resolutions on climate change issues such as improved emissions disclosure and high carbon capital investment decisions.

Rather than passively invest in the top 200 companies as many Australian share funds do, the Climate Advocacy Fund will allow investors to actively limit pollution and reduce risks of climate change, says James Thier, executive director of australianethical.

Australia has a wide selection of ethical and sustainable managed funds to match all sorts of beliefs.

You can choose from dark green funds that invest in companies with strong environmental and workplace standards from organic farms to wind farms, to light green funds that screen companies and invest in the best companies in each sector of the sharemarket with the most sustainable policies.

Ethical investing doesn't mean you miss out on fund returns. In fact the returns from ethical and non-ethical funds have been broadly similar over the long term, according to Phillip Gray, communications manager at Morningstar.

Over three years the average return from ethical funds was -2.34% a year compared to -2.97% for non-ethical. Over five years the returns from ethical funds was 7.58% a year and the average return from mainstream funds was 7.47%.

One reason for the similar performance is the limited nature of the Australian investment market, says Gray.

This means there is a lot of crossover in the construction of underlying portfolios between ethical and non-ethical funds.

Gray says investors pay a small premium for an ethical investment. He estimates the average fee for ethical funds is 1.74% compared to 1.58% for mainstream funds. This works out at 0.16% more to invest ethically.

Ethical funds are on average about half the size of the other managed funds and some are very small, with 28 out of the 40 ethical funds having less than $50 million. Most of the $2.2 billion in ethical investments is concentrated in seven funds.

They are the AMP Capital Sustainable Share Fund, two australianethcial funds (Australian Ethical Larger Companies and Australian Ethical Smaller Companies), BT Wholesale Ethical Share Fund, Hunter Hall Australian Value, Perpetual Wholesale Ethical SRI and Vanguard Sustainability Leaders Australian Shares.

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Susan has been a finance journalist for more than 30 years, beginning at the Australian Financial Review before moving to the Sydney Morning Herald. She edited a superannuation magazine, Superfunds, for the Association of Superannuation Funds of Australia, and writes regularly on superannuation and managed funds. She's also author of the best-selling book Women and Money.