This week Australian Ethical Investment (ASX: AEF) CEO Phil Vernon announced he was standing down after nine years.

During his tenure, funds under management rose from $600m to $3 billion and Australian Ethical Investment’s market capitalisation went from $20m to $200m.

It is clear ethical investing is on the rise and fund managers are taking note. But, what does it actually look like? Is it just avoiding “unethical companies” or only investing in companies seen to be doing good.

 

Proactively ethical or just avoiding proactively unethical?

Betashares CEO Alex Vynokur told Stockhead the approach of only investing in “proactively ethical” companies as opposed to only avoiding “proactively unethical” was becoming more prominant.

“A number of ethical strategies tend to still invest in companies that invest in companies which are engaging in activities inconsistent with ethical standards,” he said.

“But they’re trying to pick the least worst so to speak — least polluters among miners, least aggressive lenders.”

One of Betashares’ ETFs takes advantage of this strategy – BetaShares Global Sustainability Leaders ETF (ASX: ETHI). Vynokur said this fund, “has resonated strongly with investors”.

And indeed he is correct, hence it is up 20 per cent this year and 46 per cent since its inception.

“I would say why its resonated is because of the strategy. A dark green approach to investing – near enough, is not good enough,” he said.

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“The strategy we are following [with ETHI] is to exclude completely any entities that are engaging in activities inconsistent with responsible investment and positively allocate to companies that are climate change leaders.”

 

What do they invest in?

According to Bloomberg, the ETF owns one hundred stocks — none in Australia.

Of its holdings, 30 per cent of stocks are in tech and 22 per cent in health. Owned stocks include Tesla, Starbucks and Apple.

Its only “materials” stocks are Swiss perfume maker Givaudan and American construction material producer Vulcan.

Company % Wgt Mkt Val Position (local currency)
ACTIVISION BLIZZARD INC 0.59 1,970,849 29,198.00
KDDI CORP 0.91 3,008,883 82,500.00
NETFLIX INC 2.57 8,515,558 16,120.00
SINGAPORE TELECOMMUNICATIONS 0.55 1,834,394 499,450.00
VIVENDI 0.50 1,644,653 42,555.00
APTIV PLC 0.49 1,621,316 14,010.00
BOOKING HOLDINGS INC 1.37 4,533,568 1,721.00
FAST RETAILING CO LTD 0.76 2,512,201 2,900.00
HOME DEPOT INC 4.13 13,721,928 46,428.00
INDUSTRIA DE DISENO TEXTIL 0.63 2,081,387 48,738.00
NIKE INC -CL B 1.85 6,138,849 51,398.00
O'REILLY AUTOMOTIVE INC 0.51 1,697,082 3,234.00
ORIENTAL LAND CO LTD 0.61 2,015,434 11,400.00
STARBUCKS CORP 1.81 5,993,248 50,239.00
TESLA INC 0.45 1,503,522 4,726.00
TJX COMPANIES INC 1.13 3,733,572 49,455.00
GENERAL MILLS INC 0.55 1,835,919 24,626.00
KERRY GROUP PLC-A 0.51 1,685,932 9,968.00
MCCORMICK & CO-NON VTG SHRS 0.50 1,645,152 7,393.00
AIA GROUP LTD 2.26 7,513,893 488,400.00
BLACKROCK INC 1.03 3,408,419 5,140.00
CHUBB LTD 1.16 3,848,703 18,319.00
CME GROUP INC 1.12 3,716,613 13,426.00
FIRST REPUBLIC BANK/CA 0.46 1,517,036 11,085.00
HONG KONG EXCHANGES & CLEAR 0.79 2,611,600 51,600.00
INTERCONTINENTAL EXCHANGE IN 0.88 2,904,373 23,791.00
LEGAL & GENERAL GROUP PLC 0.46 1,510,877 310,443.00
M & T BANK CORP 0.51 1,708,276 7,092.00
MARSH & MCLENNAN COS 0.88 2,918,568 20,581.00
MOODY'S CORP 0.60 1,989,692 7,135.00
MSCI INC 0.56 1,871,931 5,601.00
S&P GLOBAL INC 0.97 3,219,567 9,935.00
SAMPO OYJ-A SHS 0.50 1,650,932 24,544.00
SCHWAB (CHARLES) CORP 0.89 2,957,393 51,530.00
SKANDINAVISKA ENSKILDA BAN-A 0.52 1,717,867 128,348.00
SVENSKA HANDELSBANKEN-A SHS 0.45 1,500,783 105,295.00
SWEDBANK AB - A SHARES 0.51 1,688,445 78,640.00
ALIGN TECHNOLOGY INC 0.45 1,509,593 3,917.00
ANTHEM INC 1.25 4,141,246 10,271.00
BOSTON SCIENTIFIC CORP 0.89 2,955,184 49,367.00
BRISTOL-MYERS SQUIBB CO 1.27 4,201,070 65,247.00
CENTENE CORP 0.47 1,570,168 20,973.00
CHUGAI PHARMACEUTICAL CO LTD 0.45 1,498,013 16,200.00
CVS HEALTH CORP 1.22 4,050,971 51,836.00
EDWARDS LIFESCIENCES CORP 0.68 2,269,793 8,574.00
HUMANA INC 0.57 1,891,052 5,006.00
ILLUMINA INC 0.82 2,730,054 5,364.00
INTUITIVE SURGICAL INC 0.94 3,124,522 4,227.00
NOVO NORDISK A/S-B 1.67 5,558,215 76,433.00
ROCHE HOLDING AG-GENUSSCHEIN 3.89 12,920,343 32,341.00
STRYKER CORP 1.21 4,025,354 13,921.00
UNITEDHEALTH GROUP INC 3.82 12,671,678 36,031.00
VERTEX PHARMACEUTICALS INC 0.66 2,180,081 8,551.00
WATERS CORP 0.41 1,348,264 4,424.00
ZOETIS INC 0.95 3,147,042 19,549.00
ASSA ABLOY AB-B 0.49 1,638,513 51,467.00
CINTAS CORP 0.56 1,853,946 5,510.00
EXPERIAN PLC 0.53 1,748,482 41,109.00
FASTENAL CO 0.48 1,592,635 34,634.00
GEBERIT AG-REG 0.54 1,805,590 2,725.00
ILLINOIS TOOL WORKS 0.78 2,578,491 12,115.00
KONE OYJ-B 0.56 1,865,552 22,060.00
MTR CORP 0.52 1,738,180 180,000.00
RECRUIT HOLDINGS CO LTD 0.98 3,252,398 68,500.00
SIEMENS GAMESA RENEWABLE ENE 0.50 1,665,440 69,870.00
VESTAS WIND SYSTEMS A/S 0.50 1,651,005 13,222.00
WEST JAPAN RAILWAY CO 0.52 1,712,654 14,800.00
WOLTERS KLUWER 0.51 1,688,326 16,339.00
WW GRAINGER INC 0.42 1,406,163 3,701.00
ADOBE INC 2.49 8,248,284 19,703.00
ADVANCED MICRO DEVICES 0.58 1,915,144 43,639.00
AMADEUS IT GROUP SA 0.58 1,912,986 17,155.00
APPLE INC 4.03 13,374,838 46,903.00
APPLIED MATERIALS INC 0.75 2,499,629 39,178.00
ASML HOLDING NV 1.50 4,961,541 17,010.00
AUTODESK INC 0.64 2,132,243 9,038.00
FIRST SOLAR INC 0.59 1,969,942 21,076.00
INFINEON TECHNOLOGIES AG 0.42 1,388,011 56,081.00
INTUIT INC 1.06 3,523,353 9,566.00
KLA-TENCOR CORP 0.47 1,567,625 9,326.00
MASTERCARD INC - A 4.25 14,104,880 37,839.00
NVIDIA CORP 1.70 5,643,664 24,218.00
ON SEMICONDUCTOR CORP 0.47 1,576,008 54,140.00
PALO ALTO NETWORKS INC 0.40 1,341,167 4,585.00
PAYCHEX INC 0.49 1,627,583 13,886.00
PAYPAL HOLDINGS INC 2.34 7,774,090 47,905.00
SALESFORCE.COM INC 1.63 5,403,929 25,119.00
SERVICENOW INC 0.76 2,520,089 6,338.00
SPLUNK INC 0.48 1,585,221 8,938.00
VERISIGN INC 0.55 1,815,286 6,134.00
VISA INC-CLASS A SHARES 4.20 13,944,079 57,041.00
WORKDAY INC-CLASS A 0.51 1,700,552 5,775.00
GIVAUDAN-REG 0.52 1,733,239 436.00
VULCAN MATERIALS CO 0.55 1,818,355 9,406.00
AVALONBAY COMMUNITIES INC 0.48 1,595,530 5,548.00
CROWN CASTLE INTL CORP 0.92 3,056,997 16,412.00
PROLOGIS INC 0.73 2,435,353 21,495.00
REALTY INCOME CORP 0.45 1,500,491 15,140.00
SBA COMMUNICATIONS CORP 0.54 1,790,423 5,578.00
VONOVIA SE 0.44 1,456,658 21,459.00

 

Certification

If you read ETHI’s product disclosure statement, you’ll notice the fund is “Certified by RIAA”.

This is the Responsible Investment Association of Australasia, which says this symbol, “provides consumers and industry alike with a quality mark of Australia and New Zealand’s standard for responsible investing products and advice”.

Pic: Responsible Investment Association of Australia

If you want certification, then you’ll have to prove two things. First, the adviser, “has committed to offering responsible and ethical advice to all their clients, is experienced in offering specialist advice, and has responsible investment products on their approved product list”.

Second, the product, “has implemented a detailed responsible investment process for all investment decisions, clearly discloses what that process is, has been audited by an external party to verify the investment process, and has met the strict disclosure requirements of the program”.

Another certification is “Category B”. In the organisation’s own words, “Certified B Companies are a new kind of business that balances purpose and profit”.

“They are legally required to consider the impact of their decisions on their workers, customers, suppliers, community, and the environment.

“This is a community of leaders, driving of a global movement of people using businesses as a force for good.”

Australian Ethical Investment was the first Australian listed company to win this. Recently, non-listed companies in Australia have also won this including Beyond Bank and tourism group Intrepid.

Australian Ethical Investment has been unable to Stockhead’s requests for comment.