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.

Experts: Here’s what BetaShares’ CEO thinks about ETF growth in 2019 and what they look for

“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% WgtMkt ValPosition (local currency)
ACTIVISION BLIZZARD INC0.591,970,84929,198.00
KDDI CORP0.913,008,88382,500.00
NETFLIX INC2.578,515,55816,120.00
SINGAPORE TELECOMMUNICATIONS0.551,834,394499,450.00
VIVENDI0.501,644,65342,555.00
APTIV PLC0.491,621,31614,010.00
BOOKING HOLDINGS INC1.374,533,5681,721.00
FAST RETAILING CO LTD0.762,512,2012,900.00
HOME DEPOT INC4.1313,721,92846,428.00
INDUSTRIA DE DISENO TEXTIL0.632,081,38748,738.00
NIKE INC -CL B1.856,138,84951,398.00
O'REILLY AUTOMOTIVE INC0.511,697,0823,234.00
ORIENTAL LAND CO LTD0.612,015,43411,400.00
STARBUCKS CORP1.815,993,24850,239.00
TESLA INC0.451,503,5224,726.00
TJX COMPANIES INC1.133,733,57249,455.00
GENERAL MILLS INC0.551,835,91924,626.00
KERRY GROUP PLC-A0.511,685,9329,968.00
MCCORMICK & CO-NON VTG SHRS0.501,645,1527,393.00
AIA GROUP LTD2.267,513,893488,400.00
BLACKROCK INC1.033,408,4195,140.00
CHUBB LTD1.163,848,70318,319.00
CME GROUP INC1.123,716,61313,426.00
FIRST REPUBLIC BANK/CA0.461,517,03611,085.00
HONG KONG EXCHANGES & CLEAR0.792,611,60051,600.00
INTERCONTINENTAL EXCHANGE IN0.882,904,37323,791.00
LEGAL & GENERAL GROUP PLC0.461,510,877310,443.00
M & T BANK CORP0.511,708,2767,092.00
MARSH & MCLENNAN COS0.882,918,56820,581.00
MOODY'S CORP0.601,989,6927,135.00
MSCI INC0.561,871,9315,601.00
S&P GLOBAL INC0.973,219,5679,935.00
SAMPO OYJ-A SHS0.501,650,93224,544.00
SCHWAB (CHARLES) CORP0.892,957,39351,530.00
SKANDINAVISKA ENSKILDA BAN-A0.521,717,867128,348.00
SVENSKA HANDELSBANKEN-A SHS0.451,500,783105,295.00
SWEDBANK AB - A SHARES0.511,688,44578,640.00
ALIGN TECHNOLOGY INC0.451,509,5933,917.00
ANTHEM INC1.254,141,24610,271.00
BOSTON SCIENTIFIC CORP0.892,955,18449,367.00
BRISTOL-MYERS SQUIBB CO1.274,201,07065,247.00
CENTENE CORP0.471,570,16820,973.00
CHUGAI PHARMACEUTICAL CO LTD0.451,498,01316,200.00
CVS HEALTH CORP1.224,050,97151,836.00
EDWARDS LIFESCIENCES CORP0.682,269,7938,574.00
HUMANA INC0.571,891,0525,006.00
ILLUMINA INC0.822,730,0545,364.00
INTUITIVE SURGICAL INC0.943,124,5224,227.00
NOVO NORDISK A/S-B1.675,558,21576,433.00
ROCHE HOLDING AG-GENUSSCHEIN3.8912,920,34332,341.00
STRYKER CORP1.214,025,35413,921.00
UNITEDHEALTH GROUP INC3.8212,671,67836,031.00
VERTEX PHARMACEUTICALS INC0.662,180,0818,551.00
WATERS CORP0.411,348,2644,424.00
ZOETIS INC0.953,147,04219,549.00
ASSA ABLOY AB-B0.491,638,51351,467.00
CINTAS CORP0.561,853,9465,510.00
EXPERIAN PLC0.531,748,48241,109.00
FASTENAL CO0.481,592,63534,634.00
GEBERIT AG-REG0.541,805,5902,725.00
ILLINOIS TOOL WORKS0.782,578,49112,115.00
KONE OYJ-B0.561,865,55222,060.00
MTR CORP0.521,738,180180,000.00
RECRUIT HOLDINGS CO LTD0.983,252,39868,500.00
SIEMENS GAMESA RENEWABLE ENE0.501,665,44069,870.00
VESTAS WIND SYSTEMS A/S0.501,651,00513,222.00
WEST JAPAN RAILWAY CO0.521,712,65414,800.00
WOLTERS KLUWER0.511,688,32616,339.00
WW GRAINGER INC0.421,406,1633,701.00
ADOBE INC2.498,248,28419,703.00
ADVANCED MICRO DEVICES0.581,915,14443,639.00
AMADEUS IT GROUP SA0.581,912,98617,155.00
APPLE INC4.0313,374,83846,903.00
APPLIED MATERIALS INC0.752,499,62939,178.00
ASML HOLDING NV1.504,961,54117,010.00
AUTODESK INC0.642,132,2439,038.00
FIRST SOLAR INC0.591,969,94221,076.00
INFINEON TECHNOLOGIES AG0.421,388,01156,081.00
INTUIT INC1.063,523,3539,566.00
KLA-TENCOR CORP0.471,567,6259,326.00
MASTERCARD INC - A4.2514,104,88037,839.00
NVIDIA CORP1.705,643,66424,218.00
ON SEMICONDUCTOR CORP0.471,576,00854,140.00
PALO ALTO NETWORKS INC0.401,341,1674,585.00
PAYCHEX INC0.491,627,58313,886.00
PAYPAL HOLDINGS INC2.347,774,09047,905.00
SALESFORCE.COM INC1.635,403,92925,119.00
SERVICENOW INC0.762,520,0896,338.00
SPLUNK INC0.481,585,2218,938.00
VERISIGN INC0.551,815,2866,134.00
VISA INC-CLASS A SHARES4.2013,944,07957,041.00
WORKDAY INC-CLASS A0.511,700,5525,775.00
GIVAUDAN-REG0.521,733,239436.00
VULCAN MATERIALS CO0.551,818,3559,406.00
AVALONBAY COMMUNITIES INC0.481,595,5305,548.00
CROWN CASTLE INTL CORP0.923,056,99716,412.00
PROLOGIS INC0.732,435,35321,495.00
REALTY INCOME CORP0.451,500,49115,140.00
SBA COMMUNICATIONS CORP0.541,790,4235,578.00
VONOVIA SE0.441,456,65821,459.00

 

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”.┬áIn 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.