The Australian Federal government has introduced or amended a number of key policies that influence responsible investment:
CHOICE OF SUPER
Legislation increasing the number of people who can elect to have their super paid into the fund of their choice, effective 1 July 2005.
CONSUMER ADVISORY WARNING (CAW)
Legislation determining the information required on product disclosure statements for superannuation (as of 1 July 2005) and managed funds (as of 1 July 2006).
FINANCIAL SERVICES REFORM ACT – SRI DISCLOSURE REQUIREMENTS
Mandatory requirement regarding disclosure of non-material factors considered in an investment product, effective March 2004.
ASIC GUIDELINES ON SRI DISCLOSURE
SRI disclosure guidelines required by ASIC to accompany FSRA legislation, issued in Dec 2003 and effective March 2004.
Each of these are discussed in more detail below:
CHOICE OF SUPER
From July 1 2005, you may be eligible to choose the super fund that works best for you.
In deciding where you want this money to be paid, you can also make a choice about what impact your money has.
Increasingly, people in Australia and around the world are choosing to invest their superannuation in funds that take social, environmental, ethical or governance considerations into account as well as financial considerations. RIAA calls this approach to investing Responsible Investment but it can also be called Ethical Investment or Sustainable Responsible Investment (SRI).
There are a range of reasons people support responsible investment including:
- the desire to align investment decisions with personal values;
- the realisation that environmental, social and governance performance within companies has an impact upon financial performance;
- the attraction of competitive returns delivered by responsible investment products.
In Australia, responsible investment funds are outperforming their mainstream counterparts over 1, 3 and 5 year periods and there is now a sophisticated range of responsible investment products and services available including ethical bank accounts, specialist managed funds, green loans and superannuation.
Responsible Investment and Superannuation
You can find these in our Responsible Investment Super Centre.
General information on Choice of Super
http://www.asic.gov.au/superchoice
CONSUMER ADVISORY WARNING (CAW)
Under new federal regulations, the following sentence was to be included from 1 July 2005 in the consumer advisory warnings (CAW) for superannuation PDSs and one year later in managed investment products.
“You should consider whether investment features such as superior investment performance, provision of better member services, or ethical and social considerations justify higher fees and costs”.
Concerned by the strong inference that “ethical and social considerations” were linked with “higher fees and costs”, the EIA quickly took action to lobby the Treasury. In a written submission they stated:
”To the best of the EIA’s knowledge, there is no evidence conclusively demonstrating a link between a SRI/ethical investment style and comparatively higher fees. While fees are an important consideration, particularly in an environment of choice of superannuation, the proposed statement in the CAW ignores that other investment strategies may often carry “higher costs” as well”
The submission presented two alternatives to this sentence, one being the removal of the phrase “social and ethical considerations” all together. The sentence would therefore read:
“You should consider whether investment features such as superior investment performance of provision of better member services justify higher fees and costs”.
On the 16 March 2005, the Treasury announced the final regulations and the EIA are delighted to advise that the above alternative was adopted.
The new regulations announced are part of Treasury’s initiative to standardise the description and calculation methods included in PDSs as Choice of Super comes into force on 1 July 2005. By regulating the information included in PDSs and the manner in which it is presented, the government is seeking to make it easier for investors to compare products and make informed decisions.
The amended CAW included in the announcement on the 16 March represents a significant victory to the SRI industry. One of the ongoing challenges to increasing funds under management in SRI is overcoming the perception that consideration of non-financial factors means lower returns or higher costs. If the initial draft of the CAW had been accepted, this perception would have been further entrenched in the Australian investment psyche. Instead, through working together with other industry partners, the EIA has successfully prevented an outdated and unfounded attitude gaining even greater credence within the regulatory framework.
Duncan Paterson, EIA Board member and Executive Director of CAER, concluded “The EIA had a very positive experience working with ASIC on the FSRA’s ethical disclosure guidelines. It is great to see the ethical investment industry’s views on this matter being taken seriously as well.”
For more information:
Enhanced Fee Disclose Measures and other regulations
http://www.treasury.gov.au/contentitem.asp?NavId=002&ContentID=962
The Regulations (Corporations Amendment Regulation 2005 (No1)
http://www.comlaw.gov.au and search for FRLI/Comlaw number F2005L00539 in the Advanced Search option
RIAA submission to Treasury
FINANCIAL SERVICES REFORM ACT: SRI DISCLOSURE REQUIREMENTS
In March 2004, the Australian Securities and Investments Commission (ASIC) introduced a mandatory requirement that all products with an investment component include disclosure of “the extent to which labour standards or environmental, social or ethical considerations are taken into account in the selection, retention and realisation of the investment”.
ASIC GUIDELINES ON SRI DISCLOSURE
Introduction of the FSRA legislation has been accompanied by mandatory SRI Disclosure Guidelines which were issued by ASIC in December 2003 and came into force in March 2004. These Guidelines assist product providers in complying with the new legislation around socially responsible investing disclosure.
