An Appraisal of Socially Responsible Investments and Implications for Trustees and Other Investment Fiduciaries

Posted: 24 Jul 2002

See all articles by Paul Ali

Paul Ali

University of Melbourne - Law School; Centre for International Finance and Regulation (CIFR)

Martin L. Gold

Sydney Business School, University of Wollongong

Date Written: June 2002

Abstract

SRI investments in Australia now exceed AUD1.9 billion. A number of high profile superannuation funds have recently embraced SRI strategies, and strong growth is forecast. This momentum, however, has not been matched with a robust legal framework for appraising SRI strategies.

The Report addresses the central proposition of SRI - whether it is possible to "invest for good" without any financial sacrifice. Using a unique methodology, the Report tests the effect of removing shares in companies that operate in the so-called "sinful industries" from the market portfolio - these are principally companies in the alcohol, armaments, gaming, pornography or tobacco sectors. Over a seven year period, the analysis concludes that, in the Australian context, investors avoiding shares in the "sinful industries" sacrificed returns of approximately 0.70% per annum.

This Report reveals significant differences between the approaches used by different Australian fund managers to construct SRI portfolios. For example, some Australian funds do not exclude undesirable companies; instead, they downweight the shares of those companies relative to the company's market capitalisation. Thus, notwithstanding a fund's "environmentally-aware" or ethical labelling, that fund's investment portfolio may, in fact, include "polluters" and "shooters" (that is, chemical, mining and petroleum companies, and armaments manufacturers).

Keywords: Ethical Investment, Socially Responsible Investment, Mutual Funds, Prudent Investor Rule

JEL Classification: G11, G23, K22

Suggested Citation

Ali, Paul and Gold, Martin Lionel, An Appraisal of Socially Responsible Investments and Implications for Trustees and Other Investment Fiduciaries (June 2002). U of Melbourne, Public Law Research Paper No. 32. Available at SSRN: https://ssrn.com/abstract=317399

Paul Ali (Contact Author)

University of Melbourne - Law School ( email )

University Square
185 Pelham Street, Carlton
Victoria, Victoria 3010
Australia
+61 3 8344 1088 (Phone)
+61 3 8344 5285 (Fax)

HOME PAGE: http://www.law.unimelb.edu.au

Centre for International Finance and Regulation (CIFR) ( email )

Level 7, UNSW CBD Campus
1 O'Connell Street
Sydney, NSW 2000
Australia

Martin Lionel Gold

Sydney Business School, University of Wollongong ( email )

Level 18, Gateway Building
I Macquarie Place
Sydney, New South Wales 2000
Australia
+61 2 9266 1300 (Phone)

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