Ethics and profit do mix, says manager

By RICHARD BRADDELL

Investing ethically does not mean investing unprofitably, say executives from Norwegian fund manager Storebrand, whose Global Responsibility Fund is to be marketed in New Zealand by Tower.

While admitting that socially and environmentally responsible investments can eliminate profitable opportunities, Storebrand said its criteria did not require financial sacrifice and it could guard against events, such as product liability claims, that less socially aware companies could incur.

Ethical or socially responsible funds, while new in New Zealand, are becoming more common internationally. In the United States they account for around 13 per cent of the investment total. Such funds typically avoid activities involving pollution or clear evidence of human rights abuse.

But while it is easy to conjure up a lengthy list of activities, from gambling to armaments, that could be excluded on moral or social grounds, Storebrand has limited itself to just two categories - tobacco and landmines, although it will add others if investors so demand.

In general, it will invest in companies that pollute less, or are more responsible than the average of their peers.

It is aware that the negative screening of investments can result in skewed investment portfolios that perform unnecessarily badly. It justifies its negative screening of tobacco on the basis that it, like Tower, is a life insurer and would not want to support anything that increases its risk and landmines are banned internationally anyway, it says.

So Storebrand has adopted a matrix that identifies the best in a particular investment category. Automobiles, for instance, may pollute, but some companies produce less waste in their production, while their cars may also be less polluting.

But while socially responsible investment might appeal to the green elements, Tower Asset Management managing director Paul Bevin said it could also be a proxy for good management.

Storebrand's fund, which has been running for five years, has been providing returns of 25 per cent in New Zealand dollars, or 20 per cent when measured in euros.

It has also marginally outperformed the global Morgan Stanley composite index.

Not all ethical funds have done so well. Although some in a list of better-known managers provided by Storebrand have produced returns that are nearly as good, there are some down in negative figures.

Storebrand puts its success down to a rigorous selection process in which it reviews company performances by examining individual aspects of environment policy such as their impact on global warming and ozone depletion.

It forms its views by examining media reports and publicly available information and through questioning companies. And it also listens to the views of non-government organisations, particularly on human rights.

The resulting scores form the basis for an investment decision, but they must be in the top 30 per cent of their peer group of companies.

Storebrand's Sarita Bartlett said companies were often surprised when presented with its findings. .

But while Storebrand's examination can give companies targets for performance improvement, many of the best performers are often those that have been through an adverse event.

Shell, which won notoriety for its human rights and environmental record in Nigeria, has cleaned up its act and is now seen as a leader in those areas.

Storebrand did not invest in Shell back then. It does now.