“There is an argument to be made with climate change that there is an asset risk in relation to coal and oil reserves on balance sheets,” Australian Ethical’s chief executive officer Phil Vernon told InvestorDaily.
“The fact the investment market is hanging onto to those assets is driven by the fact they can effectively get out before the next guy.”
In recent years, managers have applied an environmental, social and corporate governance (ESG) analysis upon their investment decisions. However, the ethical investment fund sees limitations in that approach.
“The long-term impacts of coal seam gas on the Great Artesian Basin is more difficult for them [ESG managers] to translate [those] long-term risks into medium-term valuations,” Mr Vernon said. “From our point of view, we can make those decisions a little more clearly.”
Australian Ethical believes using its 23 point ethical charter over investment choices allows it to factor in these longer-term impacts.
“There are 12 positive elements to it and 11 negative elements to it … It sets out a broad bunch of principles that we need to take into account,” Mr Vernon said.
“We have those principles and then apply a whole set of interpretive frameworks.
“Beyond that we are left with a certain universe. [But] ultimately, it leaves us with a portfolio that avoids long-term systematic risk – for example climate change,” he added.
The fund, which was set up 25 years ago, does not believe that choosing to avoid assets exposed to climate change necessarily means you are missing out on competitive returns.
“As a general philosophy and in terms of how we are positioned, we believe you can invest where you can get long-term competitive returns, whilst having a positive impact on society and the planet. That is our general philosophy,” Mr Vernon said.
