In 1986, Australian Ethical set out with a bold vision: to make money a force for good. As a pioneer of ethical investing, they’ve spent decades refining a practice that goes beyond the mainstream buzzwords of ESG—honing an investing practice that deeply considers their impact on people and the planet.
As pioneers of ethical investing, we go deeper than mainstream environmental, social and governance (‘ESG’) factors by applying a comprehensive set of ethical criteria. All our funds are screened for ethical and investment merits, with genuine regard for business impacts on people, planet and animals.
In 2014, Australian Ethical became the first Australian company to earn B Corp certification, and they’ve continued to set a high bar since. Upon recertification in 2023, they achieved the highest score of any B Corp in Australia and Aotearoa, New Zealand. Their story holds a mirror up to what is possible when businesses put their values into action, achieving not just strong financial returns but to leaving a legacy of good for future generations.
We’re proud to collaborate closely with Australian Ethical, our major partner in our inaugural Wisdom & Action Forum. Recently, we had the pleasure of sitting down with Alison George to explore how they continue to fulfil their purpose with unwavering integrity.
Q: What does 'ethical' mean to Australian Ethical?
Alison: We were founded around a clear and transparent set of principles for people, planet and animals. Our Ethical Charter sets out the positive things we want to see more of in the world, such as protecting human rights, ecosystems, and animal welfare, and the harms we want to see reduced, like weapons manufacture and poor working conditions.
We consider these ethical priorities in everything we do, from our investment activities to the way we operate our business and treat our people. Our in-house ethics team looks deeply at what businesses do, how they operate, and all their activities along the value chain.
Every investment goes through this comprehensive and detailed evaluation to make it into our investable universe. When we enter into arrangements with other specialist investment managers, we make sure their process for selecting companies to invest in meets our own high standards.
It’s no surprise we find ourselves at the forefront of the energy transition, the great mega-trend of our time, reshaping our societies and financial markets.
Q: Does choosing an ethical manager mean you need to forgo investment returns?
Alison: Not in our view, and our investment performance is evidence of this. We have what’s called a Dual Purpose: to invest ethically, as guided by our Ethical Charter, and to optimise investment returns. This is possible not only because we believe we can make a difference to the planet but also because we think it’s a compelling investment case.
We have a high degree of conviction in critical issues like climate change, housing affordability, diversity and equity considerations. In my view, these aren’t cyclical trends but will continue to grow in importance over the years to come. So, it’s no surprise we find ourselves at the forefront of the energy transition, the great mega-trend of our time, reshaping our societies and financial markets.
We are using our capital and our influence to invest in new technologies and accelerate a move away from the emissions-intensive energy sources the world has relied on in the past.
Q: How does your ethical process differentiate you from other investment managers?
Alison: These days, every investment manager wants to say that they consider environmental and social issues. What they are less upfront about is that this consideration is limited to whether it helps them make a profit. If an environmental or social issue can hurt the bottom line of an investment, they might adjust their valuation to account for it. But that's where ESG stops — it’s enlightened self-interest at best.
Australian Ethical is a values-based investor. We consider environmental and social issues in every case. Our approach includes absolutes, like not investing in weapons manufacturing or tobacco production. For investments that get past this first hurdle, the question becomes, "Is there a net positive for people, planet, and animals in this activity?"
Q: How do you make a difference beyond how you allocate capital?
Alison: Allocating our capital in a way that is aligned with our Ethical Charter is important — it’s critical — but it’s a minimum requirement and not an endpoint. But we don’t stop there — by achieving strong ethical and financial performance, we hope to be trusted by more customers and emulated by more peers.
We want ethical investing to grow to the point where environmental and social performance matters as much as financial performance does, where each business is valued based not only on its financial contribution to shareholders but also on its environmental and social contribution to all stakeholders: customers and host communities, employees and staff all along the supply chain, non-human animals, and ecosystems both impacted and relied upon.
We recognise that, as investors, we’re relatively more empowered than most of those stakeholders — we can open doors that are closed to them. So, we use our position as investors to seek positive change on their behalf, hold companies accountable for their ethical performance, and agitate for better. This means being vocal at times.
Q: What are some recent examples of how you've been vocal?
Alison: You can see this in our recent engagement with Boral, a building materials company. We spoke to the company privately but were also public about our concerns in our open letter and in the media. We invested in Boral because the company set strong carbon targets. But when Boral went back on these commitments, we had to speak out about our concerns not just for the planet but also for the company.
It's easy to give in to short-term pressures and focus on this year’s executive KPI at the expense of building a business that can succeed in the long term. That’s why companies need to hear from their investors that they want them to stay the course of sustainable value creation. As in many other cases, with Boral, we rallied other investors to join us and amplify our calls for better.
We want ethical investing to grow to the point where environmental and social performance matters as much as financial performance does.
Q: Aren’t you worried that collaborating with other asset managers will erode your unique position on these issues?
Alison: For us, it’s not about “winning” against other organisations. It’s about working with them to make a difference. We care about the outcome, and ultimately, we think customers will recognise those that consistently lead. We collaborate wherever we can find common ground. Last year, we directly and proactively pursued more than 140 engagements for change. When you add in collaboration, that number grows to more than 330.
Q: Many asset managers publish engagement statistics. Is this a good way to judge the authenticity of an ethical fund?
Alison: Engagement activity numbers alone aren’t enough to know we’re making a difference. We go further to hold ourselves accountable and pursue the real-world change at the heart of our mission.
But pursuing real change can take time — most engagements run for multiple years. So, we publish our plans for engagement, our ultimate objectives, and the activities we intend to undertake to get there. We then report annually on what we did and what progress we saw — and we do see progress year on year.
Around a quarter of our proactive engagements saw some positive change in the most recent year. If we don’t see change, we are honest about that and what we are changing to do better in the future.
Q: Do you have any recent examples of these engagements and the progress you’ve made?
Alison: Our banking engagement is a great example of this. We restrict our investment in fossil fuel companies because we don’t see them having a role in the net zero future. While the ones we choose to avoid are out of our portfolios, the problem still remains.
We know that new dirty energy projects can’t be developed if we are to avoid dangerous climate change. We also know those projects won’t be developed if no one will lend to them. Our goal is to see the banks withdraw lending from fossil fuels that are misaligned with global climate goals.
Over the last few years, the climate proposals we helped put on bank AGM agendas have received dwindling investor support. So, we stopped and sought to understand why. We spoke to as many investors as we could, teased out their concerns, and found common ground.
As a result, we were able to author proposals that furthered our objectives while also being palatable to our peers, and the change was dramatic for the two banks we were active on. There was four times the level of support for our asks of NAB over the previous year. We also doubled investor support for our calls for Westpac to apply its climate standards more broadly. NAB subsequently released transition plan expectations for their customers that directly respond to our proposal asks.
Holding ourselves accountable not just for activity but for outcomes is key to our achievement of influence.
Q: We’re living in the time of the ‘conscious consumer’ during a boom of ethical investing. What do you believe consumers expect from businesses and for-purpose organisations in 2024 and beyond?
Alison: I think consumers want to know who they can trust. Transparency is fundamental, but it still leaves the work of evaluation to do. Each of us has a limited capacity to scrutinise the claims of others. It's exhausting to live in the modern world and try to be an ethical person, too. This is where certifications like B Corp are helpful.
To be a Certified B (benefit for all) Corporation, you must meet high standards of social & environmental performance, transparency & accountability and be a force for change toward a more sustainable future for the environment and people. Because it is a rigorous, comprehensive standard for sustainable business, once you understand what that certification means, you can trust it in all the places you see it.
We are certified ourselves and consider B Corp status in our supplier relationships. Australian Ethical was the first listed B Corp in Australia in 2014, and we’re currently the highest-scoring B Corp in Australia and New Zealand — an achievement we’re exceptionally proud of. We hope that when other organisations see what we’re doing, they’ll realise what’s truly possible.
If you’re ready to learn how you can change the world through your capital, just like Alison and the team at Australian Ethical, why not join us for our Journey to Impact program, an impact investing course for individuals, family offices and foundations? Learn more about the program here.
