24 Oct 2018
Doing right and making money when investing
For most investment firms, the highest possible return-on-investment is the most important buy-sell factor.
But for Ethical Partners, it’s all about balance: “there's a perception that ethical investing has to generate lower returns than other funds but I think our credentials suggest that's not the case,” says co-founder and investment director, Nathan Parkin.
" Part of good returns is avoiding risk and all of the ethical filters we apply go towards business risk ultimately.”
Founded in early 2018, Ethical Partners follows a bottom-up, long-only stock picking process with a focus on good practices.
“We look at cash flow but we also look at what country and industry a business operates in and we exclude a bunch of risk,” says Parkin. The company also investigates human rights, supply chain and environmental policies such as carbon emissions and water waste.
“We believe there isn't a sacrifice for investing in-line with [our] values,” Parkin says. “We have the capability and the investment credentials to buy the right companies at the right price and have them pass our ethical filters.”
Parkin says it’s just as important for Ethical Partners to be a performance-focused investor and deliver outcomes for clients.
“Part of good returns is avoiding risk and all of the ethical filters we apply go towards business risk ultimately,” he explains.
For Ethical Partners senior analyst, Andrew Wilson, working with experts helps the company make clearer choices: “we’re better informed [when] talking to potential investors [and] investee companies.”
The company also works closely with investor relations teams such as ANZ’s. ANZ IR head Jill Campbell says she has seen more funds considering risk management implications recently.
“I'd like to think that every investor is ethical. Companies that [take] a holistic view of [are] more likely to survive and still be in business going forward,” she says.
Campbell says investors want companies to be rigorous around how they are measuring non-financials and articulating to investors clearly how this impacts on management and financial decisions across the company.
“How embedded in your decision making processes are the kind of ethical questions you should really be looking at as an organisation?” Craig says investors are asking.
Wilson says there are always more issues that can be discussed between funds and companies in more granularity.
While it isn’t uncommon to see people, including politicians and media personalities, who say it's not a company's role to make ethical decisions, Parkin says there are examples both in Australia and around the world where bad practices in business have led to poor financial outcomes for shareholders.
“The effect on shareholders is meaningful and so we're looking to identify risks upfront and avoid those before we make the investment decision,” he notes.
“If things are being hidden then they probably won't be fixed. But if they're on the table there's a proper mandate to go and address it.”
The pair won’t go so far as to call themselves ‘ethical activists’, preferring “advocate investors”.
“We advocate for certain things to happen, [such as] more disclosure [and for] certain things to be done in a proper and responsible way,” says Parkin.
“We want to invest in everyday businesses that happen to have higher standards. We could invest in any business really – a paint business or a paper recycling business or a bank - so long as there are good standards around how business is done.”
Parkin says he can’t see why all businesses can’t operate in an ethical manner in the future.
“Maybe one day even you don't need to call it an ethical fund because all companies [will] operate at a standard that passes the test.”
Listen to the podcast above for the full conversation.
Andrew Cornell is managing editor of bluenotes
The views and opinions expressed in this communication are those of the author and may not necessarily state or reflect those of ANZ.