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Articles published 'May 2015'

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Ethical funds get the green light

By Catherine Robson | May 20th, 2015

Everyone wants positive returns from their investments, but what if you could do good in the world while you were making money?

This is the goal of ethical investing, also known as sustainable or socially responsible investing. Proponents argue that not only is it possible to do good, but in the long term it’s actually more financially rewarding. The theory is that companies that do less harm, look after their staff and are well managed provide better returns.

There are numerous examples of thriving companies with a strong social conscience, such as United States ice-cream maker Ben & Jerry’s, whose activism resulted in the development of chlorine-free food packaging and sustainable agriculture in the 1990s.

Online retailer Zappos​ started from nothing in 1999 and was sold 10 years later for $1.2 billion, while consistently being listed as one of the world’s most ethical companies.

The challenge of ethical investment is that ethics are very personal and mean different things to different people. It can also be very labour intensive not only to perform investment due diligence, but also to assess a company’s sustainability credentials and, as such, ethical investment funds can be expensive.

These challenges aside, there are several great ways to concurrently meet investment and social objectives:

  • Start with superannuation Most funds have a socially responsible investment investment option and the long-term nature of super is a great fit for the extend timelines needed for companies which, by definition, don’t take shortcuts. There are even super funds that are entirely devoted not only to making investments in ethical companies but to use their influence to agitate for positive change in corporate behaviour and government policy.
  • Specialised managed funds There are a number of actively managed ethical funds, ranging from light green – a negative screening that avoids companies with adverse social or environmental impacts – to dark green, which select organisations that achieve positive social or environmental outcomes.
  • Modified index portfolios These offer relatively low-cost access to a broad index with an ethical overlay, most often excluding tobacco and controversial weapons. Depending on your ethical stance, these exchange traded funds facilitate an ethical approach without some of the high investment management fees, which sometimes characterise the SRI sector.
  • Build your own With the ability to inexpensively trade Australian and international shares with almost unlimited capacity for DIY research via the internet, it’s possible to build a portfolio that meets your moral code. However, all the commonsense investing rules still apply, so make sure you have adequate diversification, don’t try to time the market, and don’t let your emotions get in the way of making good investment decisions.

Catherine Robson is a financial planner and CEO of Affinity Private.

This article was originally published in the Sydney Morning Herald.

Sectors: Finance

Retailers to reap the benefits from Budget’s tax break for small businesses

By Sydney Morning Herald | May 13th, 2015

Retailers are set for a sales rush in the wake of a generous tax break for small businesses that will encourage spending on everything from office supplies and computers to fencing and cars.

Diane Smith-Gander, a non-executive director at Wesfarmers which includes Coles supermarkets, Bunnings and Officeworks in its stable, said the measure would likely lead to a “bump” in sales for many retailers.

But to have longer-term economic benefits the money would need to be spent on productive assets that allowed businesses to grow and employ more people.

“You don’t want the small business equivalent of the flat screen TV phenomenon,” said Ms Smith-Gander, who is also chairman of Transfield and president of Chief Executive Women.

“I think this is a bit more generous than people were expecting.”

Ms Smith-Gander said that the budget’s other key focal points – on encouraging greater workforce participation – would only have longer term benefits for the economy if there were also more jobs created.

Segments within retail that could benefit from the measure included car retailers and office supplies, she said, and its impact was likely to appear in business confidence surveys.

Wesfarmers owns some of the country’s largest retailers including, Coles, Target, Kmart, Bunnings, and Officeworks.

While some businesses would be able to fund the purchases from their cash flow, there may also be an increase in demand for bank credit, she said.

“There will be some small business loans, and the banking industry will have to respond quickly.”

“It’s truly amazing,” said Robbie Sefton, who runs a communications consultancy and has just finished a three year term on the Reserve Bank of Australia’s small business advisory board.

“This will definitely create opportunities for people to upgrade that phone system, upgrade software or replace daggy office chairs, it will definitely make a difference.”

Ms Sefton said the measures would have a psychological impact.

“It is a really powerful message about saying ‘don’t give up’,” she said.

Ms Sefton said small businesses would look to grasp the detail of the opportunity which made the explanation of it important.

“If it is packaged up in a way that is simple and communicated well to their accountants they will, they rely on their accountant to give them advice particularly tax advice,” she said.

ANU institute of tax and transfer policy’s Miranda Stewart said the package was very similar to that rolled out as part of the Rudd government’s stimulus efforts in the global financial crisis although, crucially, this package was more generous with a $20,000 cap compared to a $5000 cap in Labor’s version.

She said there was empirical evidence that such programs would stimulate spending.

At the same time there was still an “open debate” about whether that spending was simply the bringing forward to investment that would have happened in future years and now would not, she said.

This article was originally published at the Sydney Morning Herald and was written by Mathew Dunckley and Clancy Yeates.