The rise of SRI is due to increased awareness and interest in the impact of corporate activity on society and the environment. Many investors are now saying they do not want to support companies that pollute the environment, cause social problems such as gambling and alcohol addiction, or employ child labour in developing countries. This has led to the creation of a family of products and services which take environmental, social, ethical and governance issues into account.

There are two basic principles used in socially responsible investing - negative screening and positive screening. With negative screening, the most common approach, investments are filtered out from a fund or investment portfolio if they have a negative impact on society or the environment - for example investment in companies that produce weapons of war, cigarettes or chemicals that contaminate the environment. Positive screening, that is, looking for investments that promote a positive impact on society, is becoming more common, with a focus on investments in the areas of environmental protection, sustainable development, equal opportunity, healthcare and safety. Many of the selection criteria for negative and positive screening are subjective and it is important to find out what approach is used.

The term 'ethical' can mean different things to different people. Some investors take a wide-ranging view of what is unethical and, for example, may not wish to support any company that has an involvement with a country that has an oppressive political regime. Others may feel more strongly about exploitation of labour than they do about environmental issues.

There are now a number of ethical managed funds available to investors although there is only one New Zealand based retail fund - the Asteron Socially Responsible Investment Trust. This fund was launched in 2002 and invests in Australian and New Zealand shares. It screens out 'sin stocks' such as companies involved in weapons, alcohol and tobacco and actively encourages the companies it invests in to be socially and environmentally responsible. It is now the only SRI fund available to KiwiSaver investors.

There are several Australian ethical funds and one of the more successful ones - the Hunter Hall Global Ethical Trust - is now being distributed in New Zealand. SRI managers don't select investments solely on their ethical appeal - they aim to make a good return, not just change the world. For example, the Asteron fund has returned 12.3% per annum after tax and fees over the last three years and the Hunter Hall Global Ethical Trust has returned 15.9% per annum over the last five years.

It is important when making your choice about a responsible investment product or service that you understand exactly how it takes environmental, social, ethical or governance issues into consideration and that it also meets your financial needs. For more information on ethical investing and the options available, go to www.rodgerspiller.com, the website for New Zealand's leading adviser in this area.

Article by Liz Koh

Liz Koh is a financial adviser. A copy of her disclosure statement can be obtained on request and free of charge by calling 0800 273 847.  Liz Koh is a financial adviser. A copy of her disclosure statement can be obtained on request and free of charge by calling 0800 273 847.

Ph 0800 273 847

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