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SRI – Socially Responsible Investment

Integrating personal values and societal concerns

with investment decisions

Eco Design Foundation September 2001

Ulrich Trog

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I. Contents

I. CONTENTS 2

II. INTRODUCTION 4

III. HISTORY 4

IV. CRITERIA FOR SUITABLE INVESTMENTS 5

FORM VS. CONTENT 7

V. SCREENING METHODS 8

VI. PHILOSOPHIES 10

3S - SUSTAINABLE SERVICES AND SYSTEMS, SOME DEFINITIONS 10 THE NATURAL STEP 11 CERES PRINCIPALS 12 NATURAL CAPITALISM (ROCKY MOUNTAIN INSTITUTE) 13 GLOBAL REPORTING INITIATIVE 13 TRIPLE BOTTOM LINE 14

VII. MARKET 15

VIII. FUNDS 16

AEI - AUSTRALIAN ETHICAL INVESTMENT LTD. 16 AFL - AUSTRALIA FUND LTD. 18 AMP SUSTAINABLE FUTURE FUNDS 19 BNP PARIBAS ETHICAL FUND 20 BT ETHICAL BALANCED FUND 21 CHALLENGER SOCIALLY RESPONSIVE INVESTMENT FUND 21 OXFAM COMMUNITY AID ABROAD ETHICAL INVESTMENT TRUST 23 EQT – AUSTRALIAN EQUITIES ETHICAL FUND 24 GLEBE ASSET MANAGEMENT LTD. 24 HUNTER HALL VALUE GROWTH TRUST 25 ING THE DIRECTOR SOCIALLY RESPONSIBLE SHARES INDEX FUND 26 IOOF 26 ROTHSCHILD 27 TOWER ETHICAL GROWTH FUND 27 WARAKIRRI ASSET MANAGEMENT 28 WESTPAC AUSTRALIAN ECO SHARE FUND 28

IX. RESEARCH 30

ETHICAL INVESTOR LTD. 30 ETHICAL INVESTMENT ASSOCIATION (EIA) 30

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BERC - BUSINESS ETHICS RESEARCH CENTER 30 CENTER FOR SUSTAINABLE DESIGN 30 CERES - COALITION FOR ENVIRONMENTALLY RESPONSIBLE ECONOMIES 31 CO-OP AMERICA 31 IRRC - INVESTOR RESPONSIBILITY RESEARCH CENTER 32 ISS - INSTITUTIONAL SHAREHOLDER SERVICES 32 MSE - MONASH SUSTAINABILITY ENTERPRISES 33 SAM - SUSTAINABLE ASSET MANAGEMENT 33 SIRIS - SUSTAINABLE INVESTMENT RESEARCH INSTITUTE 37 SOCIAL INVESTMENT FORUM 38 SUSTAINABILITY 38 TEC TOTAL ENVIRONMENT CENTRE 39 WORLD BUSINESS COUNCIL FOR SUSTAINABLE DEVELOPMENT 39 WORLDWATCH INSTITUTE 40

X. DEFINITIONS 40

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II. Introduction 11. September 2001: Horrific attacks and great loss of live in the US possibly associated with terrorism strongly raises moral, ethical and social issues concerning our future. We are creating an ever-widening gap of a so-called civilised, consumer driven and money oriented society in strong contrast to poor, desperate, suffering people. This gap is even widened by prejudice and misunderstanding and leads to violent counteractions that have great impact on a future “sustainable development of mankind”. We ask ourself the basic question: What is right or wrong? Or in other terms: What is socially responsible? In a sense it is a question of morality. However morality cannot be considered without taking culture into account? What may be appropriate in one culture is abhorrent in another. The answer is of course not a simplistic black or white. Wether something is considered appropriate or not depends on perspective. Most of the time it seems that things are neither good or bad, the difference is made by human application. The following paper should give a quick introduction to SRI, an overview of funds methods and organizations and intends to take part in the discussion about the applied principles of sustainability.

III. History At the height of the Great Depression in the 1930s in America, U.S. president Franklin D. Roosevelt said: "We have always known that heedless self-interest was bad morals; we know now that it is [also] bad economics." However, the wisdom of this statement was rapidly forgotten when, after World War II, most Americans went back to work as usual to maximize profit no matter what the human or environmental costs. By the 1980s, in boardrooms across America one could hear the slogan preached by the lead actor in the Hollywood movie Wall Street -- "Greed is good!" But, at the same time, a dramatic and largely unseen revolution was taking hold. Started by investors during the Vietnam War who did not want their investments supporting the war, socially responsible investing (SRI) rapidly spread as investors began screening their investments for such issues as corporate environmental practices, whether or not U.S. business operations in South Africa supported apartheid, and how American companies treated their employees. Until the mid 1980s, SRI was considered to be nothing more than what Fortune magazine sarcastically called "feel-good investing" or what would be labelled today as "politically correct" behavior. The movement needed to get over two credibility hurdles --- one social/political and the other economic. Wall Street "wisdom" had long preached that making social judgements in the investment process would have no effect on corporations, especially large ones. The second bit of wisdom was the belief that making social judgements would limit return to investors. The first hurdle was successfully negotiated as a result of the South African divestiture movement in the late '80s. As more and more U.S. corporations stopped doing business in or with aparteid South Africa (graph above left), more foreign corporations continued to do business in and with South Africa (graph on right). There was one major factor that accounted for this difference --- a successful and strong social investing movement in the U.S. American corporations listened to the voices in this movement, and, as a result, the aparteid government was brought to its knees.

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In addition, years of accumulating research began to demonstrate that corporations with good social records on the whole outperformed corporations with bad social records. In turn, socially unscreened portfolios, no matter what the social issue, rewarded investors better than unscreened portfolios. In other words, investors and businesspeople could do good socially while also doing very well financially. As a result, SRI took off in the U.S. in the 1980s. The portfolios of churches, universities and colleges, and state and city pension funds were among the largest financial assets involved with SRI. The number of bond, equity, mutual, and money market funds that utilized some type of social screening increased from a literal handful in the early 1980s to well over 100 by 1997. Increasing numbers of American corporations initiated corporate codes of conduct and mission statements that included what came to be known as "the double bottom line" --- a commitment to serving the special needs of employees and the communities in which the business operated, in addition to making a profit and serving the needs of customers. This was reflected in the spread of voluntary corporate family- and environmentally-friendly programs and practices, which in many cases went far beyond governmental requirements. In the late 1980s, interest in SRI began to go global as it spread from North America to both the East and the West --- in Australia, Japan, Austria, France, Germany, Switzerland, and many more countries. As German philosopher Arthur Schopenhauer put it: "There are three steps in the revelation of any truth: in the first it is ridiculed; in the second, resisted; in the third it is considered self-evident." 1

IV. Criteria for suitable investments The search for suitable criteria is a difficult one. It is necessary to put an ethical code of the society into a measurable or at least checkable set of criteria. The triple bottom line approach might be helpful in terms of a differentiation into three major areas Society, Economy and Environment. The economical check is a very well defined one and done by all financial institutions. Environment and Society is much less researched and therefore methods and key figures don’t exist (How to define profit in the environmental perspective?). A survey of SRI funds and research institutions shows the use of the following criteria:

Table 1 Environmental Criteria applied by funds

1 GOOD MONEY Home Page: Social, Ethical and Environmental Investing and Consuming & Corporate Accountability, www.goodmoney.com

AEI AFL AMP BNP BT Challenger Oxfam EQT Glebe Hunter

Hall ING IOOF RothschildWarakirri Westpac

Environmental x x x x x x x x x Energy Resources (water) x Waste x Uranium Mining x x x x x x Clearing of native forests x x Endangered Environments x

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Environmental Criteria are applied by most funds. What exactly is researched is almost never mentioned (at least not in product descriptions). It is interesting that besides the global environmental check the second biggest check is Uranium Mining, followed by Clearing Native forests (for negative screening). In contrast social criteria are mostly used also in Negative Screens and often exactly described.

AEI AFL AMP BNP BT Challenger Oxfam EQT Glebe Hunter

Hall ING IOOF Rothschild Warakirri Westpac

Aboriginal / Land Rights x x Alcohol x x x x x x x x x Animal Rights x x x x Anti Life Products x Armaments x x x x x x x x x Community x x x x x x Contraception x Discrimination of race, religion or sex x Gambling x x x x x x x x x x Health x Human Rights x x x x x Marketing x x x Nuclear Power x Pornography/Adult Entertainment x x Regulatory Compliance x Tobacco x x x x x x x x x x Human Resources / Labour Relations x x x x x x X

Table 2 Social Criteria applied by funds A rating shows that the most mentioned criteria are Gambling, Tobacco, Alcohol and Armaments with over 80% followed by Human Resources and Community with over 40%. All others are under 40% and therefore considered less important. It should be mentioned that Tobacco or Gambling apparently is considered more important / dangerous than e.g. Pornography. These figures reflect a trend that was researched in the US by the Social Investment Forum 2.

2 Social Investment Forum, 1999 Report on Responsible Investing Trends in the United States

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Rating of Social Criteria

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Figure 1 Rating of Social Criteria Beside those environmental or social criteria some funds also have a look at the product itself.

AEI AFL AMP BNP BT Challenger Oxfam EQT GlebeHunter

Hall ING IOOF Rothschild Warakirri Westpac

Product x x x x x x x

Table 3 Product as criterium

What a product check really means is rarely mentioned but at least it could be the first step into looking at the bigger picture. Fulfilling the mentioned criteria doesn’t necessarily mean being a sustainable company. Are there segments of the industry that are unsustainable in itself or is it enough to minimise impact on the environment or use of natural resources?

Form vs. Content By looking through the information available about funds a variety of approaches can be found. The result can be shown in a Portfolio. One axis shows the Focus, the other shows the Investment Strategy. In a first try the classification is done in a more intuitive way. The result shows a strong correlation between investment in small companies and a focus on the content in contrast to investments in larger companies with a focus primarily on the form.

Focus

Form Most screens are performed by applying criteria to exclude companies. Some check Triple Bottom Line Reports, compliance with laws, involvement with community, Environmental Management Systems, etc.

Content Very rarely funds assess the overall sustainability of the field of business or impact of the product itself. To give an example: Some funds invest in mining companies with a

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good environmental report. The basic unsustainability or possible risks (uranium mining) are not taken into account.

Investment Strategy

Large (ASX) Most funds take the leading companies on the Stock exchange (i.e. ASX200) and apply their set of SRI criteria in a second step.

Small Some funds seek out smaller but sustainable companies with potential as well (positive screen).

Figure 2 Portfolio Analysis Focus – Investment Strategy

Strange example

According to the Ethical Investor3 Glebe invests in Rio Tinto, an uranium mining company in the Kakadu National Park, although uranium mining is one of the criteria of Glebe’s ethical policy.

V. Screening Methods SRI funds typically are screened to reflect environmental, social or other non-financial values. Socially responsible investors may focus on a range of different issues, but the area of highest interest in Australia is the environment. Some socially responsible investors engage in shareholder advocacy, exercising their voting rights to encourage improvement in a company ’s environmental or social performance. Companies that want to appeal to as wide a spectrum of investors as possible need to become familiar with the way socially responsible investors select their investments. A number of criteria beyond financial performance may be used. Typical SRI approaches used in selection of potential investments include:

3 Ethical Investor, Issue 5, October 2001, p. 59 ff

Form Content

Focus

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AEI

AMP

Challenger

Oxfam

GlebeRothschild

Tower

Westpac

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! negative screens to avoid some types of investments, e.g. gambling, pornography, tobacco, weapons, or companies with poor environmental or social records.

! positive screens to exercise a preference for some activities or characteristics, e.g. companies in future-oriented industries, such as biotechnology, renewable energy, and health care, or companies with good environmental and social performance.

! best of sector screens to select leading firms in every business sector, based on environmental and social performance or sustainability.

! constructive engagement to select funds using traditional financial criteria but adding an overlay to engage with companies about troublesome areas of their performance

! use of an index of environmentally and socially responsible companies to follow an approach well known in traditional markets for constructing portfolios, except using different indexes.4

A survey of major Australian SRI funds shows the different approaches that fund managers take:

AEI AFL AMP BNP BT Challenger Oxfam EQT Negative Screens x x x x x x x Positive Screens x x x x x Best of Sector Screens Constructive Engagement x Use of Index x

Glebe Hunter

Hall ING IOOF Rothschild Warakirri Westpac

Negative Screens x x x x x Positive Screens x Best of Sector Screens x Constructive Engagement Use of Index x

Table 4 Screening Methods used by funds

That shows that the most used screen is the Negative Screen, followed by the Positive Screen. The use of index is possibly used quite often as well, even though it is not mentioned explicitly.

4 Deni Greene Consulting Services with Standards Australia and Ethical Investment Services (August 2001), A Capital Idea: Realising value from environmental and social performance

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0

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Negative Screens Positive Screens Best of SectorScreens

ConstructiveEngagement

Use of Index

Figure 3 Rating of Screening Methods

VI. Philosophies

3S - Sustainable Services and Systems, some definitions (http://www.cfsd.org.uk/events/tspd6/index.html) To move towards sustainability will require new ideas and new thinking. This will mean that companies need to move beyond eco-efficient products and processes towards 'triple bottom line' answers. Innovative solutions are required that significantly reduce energy and resource consumption. However, approaches that enable Sustainable Consumption will be a feature of more sustainable solutions. A key opportunity may come from the development of Sustainable Service Systems (3S) that focus on both function and system level innovations. However, the sustainability and business benefits of shifts towards 3S, Product Service Systems (PSS) and eco-efficient services are still uncertain and under researched. Sustainable services and systems ideally: ! should fulfill customer/consumer demands ! without negative impact on natural and social environment ! are profitable strategies for companies ! can be continued over a long period of time

Product Service Systems (PSS)

PSS = a pre-designed system of products, services, supporting infrastructures and necessary networks that: ! fulfil a consumer's needs on the market ! have a smaller environmental impact than separate product and services with

the same function fulfilment ! are self learning

Eco-efficient Services (ESS)

Eco-efficient Services (ESS) are all kinds of commercial market offers aiming at fulfilling customers needs by selling the utilisation of a product (system) instead of providing just the product. ESS are services, relating to any kind of product, in which some of the property rights are kept by the producer Typologies of eco-efficient services: ! Activity management e.g. 'end of life' disposal of materials and products, or

facilities management of energy provision of buildings

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! Advice and consultancy e.g. energy or water efficiency ! Information e.g. provision of systems which make use of global positioning

systems (GPS) to control tractor spraying of fertilisers or to support reverse logistics through better vehicle tracking

! Intermediation e.g. e-commerce portals which enable buyers to be found for unused capacity

! Product extension e.g. with maintenance, repair and other after-sale services ! Product result services e.g. where suppliers guarantee levels of performance

and do all that is necessary to achieve this (demand-side management in energy)

! Product utility services e.g. when goods are hired or leased rather than sold ! Substitution e.g. when electronic services are substituted for physical

processes (MP3 downloads)

The Natural Step http://www.thenaturalstep.org The Natural Step (TNS) is a non-profit environmental education organization that advocates a pragmatic framework for acting in harmony with the earth's cyclical processes. TNS was founded in Sweden in 1989 by Dr. Karl-Henrik Robért, an oncologist who observed there are limits within which a living cell will properly function. Working with other scientists, he defined a set of system conditions for sustainability based on laws of thermodynamics and natural cycles. The Natural Step works toward improved technical and organizational efficiency around the world and the use of fewer resources, especially in affluent areas. In practical terms, this means using abundant minerals instead of those that are scarce, replacing unnatural compounds with ones that break down more easily in nature, drawing resources only from well-managed eco-systems, exercising caution in all modifications of nature, using all substances produced by society efficiently, and systematically reducing dependence on fossil fuels.

Vision

The Natural Step’s vision is a global shift to ecological and social sustainability.

Strategy

The Natural Step's (TNS) strategy is: ! to develop scientifically valid principles for sustainability, to foster system-

wide implementation of these principles, and to develop new tools in association with leading scientists.

! to support the use of the TNS Framework in companies and organizations through direct training and consultation.

! to provide a forum for dialogue, particularly for decision-makers capable of influencing ideas and becoming leading role models of sustainable development.

! to make sustainability knowledge and best practices easily understood and accessible.

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The Natural Step Framework

The Natural Step uses a science-based framework to help individuals and organizations understand sustainability and build sound programs, tools and metrics. This framework is a well-developed planning methodology used for assessment, visioning and action. The Framework has assisted many companies and organizations to develop strategic sustainability initiatives. These initiatives have helped them achieve greater effectiveness, competitive advantage, bottom line results, security, employee satisfaction and public acceptance.

Recognition

Clients: The TNS Framework is being used by many successful companies and communities all over the world, for example McDonald’s, Scandic Hotels, The Home Depot, Tnuva Dairies, Hufvudstaden Real Estate, Norsk Hydro Polymers, Carillion Construction, BP, Interface Inc., Sainsbury’s, CH2M-Hills, Nike, BHP Billiton (QNI Nickel), Woolworths, GlaxoSmithKline and the US Environmental Protection Agency. Awards and prizes that The Natural Step has recieved are for example The Blue Planet Prize and Global Green's Millennium Award for International Leadership.

EcoSTEPS

(www.ecosteps.com.au) EcoSTEPS has nine core member consultants who have many years of experience and expertise in the areas of: organisational culture and change management, training design, development and delivery, project management, creativity and innovation thinking, quality management and human resources management. The principals are accredited consultants in The Natural Step. EcoSTEPS has a Yahoo-discussion group with over 2000 subscribers.

CERES Principals Companies have to adopt these 10 Principals 5: ! Protection of the Biosphere ! Sustainable Use of Natural Resources ! Reduction and Disposal of Wastes ! Energy Conservation ! Risk Reduction ! Safe Products and Services ! Environment and Restoration ! Informing the Public ! Management Commitment ! Audits and Reports

5 Coalition for Environmentally Responsible Economies (CERES,) www.ceres.org/about/principles.htm

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Natural Capitalism (Rocky Mountain Institute) (www.rmi.org) The Industrial Revolution made people vastly more productive when low per-capita output and a relative scarcity of people were limiting progress in exploiting a seemingly boundless natural world. Today we face a different pattern of scarcity: abundant people and labor-saving machines, but diminishing natural capital. http://www.naturalcapitalism.org/Natural capital refers to the earth's natural resources and the ecological systems that provide vital life-support services to society and all living things. These services are of immense economic value; many are literally priceless, since they have no known substitutes. Yet current business practices and public policies typically ignore their value. As a result, natural capital is being degraded and liquidated by the wasteful use of energy, materials, water, fiber, topsoil, and ecosystems. The next Industrial Revolution, already emerging, is a response to the changing pattern of scarcity. It will transform industrial processes and business practices to economize on what is now the limiting factor of production: natural capital. Our experience shows that firms typically enjoy increased profit and distinct competitive advantages by doing business as if natural capital were properly valued, even when (as now) it is valued at zero. "Companies that adopt these principles will do very well, while those that do not won't be a problem, since ultimately they won't be around." Edgar Woolard, former Chair of DuPont Natural Capitalism is a new business model that involves four major and synergistic elements: ! Advanced resource productivity. Through fundamental changes in production

design and technology, leading organizations are making natural resources stretch 5, 10, even 100 times further than before. The resulting savings in operational costs, capital, and time quickly pay for themselves, and in many cases initial capital investments actually decrease.

! Ecological redesign (biomimicry). Natural Capitalism seeks not merely to reduce waste but to eliminate the concept altogether. Closed-loop production systems, modeled on nature's designs, return every output harmlessly to the ecosystem or create valuable inputs for other manufacturing processes. Industrial processes that emulate nature's benign chemistry reduce dependence on nonrenewable inputs, eliminate waste and toxicity, and often allow more efficient production.

! Service and flow. The business model of traditional manufacturing rests on the sporadic sale of goods. The Natural Capitalism model delivers value as a continuous flow of services—leasing an illumination service, for example, rather than selling light bulbs. This shift rewards both provider and consumer for delivering the desired service in ever cheaper, more efficient, and more durable ways. It also reduces inventory and revenue fluctuations, disposal liabilities, and other risks.

! Reinvestment in natural capital. Any good capitalist reinvests in productive capital. Businesses are finding an exciting range of new cost-effective ways to restore and expand the natural capital directly required for operations and indirectly required to sustain the supply system and customer base. [5]

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Global Reporting Initiative (www.globalreporting.org) The Global Reporting Initiative (GRI) promotes international harmonization in the reporting of relevant and credible corporate environmental, social and economic performance information to enhance responsible decision-making. The GRI pursues this mission through a multi-stakeholder process of open dialogue and collaboration in the design and implementation of widely applicable sustainability reporting guidelines. Convened by the Coalition for Environmentally Responsible Economies (CERES) in partnership with the United Nations Environment Programme (UNEP), the GRI incorporates the active participation of corporations, NGOs, accountancy organisations, business associations, and other stakeholders from around the world. The GRI Guidelines seem to be very useful for the preparation and production of a “triple bottom line” report.

Triple Bottom Line (www.sustainability.com) The triple bottom line (TBL) focuses corporations not just on the economic value they add, but also on the environmental and social value they add – and destroy. At its narrowest, the term ‘triple bottom line’ is used as a framework for measuring and reporting corporate performance against economic, social and environmental parameters. At its broadest, the term is used to capture the whole set of values, issues and processes that companies must address in order to minimize any harm resulting from their activities and to create economic, social and environmental value. This involves being clear about the company’s purpose and taking into consideration the needs of all the company’s stakeholders – shareholders, customers, employees, business partners, governments, local communities and the public.

The three lines represent society, the economy and the environment. Society depends on the economy - and the economy depends on the global ecosystem, whose health represents the ultimate bottom line.

Instability

The three bottom lines are not stable; they are in constant flux, due to social, political, economic and environmental pressures, cycles and conflicts.

Continental plates

Think of each bottom line as a continental plate, often moving independently from the others.

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Shear zones

As the plates move under, over or against each other, 'shear zones' emerge where the social, economic or ecological equivalents of tremors and earthquakes occur 6.

! Economic/environmental In the economic/environmental shear zone, some companies already promote eco-efficiency. But there are greater challenges ahead, e.g. environmental economics and accounting, shadow pricing and ecological tax reform.

! Social/environmental In the social/environmental shear zone, business is working on environmental literacy and training issues, but new challenges will be sparked by e.g. environmental justice, environmental refugees, and the inter-generational equity agenda.

! Economic/social In the economic/social shear zone, some companies are looking at the social impacts of proposed investment, but bubbling under are issues like business ethics, fair trade, human and minority rights, and stakeholder capitalism

VII. Market The value of world’s ethical investment portfolio has been estimated at US$1.42 trillion in the September issue of The Cerulli Edge-Global Edition published by Cerulli Associates, a well-regarded Boston and London based research consultancy. The report's figures highlight the dominance of the United States when it comes to ethical investment. Funds under SRI management in each region of the world, according to Cerulli, are: United Sates (US$1,350 billion), Canada (US$33 billion), Australia (US$0.5 billion), Japan (US$1 billion), Asia ex-Japan (US$1 billion) and Europe (US$38 billion). Cerulli reports the vast majority of ethical investment is made by institutions, which account for $US1,391 billion of the total. The remaining $US33 billion is attributed to mutual funds (or collective investment schemes) which is a lot less than one per cent of the global mainstream mutual fund market the report said. It was roughly estimated, however, that ethical investment in mutual funds would grow to $US150 billion by 2005. The report estimates the value of ethically managed funds in Australia at $US 900 million which is below the latest estimate - released by the Australian Ethical Investment Association a little over a week ago - of more than $US5.4 billion. The reason for the large difference is that the latest EIA estimate includes figures for the

6 SustainAbility, www.sustainability.com

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church sector exceeding $A3.2 billion, and $US1.3 billion voted in local shareholder activist campaigns 7. A survey of Australian SRI funds shows the some major differences. It must be mentioned that it is quite hard to get correct figures. The two resources the numbers are taken from are the funds homepage and the magazine “Ethical Investor”8. In general figures are similar, some (Glebe) are very different.

Assets managed

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Figure 4 Assets managed by Australian funds Most fund managers try to outperform the ASX200. It is now widely believed that socially responsible companies do better in a long-term perspective than others on the market. This contradicts the former believe that socially responsible investing is always a loss.

VIII. Funds Information for this chapter was mainly gathered through the Business Ethics Research Center (www.berc.com.au/faq/funds.htm)

AEI - Australian Ethical Investment Ltd. (www.austethical.com.au) AEI was established in 1986 for the purpose of environmental and socially responsible investment and currently manages four unit trusts, with over 80 individual investments. In addition, all trusts are available for Superannuation. AEI is an independent funds manager based in Canberra. It is owned by over 100 small investors with a shared commitment to improve the ethics of corporate Australia and promote ecologically sustainable and socially just enterprises through judicious investment throughout Australia.

7 Ethical Investor, www.ethicalinvestor.com.au (20.9.01) 8 Ethical Investor, Issue 5, October 2001, p. 58

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Unit Trusts

A unit trust is an arrangement between a group of investors and a 'Responsible Entity' like Australian Ethical Investment Ltd. Money is provided by investors and is held by the Responsible Entity or its appointed Custodian according to conditions set out in the trust's constitution. In AEI’s case, the pool of investor savings is intended to generally create a more fair and sustainable society. The Responsible Entity invests the trust funds and keeps the trust's records. Investors receive rights to the financial benefits flowing from these investments, less fees and expenses paid to the Responsible Entity as set down in the trust's constitution. Australian Ethical Investment Ltd manages four unit trusts: ! Australian Ethical Income Trust

This trust has a portfolio of capital stable, interest bearing securities of short, medium and long term duration.

! Australian Ethical Balanced Trust This Trust was formerly known as the Australian Ethical Investment Trust. It has a balanced portfolio of short, medium and long term investments.

! Australian Ethical Equities Trust This trust has a diversified portfolio of equity investments, including longer term, unlisted shares, and in the future, international shares.

! Australian Ethical Large Companies Share Trust This trust has a portfolio of equity investments mainly in large domestic, and soon, international listed companies.

AEI seeks out investments which provide for and support: ! the development of worker participation in the ownership and control of their

work organizations and places; ! the production of high quality and properly presented products and services; ! the development of locally based ventures; ! the development of appropriate technological systems; ! the amelioration of wasteful or polluting practices; ! the development of sustainable land use and food production; ! the preservation of endangered ecosystems; ! activities which contribute to human happiness, dignity and education; ! the dignity and well being of non-human animals;

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! the efficient use of human waste; ! the alleviation of poverty in all its forms; ! the development and preservation of appropriate human buildings and

landscapes. AEI avoid any investment which is considered to unnecessarily: ! pollute land, air or waters; ! destroy or waste non-recurring resources; ! extract, create, produce, manufacture, or market materials, products, goods

or services which have a harmful effect on humans, non-human animals or the environment;

! market, promote or advertise, products or services in a misleading or deceitful manner;

! create markets by the promotion or advertising of unwanted products or services;

! acquire land or commodities primarily for the purpose speculative gain; ! create, encourage or perpetuate militarism or engage in the manufacture of

armaments; ! entice people into financial over-commitment; ! exploit people through the payment of low wages or the provision of poor or

unsafe working conditions; ! discriminate by way of race, religion or sex in employment, marketing, or

advertising practices; ! contribute to the inhibition of human rights generally.

AFL - Australia Fund Ltd. (www.australiafund.com.au)

The Australian Federation Funds will be investing in selected Australian listed companies. Australia Fund’s equity strategy aims to deliver strong medium to long term returns whilst investing in a socially responsible way. The Australian Federation Funds will invest in companies that contribute to social goals such as medical advancement, social justice, economic development, a healthy environment or do not detract from them. Australia Fund is a member of the Ethical Investment Association (EIA) Within this socially responsible context, Australia Fund will use the following investment formula: ! investing in companies with excellent economics, ! conducting detailed research and due diligence on companies,

AFL - Australia Fund Ltd. EQT – Equity Trust

EIA - Ethical Investment Association

is a member of

manages

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! investing in companies with owner-oriented managers, ! purchasing investments at below their intrinsic value, ! having a target holding period for any security of one to three years, ! using derivatives to enhance returns and manage risk.

AFL takes an active role in companies as a shareholder. It communicates its values to company management and encourage companies to comply with its socially responsible criteria. It also uses its voting rights as a shareholder to encourage compliance with these values. Below is presented the detailed criteria along which companies are rated: ! Environmental Impact ! Employee Relations ! Community Relations ! Aboriginal / Land Rights ! Community Health and Education ! Product ! Exclusion: Tobacco

AMP Sustainable Future Funds (www.sustainablefuturefunds.com) AMP Henderson recognises a pressing need to make economic growth more sustainable and business more accountable. It defines 'sustainable growth' as growth that doesn't detract from the living standards of future generations. Many companies are already creating goods and services that will lay the foundations for a sustainable world. AMP Henderson seeks to invest in the best of these companies, in what we call ‘industries of the future’. The approach differs from that of a typical 'ethical' investment fund. A comprehensive set of corporate social responsibility measures was developed that AMP encourages all companies to strive towards, irrespective of their industry grouping. AMP has chosen to not invest in industries that profit unambiguously at the expense of vulnerable members of society or our increasingly fragile natural environment. In other words, the extent or distribution of social and environmental costs tends to outweigh the observable benefits. Industries that are currently excluded on these grounds include gambling, tobacco, alcohol, armaments and uranium mining. All of these industries have 'special' characteristics that result in the market mechanism failing to capture the social and environmental costs of their activities. The fact that these industries may face stricter regulation regimes in the future further diminishes their investment appeal. Nevertheless, the approach is to interact with all companies on an ongoing basis and review exclusions if meaningful change can be demonstrated. An important feature of the Sustainable Future Funds is the commitment to the 'cycle of constructive engagement'. By using the influence as an investor, AMP encourages companies in the Australian and international Sustainable Future Funds to improve how they manage the social and environmental impacts of their businesses. To this end, AMP offers their investors the opportunity to influence the policies and practices of the companies. AMP asks investors what social and environmental

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issues are important to them. Results of the surveying are raised, where appropriate, with the companies our funds invest in, as well as with companies in which AMP could invest.

BNP Paribas Ethical Fund (www.bnpparibas.com.au), (http://www.bnpparibas.com.au/products/investment_mgmt/index.html) BNP Paribas Asset Management is a wholly owned subsidiary of BNP Paribas, one of the world’s largest banks. In Australia, BNP Paribas Asset Management manages in excess of A$1.8 billion funds for a range of clients, including superannuation funds, large corporations and master trusts.

Investment Process

Our portfolio construction process is comprised of the following steps. The overall investment process is research driven.

Filter for Appropriate Investments A series of negative screens is applied to potential investments to avoid investing in companies which derive a significant part of their income from harmful activities (listed over). Other characteristics that can prevent a stock from inclusion in the research list are balance sheet and liquidity based. Interest cover should be at least 2.5x or balance sheet liquidity ample to fund operational objectives. Weekly trading volume on the Australian Stock Exchange should be at least $1 million.

Industry Analysis The equity team reviews the structural and cyclical growth outcomes of the industry in question, the company’s market share, existence of substitute products, barriers to entry, and the regulatory framework.

Company Research Stocks are reviewed and analysed to satisfy the following criteria which are directed at ensuring the quality of the portfolio:

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! Focused and competent management including management’s views on achieving adequate returns for shareholders

! Operating strengths and weaknesses ! Quality business franchise ! Financial management, balance sheet strength, and ability to fund future

operations

Valuation Methods & Risk Assessment ! Relative earnings per share growth, price earnings, price to cash flow ! Discounted cash flow Stocks are reviewed in terms of the following types of

risk: ! Profit and loss statement risk ! Forecast earnings risk ! Balance sheet risk ! Operational risk ! Risk of default ! Tracking error calculated but not targeted ! Risk of disappointment versus market expectation

Portfolio Construction/Continual Review The fundamental analysis provides the input into our multi-factor stock ranking models, which assist in the determination of the appropriate relative price to pay for each asset.

BT Ethical Balanced Fund (www.btfunds.com.au) Investment objective is to grow the value of the investment over periods of five years or more by investing in a range of investment types with higher exposure to growth investments (such as shares and property) whose market prices do not reflect their long-term value and are expected to appreciate over time. The BT Ethical Balanced Fund will not invest in companies which generate significant revenue from the production and subsequent sale of alcoholic beverages, the manufacture and subsequent sale of tobacco products, gambling and gambling equipment manufacture, manufacture of armaments, the production and subsequent sale of contraceptives, uranium mining, nuclear power generation, the logging of native forests. Fund size is around $209.3 million (as at 30 June 2001). More detailed Information and an explicit ethical policy could not be found.

Challenger Socially Responsive Investment Fund (www.challengergroup.com) Aim is to invest in a socially responsible manner, taking into account company performance with respect to: ! Financial strength and fundamentals ! Operations that are socially acceptable

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! Leadership in effecting positive community and social outcomes, and good corporate citizenship

The Investment Manager aims to outperform the S&P ASX 300 Accumulation Index over the long term. Investments will be selected using a "two-tier" approach. The first aspect involves an analysis and determination of each investment applying the Investment Manager's investment process. The second aspect involves an assessment of the social responsiveness of those companies which present the best investment opportunities.

Tier One - Financial Analytical Assessment

The Funds are invested in companies listed on the Australian Stock Exchange and those companies likely to be listed within a reasonably short time frame. We use a unique "Quality Value" approach to identify suitable investments. In order to achieve growth in capital and income, Challenger will rank companies by value on the basis of detailed financial analysis of each individual company, and industry fundamentals. Analysis takes into account a company's past performance, future growth potential, the viability of its mix of business, management, and the broader industry in which it operates. Our process is aimed at identifying under-valued companies with above average earnings growth.

Tier Two - Socially Responsive Investment Screening

Before investments are made, each company selected has also been evaluated against a social responsibility screening process to determine a ranking with respect to socially responsive criteria. The screening process is undertaken by an external adviser, the Sustainable Investment Research Institute ("SiRIs"). There are two main filters designed to evaluate each company's performance level with respect to social responsibility: ! Socially Responsive Global Avoidance Screening ! Socially Responsive Leadership Analysis

Socially Responsive Global Avoidance Screening Companies are evaluated on a global basis, not just on local performance, looking at key measures of compliance with socially responsible business practice. Under this filter, companies generating revenue from the following operations will be excluded from the investment universe unless overwhelming mitigating circumstances prevail: Environment Companies which derive revenues from the following are excluded: ! Harvesting of old growth native forests ! Uranium mining and/or processing and power generation from uranium

derived fuels ! Companies conducting cruel or inhumane animal testing

Product Integrity Companies which derive revenues from the following are excluded: ! Alcohol production ! Tobacco manufacture ! Armaments manufacture

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! Gambling and gambling equipment manufacture

Socially Responsive Leadership Analysis Potential investments are further screened on current and previous performance, emphasising leadership, with respect to specific social criteria including: ! Environmental impact and management ! Corporate and workplace practices ! Contribution and philanthropy to the community, good corporate citizenship,

governance and ethics ! Regulatory compliance ! Leadership in human rights, labour rights and non-discrimination ! Ethical and responsible product development, testing, distribution and design

Oxfam Community Aid Abroad Ethical Investment Trust (www.caa.org.au/EIT/) Commencing in the mid 1980's, The Ethical Investment Trust is one of Australia's longest established ethical investment entities. In 2000 The Ethical Investment Trust formed an alliance with Bendigo Bank to introduce Australia's first ethical investment bank account, the Ethical Investment Deposit Account. A proportion of all money (which is steadily increasing) invested in the Ethical Investment Deposit Account is loaned to borrowers screened by the Trustees against the Trust's investment criteria, which embrace social and environmental values. The alliance delivers security for depositor funds, improved opportunities for socially and environmentally based organsations and enterprises to access those funds, and considerable benefits to Oxfam Community Aid Abroad.

Environmental Criteria

The EIT actively seeks investments which support or enable: ! Waste reduction, non-wasteful/ non-polluting practices and recycling ! Preservation of endangered environments ! Well being / nurturing of flora & fauna ! Appropriate technology and innovation ! Sustainability of resources

Social Criteria

The EIT actively seeks investments which support or enable: ! Local enterprises or community development ! Social welfare, housing, education & social equity improvement ! Preservation of natural or appropriately developed areas ! Indigenous peoples

Organisational Criteria

The EIT actively seeks investments in financially sound organisations that are:

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! Charitable & environmental bodies, and representatives of the not-for-profit and/or non government sectors throughout Australia

! Indigenous Australian ! Cottage industries, ventures & enterprises committed to beneficial local

outcomes ! Developers of social support or ecological housing ! Businesses that employ or implement initiatives for people with disabilities,

low income and disadvantaged people, and those that address gender inequality or social injustice

! Businesses that have environmentally sustainable policies and/or products & services

! Businesses which value the "triple bottom line" (comprising of financially, socially & environmentally beneficial outcomes)

The Ethical Investment Trust actively seeks and supports organisations that make a positive social and environmental contribution such as Australian Red Cross, Environment Victoria, Brotherhood of St. Laurence, Victorian Indigenous Nursery Co-operative, East Timor - Emergency Response, etc.

EQT – Australian Equities Ethical Fund (www.eqt.com.au)

A fund with a selection of the top 300 Australian listed companies particularly those that have demonstrated to the Manager and EQT that they act in a socially responsible manner, including companies with significant environmental projects or community investments. More detailed Information and an explicit ethical policy could not be found.

Glebe Asset Management Ltd. (www.glebeaust.com.au) Glebe Asset Management Limited was established in 1995 to offer a range of personal financial services and quality investment advice. It is a licensed securities dealer and the commercial funds management subsidiary of the Glebe Administration Board (GAB), which oversees the investment portfolios for the Anglican Church Diocese of Sydney. In 1997 Glebe introduced its first managed investment funds and in July 1999 a personal financial planning division was established. Glebe now has about $1.9 billion under management and advice. Glebe believes that good financial stewardship should be based on a readiness to participate in mainstream global investment markets in a way that is enhanced by Christian values and most particularly, by the conviction that we should always seek the best for other people. In an investment context, this can be achieved by an

AFL - Australia Fund Ltd. EQT – Equity Trust

EIA - Ethical Investment Association

is a member of

manages

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ethical screen restricting investments in companies involved in activities which clearly do not promote the best interests for all people. These activities include: ! Gambling ! Tobacco ! Alcohol ! Armaments ! Pornography ! Uranium Mining

Glebe also seeks to avoid companies with demonstrably poor records in other areas such as product safety, employment practices and environmental issues, as well as those involved in offensive advertising, human rights abuses, support of oppressive governments, and dumping goods in poor countries. More fundamentally, Glebe seeks to adopt the highest possible ethical standards in all areas of our business operations and in dealings with our clients and business partners. According to Ethical Investor (Issue 5, October 2001) Glebe invests in at least 2 Uranium Mining Companies (BHP Billiton, Rio Tinto, both in Kakadu National Park) in contrast to its policy??

Hunter Hall Value Growth Trust (www.hunterhall.com.au) Objective is to substantially outperform the All Ordinaries Accumulation Index over the medium to long term without incurring significant risk to capital and to follow an ethical investment policy which excludes investments harmful to people, animals or the environment. The Trust considers itself as the largest Australian ethical equity trust.

Ethical Policy

Hunter Hall Investment Management, the Manager of the Value Growth Trust, is committed to the concept of "responsible investing". We believe that investors should be able to know that their funds are not used to support activities that might be considered unethical. The Trust does not support companies that, in the opinion of the Manager, are harmful to people, animals or the environment.

Screening Investments

Hunter Hall applies a "negative screen" to investments, which restricts investment in companies involved in activities such as tobacco, armaments, gambling, destruction of the environment and cruelty to animals.

Charitable Giving

Hunter Hall International Limited, the holding company Hunter Hall Investment Management, donates a portion of its profits to environmental charities. Charities supported include the Save Foundation of Australia and Wildlifeline. Wildlifeline is a UK based organization whose aim is to protect and conserve the Orang-utan. The Save Foundation of Australia is an organisation devoted to saving endangered animals, and funds donated by Hunter Hall have been largely directed to the Dian Fossey Gorilla Fund International. The internationally renowned Fund aims to carry on the work of Dian Fossey in saving endangered mountain gorillas, as well as

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supporting the welfare of two communities of Pygmies in eastern Congo, who were evicted from their traditional lands in the forests of the Virunga volcanoes.

Ethical Investments

Although the Trust does not operate a positive screen, from time to time investments with positive attributes are made. Examples are ABC Learning Centres Limited, the Australian Social Infrastructure Fund and Environmental Recovery Services (ERS), Australia's largest collector and recycler of semi-hazardous liquid wastes. A further example is Sabre Group, an Australian company which distributes hair care products in Australia and overseas. Sabre Group does not test on animals in the manufacture of its products, which include Fudge and Joico.

ING The Director Socially Responsible Shares Index Fund (http://www.ingifm.com/investments/indexfunds/social.html) Objectives are to invest in shares and related financial derivatives of all companies within the top 100 companies on the Australian share market ranked by capitalisation that are considered to be "socially responsible" according to the criteria set out below.

'Parent' Index

The Director Socially Responsible Shares Index Fund will invest primarily in shares and possibly related financial derivatives of companies contained within the ASX100 Index. Direct investment will not be made in companies that are known to: ! Engage in the manufacture of armaments or have a material involvement with

the defence industry. ! Have material activities that do not comply with the Australian Regulations

regarding pollution control or with significant activities that depend upon the destruction of non-renewable resources for which viable alternatives exist.

! Discriminate by way of race, religion or sex in employment or advertising practices.

! Be materially involved in the production of alcohol and tobacco or derive material revenues from gambling.

! Derive a material portion of their income from the manufacture of anti-life products.

No investment will be made in listed investment trusts other than property trusts. The Manager does not intend to unilaterally answer the question whether or not a particular company engages in ethical or unethical activities. After establishment, the Manager intends to continue to seek the views of its investment constituency and if necessary adjust investments where material changes occur. It should also be noted that the absence of investment in a particular company does not mean that the Manager qualifies that company as being unethical.

IOOF (www.ioof.com.au)

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Mission Statement

IOOF is a member-focussed financial services group providing competitive products and related services that enable members to achieve financial security and peace of mind. Company Profile

IOOF has been operating in Australia since 1846, making it one of Australia’s oldest and respected financial institutions. In the past 154 years, we have undergone significant change and growth and we will continue to do so. Our ability to adapt with the times and take on new challenges has helped us to maintain our position as a trusted and professional provider of financial and health insurance services. In addition to our core funds management and health businesses, we have also committed resources and expertise to a number of alliances with progressive partners like Perennial Investment Partners, Bendigo Bank and ethical investment company SIRIS. Today we employ over 200 staff, provide financial services to over 95,000 members and investors, and private health services for approximately 12,000 members. IOOF is well prepared to meet the challenges presented by technology, changing economic and social conditions and look forward to meeting member and investor needs well into the new millennium. Our vision of the future is to grow while keeping in mind our strong community focus. The more successful IOOF is, the more members will benefit. We continue to be committed to providing our members and their advisers with the range of products, services and returns they expect from a leading financial institution. Detailed Information and an ethical policy could not be found.

Rothschild (www.rothschild.com.au)

Rothschild Ethical Share Trust

...invests in a diversified portfolio of leading and smaller Australian companies. The Trust aims to outperform the S&P/ASX300 Accumulation Index over the long term by investing in companies aligned with your values and concerns that we believe represent good value.

Rothschild Ethical Conservative Trust

... invests principally in fixed interest, cash and a conservative holding in leading and smaller Australian Shares. The Trust aims to provide a real return over inflation over the medium term by investing in quality investments aligned with your values and concerns. Detailed Information and an ethical policy could not be found.

Tower Ethical Growth Fund (www.toweraustralia.com.au) Portfolio Objectives are to provide long term capital growth and some income from a portfolio of Australian shares which meet Tower's ethical policy.

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Portfolio Strategy

We invest in companies listed on the Australian Stock Exchange that satisfy our Policy for Ethical Investment which can be obtained from our customer service centre - Email us or phone on 1800 888 020. For example, we exclude companies that do not have acceptable standards in the following areas: ! conservation and the environment; ! products and services; ! overseas involvement; and ! advertising standards

After contacting the fund via email to obtain the policy nothing was heard from the fund again. Also there is not much information on the webpage. Even for Ethical Investor it seams to be a problem to get information because there are no figures mentioned in their survey. It also invests in mining (esp. Uranium) so the medium rating is not really understandable!!

Warakirri Asset Management (www.warakirri.com.au) Warakirri Asset Management was formed in 1993 to offer specialist wholesale investment services for educational, religious, charitable and philanthropic groups, and as a source of innovative alternative investments for large superannuation funds. Warakirri Asset Management's philosophy is to provide its clients with quality investment management at low costs. Warakirri Asset Management trusts are audited by PricewaterhouseCoopers and National Australian Custodian Services (NACS) is the custodian of all Warakirri managed trusts. No investment is made in companies classified by the Australian Stock Exchange as having major activities in gaming, alcohol, tobacco, uranium or armaments. More detailed Information and an explicit ethical policy could not be found.

Westpac Australian Eco Share Fund

(www.westpac.com.au) Aims to provide capital growth and some income from investment in Australian shares while maximising the environmental focus of the portfolio Suitable for investors who

Monash University

Montech (Monash Technology Transfer Unit)

MSE - Monash Sustainability Enterprises

Westpac Eco Share Fund

SRI Screening Process

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! have a long-term investment time frame of at least five years

! want to invest in a portfolio of Australian shares with a focus on companies with a superior environmental ranking

! accept the risks of potential volatility associated with a sharemarket investment

! are looking to build wealth over time These assessments are based upon a variety of assessment tools including: ! # Proprietary survey ! # Search of public records ! # Interview and audit

Westpac invests across the majority of industry sectors, aiming to select those with the highest sustainability, social or eco ratings within each sector. Where necessary, they select companies with lower sustainability ratings to manage the overall risk of the portfolio. In their description of funds they use the term tilt. The eco tilt for instance measures the extent environmental factors (ie Monash's eco ratings) have impacted portfolio construction. The lower the score, the greater the influence of Monash's eco ratings. That is, a score of 1 signifies a maximum eco tilt, while a score of 5 reflects a zero eco tilt.

Criteria for Ratings

Eco ratings Monash Sustainability Enterprises rates over 160 companies from the ASX/S&P 200 Index on their environmental performance – their 'eco rating'. Each company is assigned one of five eco ratings based on strategy analysis, management analysis, operation and product analysis, and stakeholder management. This eco rating is combined with Monash's social rating and Westpac's financial analysis to determine a company's overall sustainability rating.

Economic ratings Westpac rates companies in the ASX/S&P 200 Index on their economic performance. Each company is assigned one of five economic ratings based on qualitative factors (such as quality of management) and quantitative factors (including earnings, forecasts and return on equity). These are combined with social and eco ratings to determine a company's overall sustainability rating.

Social ratings Monash Sustainability Enterprises rates over 160 companies from the ASX/S&P 200 Index on their social performance. Each company is assigned one of five social ratings based on workplace, management, human rights, business ethics and community development. This social rating is combined with Monash's eco rating and Westpac's financial analysis to determine a company's sustainability rating.

Overall Sustainability ratings A company's sustainability practice refers to maintaining long-term returns without causing environmental or social damage. When it comes to investing, sustainability refers to analysing a company's economic, social and environmental performance. This is also known as the triple bottom line.

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IX. Research

Ethical Investor Ltd. (www.ethicalinvestor.com.au) Ethical Investor is a Print and Online magazine in the area of ethical or social responsible investment. You have to be a subscriber to access databases and further information. On December 5, 2000, Ethical Investor Pty Ltd, announced the establishment of a new trading arm specializing in non-financial company research, Corporate Monitor. Corporate Monitor is developing a database on the environmental and social performance of Australian companies and foreign companies in Australia, and undertaking research on ethical managed funds. Through timely, accurate, impartial reporting and analysis, the aim is to contribute to an improvement in the accountability and performance of companies in Australia in terms of: ! environmental impact ! observance of human rights ! relations with Aborigines and observance of indigenous rights ! contribution to world peace ! workplace relations ! social and health impacts ! corporate citizenship ! humane treatment of animals

Ethical Investment Association (EIA) (www.eia.org.au/). The EIA’s primary objective is to promote the concept, practice and growth of socially and environmentally responsible investing in Australia.

BERC - Business Ethics Research Center (www.berc.com.au) The Business Ethics Research Centre is an independent research facility for socially responsible investors and financial professionals located in Brisbane. Information is provided on issues related to social responsibility and compile company profiles to assist clients in making informed, integrated and socially responsible investment decisions. BERC does not provide financial information or advice, and does not, unless specifically requested, provide ratings on company performance. For further information on companies you have to become a member. There is also a guideline: “How to create your own Ethical Portfolio” and an overview over Socially Responsible Funds in Australia

Center for Sustainable Design (www.cfsd.org.uk)

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The Centre for Sustainable Design (CfSD) facilitates discussion and research on eco-design and environmental, economic, ethical and social (e3s) considerations in product and service development and design. This is achieved through training and education, research, seminars, workshops, conferences, consultancy, publications and Internet. The Centre also acts as an information clearing house and a focus for innovative thinking on sustainable products and services. CfSD is also a supporter of the 3S-Philosophy.

CERES - Coalition for Environmentally Responsible Economies (www.ceres.org) Today, it is often difficult for corporations, activists and socially responsible investors to have honest, meaningful dialogue on corporations' environmental and social practices. CERES provides an innovative forum for this kind of exchange and a unique opportunity for real accountability and real results. CERES is... ! The leading U.S. coalition of environmental, investor, and advocacy groups

working together for a sustainable future ! A community of forward-looking companies that have committed to

continuous environmental improvement by endorsing the CERES Principles, a ten-point code of environmental conduct

! A common ground where groups with widely different backgrounds, assumptions, and visions find concrete solutions to today's environmental challenges

Co-op America (www.coopamerika.org)

Mission

Co-op America, a nonprofit organization founded in 1982, provides the economic strategies, organizing power and practical tools for businesses and individuals to address today's social and environmental problems. While many environmental organizations choose to fight important political and legal battles, Co-op America is the leading force in educating and empowering people and businesses to make significant improvements through the economic system.

Programs

! Green Business Program - starts and supports small socially and environmentally responsible businesses; publicizes the success of these businesses and gives people access to the growing green business sector.

! Consumer Education and Empowerment Program - informs people about how to vote with their dollars to effect change; helps people use their purchasing and investing power to create a more just and sustainable future.

! Corporate Responsibility Program - encourages corporations to become socially and environmentally responsible; provides information about boycotts and shareholder resolutions against irresponsible companies.

! Sustainable Living Program - provides information about practical measures people can take to make their personal, community, and work lives more meaningful and sustainable.

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Corporate Sustainability Network (http://www.csp.uts.edu.au/csn) The Corporate Sustainability Network comprises over 100 experts in various aspects of sustainability, who are interested in contributing to the redesign of organisations around sustainability principles. The members are mainly based in Australia, but there are also some overseas members with critical links to other sustainability networks. Members are drawn from business, government and the academic community. Their expertise covers: ! the human aspects of corporate sustainability (both human resource

management and social responsibility), and ! the protection and restoration of the ecosphere.

By 'human sustainability' we mean building human capability and skills for sustainable, high level organisational performance, and for community and societal well-being. By 'ecological sustainability' we mean redesigning organisations to contribute to sustainable economic development, and the protection and renewal of the biosphere. The network is managed by the School of Management, Faculty of Business, University of Technology Sydney

IRRC - Investor Responsibility Research Center (www.iirc.org) IRRC is a leading source of impartial, independent research on corporate governance, proxy voting and corporate responsibility issues. IRRC's mission is to provide the highest quality research on companies and shareholders worldwide. Today, in fulfillment of that mission, IRRC provides research, software products and consulting services to over 500 subscribers and clients representing institutional investors, corporations, law firms and other organizations. Founded in 1972, IRRC has more than 80 professional staff members working toward fulfilling its mission. IRRC offers guidance and advice on proxy voting, enabling clients to make informed, considered decisions that reflect their investment philosophies. IRRC also offers company profile information for portfolio screening and other purposes. Unlike other corporate research providers, IRRC does not advocate on any side of the issues it covers. Thus, you can be assured that the information IRRC provides is objective and unbiased.

ISS - Institutional Shareholder Services (http://iss.cda.com/) Institutional Shareholder Services is a provider of proxy voting and corporate governance services, serving more than 700 clients worldwide. ISS analysts research and recommend votes for 20,000 shareholder meetings each year. Other ISS services focus on corporate issuers, Taft-Hartley funds, and social investors. ! Abortion ! Alcohol ! Animal Rights ! Child/Sweatshop Labor

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! Contraception ! Environment ! Fair Employment ! Fetal Tissue Research ! Firearms/Handguns ! Gambling ! International Human Rights ! Labor Relations ! Nuclear Power ! Pornography/Adult Entertainment ! Positive Overall Records ! Tobacco ! Weapons/Nuclear, Chemical, or Landmines/Defense ! Other Topics as Requested

MSE - Monash Sustainability Enterprises (www.montech.com.au) Montech (the commercialisation and technology transfer company of Monash University in Melbourne) is working with the Monash Centre for Environmental Management to establish a new business under the name of Monash Sustainability Enterprises (MSE). The Centre for Environmental Management has a reputation for excellence in environmental research. MSE is the business through which the centre is applying its skills in environmental analysis to business issues. Currently MSE provides consulting services to companies in relation to their working environment. MSE has business relationships with companies who offer products that are more "environmentally friendly" than others. MSE has been engaged by Environment Australia, an Australian Commonwealth Government agency to undertake a survey of the uptake of eco-efficiency measures in Australian industry. The project is very nearly complete and other international agencies are negotiating to have similar studies done for them. MSE is breaking ground in Australia with Westpac, one of Australia's four largest banks. MSE provides a service to Westpac's "Ecofund" managers where MSE independently ranks potential investee companies on environmental parameters. MSE is negotiating with an Australian software developer which has a strong international presence to implement some of MSE's methodologies into environmental management systems for corporates. The management products are delivered over the Internet.

SAM - Sustainable Asset Management (www.sam-group.com) SAM is an independent asset management company headquartered in Zurich, Switzerland. Established in 1995, SAM was among the first asset managers to specialize in the field of sustainability-driven investments.

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Over the last few years, the company has grown rapidly in terms of headcount and mandates. Today, SAM's customers include major European banks, global insurance companies, large pension funds and private clients. SAM manages institutional and private mandates in line with sustainability criteria. SAM offers sustainability-driven investment vehicles such as the Sustainable Performance Group and various mutual funds. And together with Dow Jones & Company, SAM launched the first index to track the performance of sustainability-driven companies worldwide, the “Dow Jones Sustainability Group Index”. Through a best-of-class approach, SAM aims to identify sustainability leaders among the 2000 biggest companies of the Dow Jones Global Index (DJGI). Through the assessment of economic, environmental and societal driving forces and trends, corporate sustainability criteria are identified. These criteria consist of both general criteria applicable to all industries and criteria applicable to companies in a specific industry group.

Opportunities Risks

Economic Environmental Social

Strategic Approach, Management,

Industry Specific

Economic Sustainability Opportunities ! Strategic planning, e.g. key performance measures, balanced scorecard

perspectives, time frame for long term planning, and value-based management approaches.

! Organizational development, e.g. structural, political, cultural and process-related aspects, core values, and employee performance appraisals.

! Intellectual capital management, e.g. officer responsible for knowledge management, systematic approach, content, measurement and reporting.

! IT management and IT integration, e.g. officer responsible for information technology, harmonizing master data, internet portal (e-business) for supply chain management, and customer relationship management.

! Quality management, e.g. tracking and analysis of customer satisfaction, quality assurance procedures, and minimum standards for major suppliers / sub-contractors.

! R&D, e.g. budget for eco-design, eco-efficient products, safety testing, energy efficient production processes, use of recyclable material in products or dematerialisation.

Economic Sustainability Risks ! Corporate governance, e.g. adoption and disclosure of standards, contents of

standards, duties and membership profile of the board of directors, and specialist committees.

! Risk and crisis management, e.g. procedures to prevent, monitor and manage operational, reputation and financial risks, contingency plans for large accidents, quality of crisis management.

! Corporate codes of conduct, e.g. against bribery, corruption and illegal practices, internal controls and audits.

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Environmental Sustainability Opportunities ! Environmental charters, e.g. environmental charters signed, commitment to

the principles of sustainable councils / coalitions. ! Environmental, health and safety reporting, e.g. frequency, content analysis

and integration into financial reporting. ! Environmental profit and loss accounting, e.g. scope, integration in profit and

loss accounting and product pricing. ! Eco-Design, e.g. designing products with recyclable material, reusable parts,

lighter materials, etc. ! Eco-Efficient products, e.g. designing products to use renewable energy,

energy efficient, recyclable material, lighter, etc.

Environmental Sustainability Risks ! Environmental policy, e.g. implementation, company coverage and scope,

worldwide minimum environmental standards covering water and air emissions, waste and use of resources.

! Officer responsible for environmental issues, e.g. highest management level, corporate environmental unit, resources allocated to coordination functions at corporate level.

! Environmental management system, e.g. implementation, scope, standard, review and continuous improvement procedures.

! Environmental performance, e.g. coverage and scope of monitoring and evaluating environmental performance (energy consumption, CO2 emissions, greenhouse gas emissions, water consumption, solid waste generation, ozone-depleting substance emissions, business travel of employees, transportation of goods.).

! Hazardous substances; e.g. to reduce or ban the use of hazardous substances.

! Environmental liabilities, e.g. the legal risk or threat of environmental liabilities from previous and current actions.

Social Sustainability Opportunities ! Stakeholder involvement, e.g. involvement of stakeholders in developing

company business strategies and tracking stakeholder satisfaction. ! Social reporting, e.g. frequency, content analysis and integration into financial

reporting. ! Employee benefits, e.g. maternity leave, child care facilities and flexibility of

working time. ! Employee satisfaction, e.g. working environment, job function, content and

satisfaction, salary, further education and turnover rate. ! Remuneration, e.g. employee incentives, stock ownership, profit sharing and

sustainability-related benefits such as bonuses. ! Community programs, e.g. being active in local communities, developing

education programs, supporting community groups, helping with clean-up projects, etc.

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Social Sustainability Risk ! Social policy; e.g. implementation, employee coverage and scope, breadth of

issues covered (e.g. child labor, discrimination, occupational health and safety etc.).

! Officer responsible for social issues, e.g. highest management level, corporate social unit, resources allocated to coordination functions at corporate level.

! Child labor, e.g. no child employment, commitment to developing and implementing alternatives to child labor (education).

! Conflict resolution; e.g. system and procedures to deal with workforce conflicts, appeal procedure for disciplinary measures.

! Equal rights and non-discrimination, e.g. company policies against discrimination by race, ethnicity, gender, culture or religion, and the use of specific health tests (HIV or pregnancy tests, genetic screening).

! Occupational health and safety standards, e.g. tracking of injury and illness rates, provision of special training and/or incentives for employees, publicly available OHS performance data, and company OHS system audited by third parties.

! Layoffs/freedom of association, e.g. code of conduct, guidelines and special programs in the case of layoffs, and the right of all employees to form trade unions and bargain collectively.

! Standards for suppliers; e.g. child labor, forced labor, non-discrimination, health and safety, working conditions and flexibility of working time.

! Personnel training in developing countries; e.g. to provide or support training programs in all countries where the company operates or manufactures its products.

Assessing Opportunities and Risks The Corporate Sustainability Assessment methodology developed by SAM identifies the leading sustainability companies from the DJSGI investable universe for each industry group. The methodology is based on the application of sustainability criteria to assess the opportunities and risks deriving from economic, environmental and social dimensions of each of the eligible companies in the DJSGI investable stocks universe.

Quantifying Performance These criteria are built into the Corporate Sustainability Assessment, which quantifies the sustainability performance of a company by assigning a corporate sustainability performance score. The sustainability score is used to identify the leading sustainability companies in each industry group.

Diversifying Information Sources For each company, the input sources of information for the Corporate Sustainability Assessment consist of the responses to the Corporate Sustainability Assessment Questionnaire, submitted documentation, policies and reports, and publicly available information. Documents analysed include: sustainability reports, environmental reports, health and safety reports, social reports, annual financial reports, special reports on intellectual capital management and corporate governance, etc.

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Ensuring Quality To ensure quality and objectivity an external audit and internal quality assurance procedures, such as crosschecking of information sources with publicly available information are used to monitor and maintain the accuracy of the input data, assessment procedures and results. To ensure quality and objectivity of the Corporate Sustainability Assessment and Continuous Monitoring, an external review by PriceWaterhouseCoopers is completed. The review monitors and maintains the accuracy of the input data, assessment procedures and results.

Monitoring Ongoing Involvement Monitoring media and stakeholder information assesses a company's ongoing involvement in critical social, economic and environmental issues and its management of these situations. Companies that score poorly in the ongoing Corporate Sustainability Monitoring are excluded from the annual Corporate Sustainability Assessment. Companies that successfully pass the ongoing monitoring process and annual assessment process qualify for the DJSGI component selection.

Pioneer Research SAM's Pioneer Research analyses sustainability-driven small and mid caps. It identifies companies which achieve high growth rates by developing, using and marketing forward-looking technologies, distribution concepts, products and services based on the guidelines of sustainability. The selection process is split into three phases. It rests on sustainability scenarios created by SAM in cooperation with a global network of experts. Based on analysis of political, economic, social, technological and environmental developments, investment clusters with high relevance in terms of sustainability are identified. Currently, the focus lies on four areas: Emerging Energy, Healthy Nutrition, Information Technology, and Resource Productivity.

SIRIS - Sustainable Investment Research Institute (www.siris.com.au) SIRIS has been created out of a need for a dedicated, independent and non-exclusive research group that profiles, analyses and assesses the environmental and social responsiveness aspects of sustainability. From this work, an assessment of sustainability opportunities and risks can be provided, based on a range of sustainability performance measures. SIRIS' staff have qualifications and experience in environmental and risk analysis, natural resource assessment and management, investment analysis, management consulting, legal compliance, planning, technology analysis and assessment. SIRIS has also engaged a range of alliance groups from academic, consulting and non-government stakeholder groups to supplement core in-house capabilities in developing the relevant criteria, issues and benchmarks. Further, SIRIS has established an Independent Policy Advisory Board to ensure that SIRIS' social responsibility and sustainability research reflects and embraces appropriate social concerns, expectations and standards. The processes, standards and resources SIRIS adopts, will reflect a transparent and best practice approach. SIRIS is funded and supported by several large financial and investment institutions. These include IOOF and J.B. Were. However, SIRIS research is generally available to all subscribers. This general availability is intended to recognise that much of this data has been provided by corporates, using their resources. Through making this

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information generally available, SIRIS seeks to minimise the demands on corporates for similar requests. SIRIS maintains an extensive database and research platform incorporating information on company policies, records, systems and resources and current status with respect to the following issues: ! Environmental impacts and aspects; ! Corporate governance and ethics; ! Workplace practices; ! Regulatory compliance; and ! Product quality and stewardship.

Currently, this database comprises the ASX 300 and NZSE 40 companies, but includes companies not in these indices which demonstrate a positive bias towards social and environmental issues.

Social Investment Forum (www.socialinvest.org) The Social Investment Forum is a national nonprofit membership association dedicated to promoting the concept and practice of Socially Responsible Investing. The Forum is made up of over 600 financial professionals and institutions The Forum has five major areas of activity: ! Networking and Continuing Education ! Research ! Direct Member Services & Information ! Industry Growth and Client Services ! Industry Advocacy

The Forum has a joint membership program with the Co-op America Business Network which provides direct services to members including a newsletter, networking, conferencing and the Forum's Mutual Fund Performance chart, media programs to grow the SRI field, and research to expand and credentialize SRI.

SustainAbility (www.sustainability.com) Based in London and New York, the organization specializes in business strategy and sustainable development. From the outset, SustainAbility has been a hybrid: part strategic management consultancy, part think-tank, and part public-interest-group. It also pioneered the term Triple Bottom Line. As they describe their mission themselves: Our mission is to help create a more sustainable world by encouraging the evolution and widespread adoption of thinking and practices which are economically competitive, environmentally sound, and socially responsible - that is, the ‘triple-bottom line of sustainable development’. ! We will influence business, government agencies, other organisations and

citizens by promoting environmental, social and ethical consciousness and responsibility.

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! To achieve our goals, SustainAbility itself must be a successful business. We will build a high-quality organisation at the leading edge of sustainable development thought leadership and consultancy.

! We will be open, fair, honest and challenging in all our activities, and always act in an ethical, and environmentally and socially responsible manner.

! We respect diversity - e.g. regional, biological, ecological, human, economic, cultural, - and recognise it as an integral element of sustainable development.

! To implement our mission, we will develop ongoing action plans and regularly review our environmental, social and ethical performance. Periodically, we will open ourselves up to scrutiny by external stakeholders.

! Our people are our major assets, and their personal development is a key priority. We seek the active participation of all members of SustainAbility in the definition and achievement of our goals. We recognise the need for a healthy balance between professional and personal life. Work, we believe, should be challenging, rewarding, and fun.

! We will not knowingly accept commissions or undertake projects that conflict with our principles. In selecting clients, partners and colleagues, we seek commitment to real progress in relation to the ‘triple bottom line’ of sustainable development.

! We will inform our colleagues, clients, partners, suppliers and contractors of our commitment to these principles, seeking their active support.

TEC Total Environment Centre (www.tec.nccnsw.org.au) Total Environment Centre's mission is to defend the environment. TEC wants to be the voice for environmental advocacy. It is mend to help People who need information or advice on environmental action, eg how to run a campaign, deal with the media, or lobby politicians.

World Business Council for Sustainable Development (www.bcsd.org, www.bca.com.au) The World Business Council for Sustainable Development (WBCSD) is a coalition of 150 international companies united by a shared commitment to sustainable development. The organization pursues this goal via the three pillars of economic growth, environmental protection and social equity. The WBCSD also benefits from a global network of 30 national and regional business councils and partner organizations involving some 700 business leaders globally.

Mission

To provide business leadership as a catalyst for change toward sustainable development, and to promote eco-efficiency, innovation, and corporate social responsibility

Aims

Objectives and strategic directions, based on this dedication, include: ! Business leadership

To be the leading business advocate on issues connected with sustainable development.

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! Policy development To participate in policy development in order to create a framework that allows business to contribute effectively to sustainable development.

! Best practice To demonstrate business progress in environmental and resource management and corporate social responsibility and to share leading-edge practices among our members.

! Global outreach To contribute to a sustainable future for developing nations and nations in transition.

A Council composed of the Chief Executive Officers of its member companies, or other top-level executives of equivalent rank governs the WBCSD. It meets annually to decide the organization's priorities and to discuss strategic issues connected with sustainable development. These Council meetings provide a forum where business leaders can analyse, debate and exchange experiences on all aspects of sustainable development. Some Members: 3M, Arthur D. Little, Bayer, BP, Daimler Chrysler, Deutsche Bank, Dow Chemical, Du Pont, Kodak, Fiat, Ford, General Motors, Japan Atomic Power Company, Mitsubishi, Nestle, Nokia, Procter & Gamble, Pricewaterhouse Coopers, Rio Tinto, Shell, Samsung, etc.

Worldwatch Institute (www.worldwatch.org) The Worldwatch Institute is dedicated to fostering the evolution of an environmentally sustainable society--one in which human needs are met in ways that do not threaten the health of the natural environment or the prospects of future generations. The Institute seeks to achieve this goal through the conduct of inter-disciplinary non-partisan research on emerging global environmental issues, the results of which are widely disseminated throughout the world. The Institute believes that information is a powerful tool of social change. Human behavior shifts either in response to new information or new experiences. The Institute seeks to provide the information to bring about the changes needed to build an environmentally sustainable economy. In a sentence, the Institute's mission is to raise public awareness of global environmental threats to the point where it will support effective policy responses. The Institute's outlook is global because the most pressing environmental issues are global. Given the earth's unified ecosystem and an increasingly integrated global economy, only a global approach to issues such as climate change, depletion of the stratospheric ozone layer, the loss of biological diversity, degradation of oceans, and population growth can be effective.

X. Definitions There are pretty useful explanations or resources to be found under www.investopedia.com/university.

Asset Allocation

Investors can allocate their money among three major asset classes -- stocks, bonds, and cash -- and numerous subcategories within those asset classes.

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Asset allocation is important because it determines how risky an overall portfolio is. If all of a portfolio's assets are concentrated in one area, such as stocks, it is likely to be more risky than a portfolio whose assets are spread out among diverse investment categories.

Diversification

Most investors are concerned about the risks associated with financial markets; namely, that their investments will lose money or will not grow enough over time to outpace inflation. Diversification is an important strategy used by investors to help reduce this risk. Because the markets for stocks, bonds, and cash do not all move in the same direction or to the same degree, an investor's portfolio that combines these asset classes should be less risky than one that includes only one type of investment. A diversified portfolio historically produces better returns than one that is concentrated in more conservative asset classes, such as short-term bonds or cash equivalents. A diversified portfolio is also less likely to experience stomach-churning volatility than one concentrated in the most aggressive investments, such as small-cap or emerging-markets stocks.9 Investors normally try to reduce risk by diversifying their exposure by asset class (stock, bond, cash equivalents), as well as their holdings within an asset class (for example, stock holdings may be diversified among large-cap stocks and small-cap stocks).

Ethical investment

Avoids investing in companies whose activities or products are deemed to be morally unacceptable - such as arms manufacture, gambling, alcohol or pornography. Investment performance tends to be secondary to the pursuit of an ethical policy.

Mutual fund

A mutual fund is a portfolio, or collection, of individual securities (some combination of stocks, bonds, or money market instruments) managed according to a specific objective spelled out in the fund's prospectus. A mutual fund allows investors to pool their money, then the fund invests it on their behalf. Unlike individual stocks, whose value fluctuates minute by minute, mutual funds are priced at the end of each day the market is open, based on what the securities in the portfolio are worth. The price per share, or net asset value (NAV), of a mutual fund is the current market value of the fund's net assets divided by the number of shares outstanding. Investors buy and sell shares in the fund based on its NAV as of the next market close.

S & P 500: Standard and Poors 500 Index

An Index consisting of 500 stocks chosen for market size, liquidity, and industry group representation. It is a market-value weighted index (stock price times number of shares outstanding), with each stock's weight in the Index proportionate to its market value. (, ASX200 is the Australian All Ordinary Index of the leading 200)

9 Domini Social Investments, www.domini.com

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SRI Socially Responsible Investment

Originated among environmentalists who realised that ongoing economic development was becoming unsustainable. They argued that sustainable development would become the only practicable economic model.

Sustainable Development

Defined by the report of the Brundtland Commission as:" the ability of present generations to satisfy their needs without compromising the ones of the future generations", sustainable development is too often confined to its only ecological dimension. It is nevertheless a global approach that stays that a long term development is only viable by matching the respect of the environment, the social equity, and the economical profitability. Sustainable development implies to maintain or to improve the quality of the natural environment, to ensure the everlastingness of resources, to reduce the differences of standards of living of the populations in the world, and to allow the transfer of knowledge or riches (including the natural riches) from a generation to another one. ASX Australian Stock Exchange EHS Environment, Health and Safety GRI Global Reporting Initiative ISIN Inter-church Socially-responsible Investment Network. ISIN’s objectives

include enhancing the potential for church leadership in socially responsible investing in Australia.

LCA Live Cycle Assessment PER Public Environmental Reporting PLC Product Life Cycle TBL Triple Bottom Line WIM Westpac Investment Management

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XI. Connections of organizations and philosophies

SAM – Sustainable Asset Management

Dow Jones & Company

Dow Jones Sustainability Group Index

PricewaterhouseCoopers

WBCSD - World Business Council for Sustainable Development

Warakirri Asset Managementis a member of

audits

3S - Sustainable Services and

Systems

CfSD - Center for Sustainable Design

supports

supports

GRI - Global Reporting Initiative

TBL – Triple Bottom Line

SustainAbility

pioneered the term

CERES - Coalition for Environmentally Responsible Economies

UNEP - UN Environmental Program

10 Principals

TBL Special Interest GroupInstitute of Chartered Accountants in Australiawww.icaa.org.au

EMAS -> SMAS

EPE – European Partners for the Environment

is a member ofPrepared workbook

for

Challenger Socially Responsive Investment Fund

SIRIS - Sustainable Investment Research Institute

SRI Screening Process

IOOF

Bendigo Bank

Oxfam Community Aid Abroad Ethical Investment Trust

Alliance

Alliance

funds and supports

J.B.Were