Australian Ethical Investments executive director James Thier talks about eco-investment in Australia

BZE's Vivien Langford speaks to James Thier from Australian Ethical Investment.

James talks about the climate advocacy fund and its goal of influencing the behaviour of Australia's biggest companies by putting forward shareholder resolutions on climate change issues.

James Thier interview

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Transcript

Nick: And now I'll be talking to James Thier about ethical investment. James, are you there?

James Thier: I am, good afternoon.

Nick: How are you?

James: I'm great thank you, well I have a little bit of a cold, but otherwise I'm great.

Vivien: Well thank you very much, James this is something very innovative for us. We decided to look at all of the ethical things we could do as well just spending our lives stopping climate change and then I came across an advertisement for something called the Climate Advocacy Fund so James, could you just tell us what it is? What do you do?

James: Yea, the Climate Advocacy Fund is operated within an organisation called Australian Ethical Investment which is an ethical, sustainable, responsible fund manager and we've been doing ethical and sustainable investments for about 25 years now or over 20 years. And we've recently launched a thing that we call the Climate Advocacy Fund and this, a very different approach to what has been seen for ethical and sustainable investment either in Australia or even internationally.And what we're doing is we're investing in all companies which is unusual, normally you pick the better companies, investing in all companies much like an Index of the AFX200, or something like that, the largest 200 companies on the Australian Stock Exchange, and we're trying to change the companies by putting resolution to their Annual General Meetings to try to influence them to better understand and to become better corporate citizens, specifically in regards to climate issues.

Vivien: It just goes against the grain with me, to think of people investing their money companies who are exploiting, like the gas boom we heard about last week and people like mining companies who are unconstrained by environmental laws, well why would you want to invest your money in these companies just to go to the AGM? I would have thought you could be more ethical by investing in a wind farm.

James: And we do that, and we have done that for 20 years. And we have wind farms and we have wave power and we have plantation timbers and we have health care and recycling, all those sort of things within our original portfolio and that's a great thing to do and as I said we've been doing it for 20+ years and it's done very well for our investors and our superannuation investors and all of that sort of thing, but it doesn't really address in any way some of the bigger companies that are having a vastly greater impact from a negative perspective on the world in which we live.

So big companies that you would never want to invest in because they're not doing good things, they're not investing in wind farms or they're not having renewable energy or they're not recycling to the degree that they should be, and so what we've sort of said is we will try to improve these companies, rather than putting our head in the sand and saying it's all too hard, we are actually trying to improve these companies and influence these companies through their annual charities and through their board room. And so by putting a resolution to the Annual General Meeting we can actually request the company to address the specific issues that we think are important, whether that be carbon emissions or whether that be reduction in carbon targets or whether that be the cost of carbon that's built into their modeling, a whole range of things could be taken into account. We can then ask those companies, or to a significant degree, force those companies to answer certain questions.

Vivien: Well I would think it might really reveal quite a few things. For example, if I were a shareholder, which I am not, but if I did go to the board meeting and find that my company didn't really know about climate change and wasn't factoring in all the risks involved with the carbon constraints that are going to be put on globally, I think I would probably think the company's not performing well. What are the risks that they should be facing up to?

James: Well I think that that's a very important and interesting point you just raised, you say you're not a shareholder but if you had superannuation, you are a shareholder. If you have superannuation in any way, you are investing in a range of companies, many of which you would have no idea what they're doing or you wouldn’t be aware of what the companies actually are. Any superannuation fund that you have, and let's face it now 90% of people will have superannuation of some form, are going to be investing in the BHPs of the world, the Rio Tintos of the world, the Origins of the world, whatever it might be, because that's where most superannuation funds will put their money.

So that's the first thing, we say we don't hold these shares but in fact we do, quite directly. And the second point you raised, which is what is the issue here, well if in fact a company isn't thinking about the future, whether a carbon tax comes into today, tomorrow, next month, next year or in 80 years, whenever it is, at some point when that happens, the viability of companies operations will be affected and if you are investing in that company, either directly or through your superannuation fund, that's going to affect the returns that you get so if that company hasn't thought about what the future might hold and how that's going to impact their financial modeling or their viability of the projects that they undertake then that's going to affect their returns and that's going to affect how you can retire. And apart from the fact that you know we want companies to do the right thing, most people really take note and companies really take note when it becomes a financial bottom line.

Vivien: I wondered something on a personal level, what was your motivation to get involved in this, the experience that led you to create this Climate Advocacy Fund? I think all the Beyond Zero listeners would want the climate to have an advocate and that's really what you're setting yourselves up, I think it's unique, isn't it, that you're the first in the world to do this?

James: Yes, in America they have a not dissimilar fund, but in America the advocacy is really secondary, what they do is they engage and they dialogue and they talk to companies, but this fund that we've created, really the focus is the resolution that we have put in, so that makes it unique in the world and unique in Australia. It seems to because of the focus; I know no other advocacy or activists fund in Australia that does this sort of thing. And the reason we thought of it and I was fortunate enough to be able to develop it, was as I said we've been doing ethical investments for a long time and we just felt that whilst it appealed to a strong niche of people and a group of people who increasingly as a result of the global financial crisis and An Inconvenient Truth, more people are thinking about what their money's doing, how they're generating an income, how they're generating returns from investments, we wanted to broaden that opportunity or broaden the reach that we had in regard to our investments and so we wanted to sort of open up to a broader audience and we wanted to invest in the big companies that we didn't invest in before.

And so I was fortunate enough to put the proposal to the Churchill Trust and be awarded a fellowship and was able to go to America and Europe for several months to do some investigations into how they operate there and what funds and activities they undertake and how that might be able to be manipulated, I guess, or how that might be able to be converted into the Australian context and the Australian regulatory regime.

Vivien: I think you're leading us in the right direction. And I'd like to say that at the international level there when you were traveling or just your general knowledge of the international pressures that companies are facing, you know, I despairingly hear haggling over the carbon tax and we're only going to have a 5% decrease, it's just maddeningly small, but what pressures would a multi-national company actually be facing in the future in that sort of carbon constrained world?

James: Once you bring in a price for carbon, that will affect the viability of the project that you undertake and that was one of the questions we actually asked Woodside Petroleum in Australia in regard to how they were going to, when the price of carbon came in, how that was going to affect the viability of the project. So when this happens and to whatever degree it happens, even if it's just a small amount, it will affect the project's capacity to undertake it and that's going to make the project more or less viable and ultimately that will be a global mechanism and it will mean that companies and countries will actually have to compete with one another and address those issues so you won't be able to sort of say well, you know, they're not doing it so we're not going to do it, ultimately it will be everyone will have to do it. Now whether that's today or tomorrow, it doesn't really matter, I think what we're trying to do here in regards to the Climate Advocacy Fund, is to say to companies: "you really need to get ahead of the game, this is something that's going to affect you and you don't want to be scrambling after the event to sort of say, 'oh yes, we saw this but we really didn't get our act together to take it into account early enough'". We want those companies to take it into account early on the process so that they have addressed the risk issues for us as investors, because we're investing in these companies and we want to be assured that they have seen the future and the future is being addressed by the way in which their methodology and the way in which they're operating.

And I think that's a really important issue because there's research to say now that if in regards to coal fired power stations, for example, which are part of the infrastructure of Australia and part of large parts of other places on the planet, that if a carbon tax comes in, that the value of that asset could be cut in half. Now why would you want to be investing in an asset that in bringing in the carbon tax could be depreciated by 50%? That just seems like a really bad financial decision to make. And that's the sort of thing we want companies to be ahead of the game, take into account and make sure they're on top of it so that they don't get caught out. Vivien: Yes, we hear a lot about stranded assets, is that on the horizon for a lot of the fossil fuel companies?

James: Yes, I mean, there's quite a lot of talk about how the petroleum company's value is based on the reserves that they have, but if in fact a carbon price that comes in and you can't access some of those reserves then the value of that company is actually going to be reduced as well, so there's been some talk particularly by people like Paul who have talked about this and said you really won't be able to access the value of these reserves so companies really aren't worth what they claim to be worth because that's how they've always been valued.

Vivien: Yea, well tell us now what happened when you went to the AGM? I believe you went to a couple of AGMs at the end of last year and this year? How did they go? Did they accept these new confronting ideas?

James: They were confronting ideas and several of them, the first two companies we went to, and Aquila, a uranium miner and a coal miner, they actually rejected the resolutions, they wouldn't allow the resolutions to be voted on, they argued legally that it was not in shareholder business. Now in America, there's an organisation called the Security and Exchange Commission who will determine whether a resolution is appropriate or not. In Australia, we don't have that equivalent of regulator to make that decision, so it's more open and we're still waiting to sort of see how some of these companies will react.

But there have been no environmental or social resolutions put to any company on the Australian Stock Exchange in the last half dozen years, so this is a very new and novel and potentially confronting operation for some of these companies. So the first two rejected, having said that, they didn't provide all the information that we put, because we have to provide a rationale for what we're arguing and what we want and they provided that to all their shareholders, which was 6000 in one case and 26,000 in another case and so they all found out what the case was and then subsequent to the AGM, which as I said a vote was never taken, both companies said that they would undertake what we requested of them.

Vivien: Fantastic, so that's a great outcome, even if it's sort of by the back door.

James: Yes, a great outcome. So one of them said they would do it within one year and one of them said they would do it within two years. The third company we went to, Oil Surge, we put the resolution and they said we withdrawal the resolution, they will undertake what we requested and so we withdrew the resolution and we are waiting til next year for them to produce the information that we are after. And the fourth one, which was Woodside, we actually got the resolution onto the papers and the vote was taken and we got a 6% supporting vote. Now, you might say 6% that doesn't sound like very much, but that's a really, really good start because that means some of the really big superannuation funds, some big international investment organisations supported the resolution because they saw the value in better understanding the company and the nature of the risks that that company was exposed to in regards to the carbon footprint and in regards to the price of carbon that they built into their model.

Vivien: We're speaking to James Thier from the Climate Advocacy Fund, Ethical Investments and I liked looking at your news letter; apparently you give donations to organisations such as the Asylum Seeker Centre, which is a cause that I think a lot of our listeners would be very favourable to and I'd like to know what guides you in your donations.

James: Yes, we're I think we're probably unique in that aspect in that we give away 10% of our profits to benevolent charities and non-for-profit organisations and basically it's built upon the Charter, the Australian Ethical Charter, which is part of our investment philosophy, part of our constitution in our management company and we look at those issues in regard to where we make donations. So we will donate to humanitarian organisations, environment groups, climate groups, a whole range of them and we have done that over the years and we probably have donated in our lives so far probably over a million dollars over the number of years we've been operating and making a profit.

So yes, I'm not sure whether applications are open at the moment, they are open once a year, they might have just closed, but people can visit our website and there's a very simple application form, a couple of paragraphs that's all we're after and we actually provide donations to non-charitable donation organisations, you don't have to have the AID status.

Vivien: Well this has been most revealing to me and I hope our listeners have found it just as interesting. We're not plugging your organisation obviously but it's to broaden our knowledge that it's out there and it exists and the leverage you've got with the big companies, I think this is quite revealing to us and I found it very interesting so thank you very much, James, and I hope perhaps we can talk to you again, especially when you have a big win against one of those companies.

James: That'd be great, thank you very much for the opportunity; I'm glad to let people know about what we've been doing.

Vivien: So how can they look you up on the website?

James: They can either look up the Climate Advocacy Fund or they can look up AustralianEthical.com.au

Vivien: Fantastic, thank you very much, James.

Transcript by Nicole