The Australian Senate has passed a Democrat amendment to the Financial Services Reform Bill (FSRB) to require super funds and investment managers to disclose their policy on ethical investment.
The amendment, which passed with the support of the Labor Party and Greens Senator Bob Brown, will require all financial services product disclosure statements to state "the extent to which labor standards, environmental, social or ethical considerations are taken into account in the selection, retention or realisation of the investment."
The inclusion of the reference to "labor standards" was the result of a further amendment introduced by the Labor Party.
The new requirement will apply to all financial services products with an investment component including superannuation products, managed investment products and investment life insurance products (insurance bonds).
The new requirement was first proposed in a submission to the FSRB prepared by the Australian Conservation Foundation and supported by a coalition of green groups, churches, trade unions and financial institutions including Westpac Investment Management.
The requirement is modelled loosely on a similar amendment introduce to the UK Pensions law last year, and since emulated in a number of European countries, however the Australian amendment goes further in that it includes all managed investment products. The UK law applies only to pension or superannuation products.
Under the FSRB amendments the ASIC is also empowered to develop mandatory guidelines on how the new requirement is to be complied with.
Outlining the reasoning behind the amendment, Senator Andrew Murray explained that the Democrats were concerned to ensure that consumers are not mislead by false claims about the integration of ethical considerations.
Speaking after passage of the amendment Senator Stephen Conroy, shadow minister for financial services said "we did have reservations, it is open to misrepresentation."
Senator Conroy said the challenge now would be for ASIC to implement and enforce the requirement. "The ASIC is clearly underfunded. How this will be implemented and enforced given a lack of funds is a real question."
Senator Conroy said the Government had indicated it "would accept" the amendments when the FSRB, which establishes a uniform national licensing and regulatory framework for financial services, is reintroduced to the House of Representatives.
The alternative would be to hold up the already long-delayed legislative reform on account of a minor amendment.
It is understood the commencement date for the ethical investment amendment is October 1st.
A spokesperson for Greens Senator Bob Brown said the amendment was welcomed by Greens as an opportunity to bring in increased transparency on environmental, ethical and social standards in investment.