A new transparency code adopted by Dutch ethical fund managers will facilitate engagement with the corporate sector and could set the standard for ethical funds in other countries, a select group of Australian super fund trustees will hear this week.
Under the voluntary code, the majority of Dutch ethical fund managers have agreed to provide investors with details of the portfolio holdings in ethical funds, an outline of the screening and research process, and to explain environmentally or socially motivated buy/sell decisions.
The transparency code is an alternative approach to disclosure legislation passed first in the UK, and more recently in Australia, Canada and Germany in similar form, requiring investment funds to declare if and how they take ethical, social or environmental considerations into account.
The Dutch code attempts to answer criticisms from media, investors and corporates, that SRI research and ratings are black box systems that lack transparency, according to INGs head of sustainable investment in the Netherlands, Herman Kleeven.
If we ask for transparency from the companies we invest in, its fair enough that we be transparent ourselves, he said.
Kleeven is in Australia to promote INGs sustainable investing capability, and is speaking at a three-day closed residential conference on SRI for around 30 super fund trustees, beginning in Sydney today.
The three-day conference, sponsored by institutional SRI fund managers and organized by the Centre for Investor Education, will be attended by trustee clients potentially interested in SRI including representatives from REST, Cbus, Telstra Super, Queensland Coal and Oil Shale Mining Industry Superannuation Fund (QCOS) and the Military Superannuation and Benefits Board.
INGs sustainable investments team, established in May 2000, now manages around ¤300 million in assets, sourced principally from Dutch institutional clients and invested in global equities. The Dutch-based fund invests in no Australian companies.
Last calendar year INGs sustainability fund returned minus 13.1 per cent to December 31, 2001 ahead of its ING unscreened counterpart fund, and ahead of the benchmark MSCI World Index according to Kleever.
Kleeven says the Dutch transparency code does not mean SRI fund managers will be publicly attacking corporates over their environmental and social performance.
We differentiate between engagement and activism, says Kleeven. Activism has a negative ring to it, and is probably a negative approach in the end. Its not about going to the media.
Kleeven says INGs engagement approach is two-way, not only representing community expectations to corporates, but also engaging with NGOs and investors to explain corporate behaviour.
ING outsources non-financial research to the global Sustainable Investment Research Institute (SIRI) network, but handles engagement itself. We have easier access to management, says Kleeven.
He says companies are definitely complaining about the number of corporate responsibility surveys arriving on their desks, and they are probably right to be complaining.
SRI funds represent about one per cent of INGs total funds under management, but this has been the fastest-growing line of business in a down-market according to Kleeven.
ING is expanding its presence in the US and Asia Pacific. In Australia, ING acquired Mercantile Mutual and is now in talks to form a joint venture in funds management with ANZ Banking Group.