Cameron Blanks from Pacific Equity Partners speaks to James Dunn at The Inside Network’s Alternatives Symposium in Melbourne on looking through the cycles and catalysing growth. The Inside Adviser
Duncan Farley from RBC Bluebay Asset Management speaks to Giselle Roux at The Inside Network’s Alternatives Symposium in Melbourne on macro trends that matter more. The Inside Adviser
The ethics of retail
The last few years have seen both massive opportunities and challenges for ethical and ESG-focused investors. With an influx of capital from younger cohorts and the pandemic bringing into focus the need for all professional investors to have a view on ESG issues, you could be forgiven for thinking it was a good thing.
Yet as the challenge of Russia, Ukraine and even the energy sector emerged, it offered a timely reminder of the most important traits of truly ethical and ESG-considered managers, transparency and clarity. That is, in an environment where nearly every fund manager has ‘integrated’ ESG concerns into their portfolios, being true to label and not leaving your investors surprised by holdings is the only hope for long-term success.
With success in ethical investing over many decades, Australian Ethical is uniquely positioned, primarily through the existence and detail of the Australian Ethical Charter, which guides all investment decisions. Whilst the risks of investing into casinos, tobacco and coal mines are well appreciated, the retail sector is significantly more complex and broader.
This is an issue highlighted in Australian Ethical’s recent blog post, which noted investing in retail is a ‘balancing act’. “Retail is a controversial segment that requires careful consideration. It’s an essential part of modern life, but inappropriate or excessive consumerism can also cause great harm” the piece explains, whilst highlighting the significant difference between food and meat producers, versus consumer products.
Australian Ethical starts with a positive view of retail companies, but then asks a number of questions to determine their appropriateness for the domestic-leaning portfolios: “Are the products they sell aligned to our Charter? Do they promote the irresponsible consumption of negative products? How do they mitigate or manage any of the negative impacts of their operations, marketing and supply chains on people, animals and the planet?” says Dr Stuart Palmer, our Head of Ethics Research.
“No company is perfect, but for us to invest, a retailer must demonstrate genuine commitment and credible action to manage negative impacts on people, animals and the planet” he explains. Woolworths and Coles, being the dominant grocery chains, are companies ‘we watch very closely’ noting that they are so large they can change the entire system “influencing diet trends, climate, animal welfare, biodiversity and human rights”.
“The good news is, we think Coles and Woolworths are genuinely trying to do the right thing and on balance are having a positive impact on the world” says Palmer noting Coles “has good policies and practices in place to reduce animal suffering and environmental and human rights harm in its own operations and in the supply chains of its private label products.”
These include everything from partnerships for recycling, the use of recycled plastic to construct car parks and even the inclusion of healthy and plant-based options within stores. Tobacco consumption is obviously a negative, however, this does not automatically rule a company like Coles or Woolies out under the charter; only those who produce these products are excluded.
Rather, management focus on asking a series of important questions to determine both the importance of these sales, as well as the retailers view and broader operations. Do they sell products assessed as positive under the Charter? Do they include sustainable alternatives in major product categories? E.g. a retailer selling meat should also offer plant-based alternatives. Do they promote irresponsible consumption of products considered negative under the Charter (product placement, discounts, advertising)? These are just a few of the key questions.
Of course, it doesn’t end at investment, with the ethics and investment team both monitoring the ongoing performance and behaviours of every company, particularly against those ESG and climate specific goals they have set.
