Read the article extract by Penny Pryor and answer the questions that follow.

Ethical investing used to be all about the ‘no’ or what you couldn’t invest in because it was bad for your health, the environment or had poor human rights practices. But during the past decade, and particularly since the global financial crisis, there has been a big shift in socially responsible investing, and now there is more emphasis on the positive impact of an investment.

You could, for example, invest in a company that has a good effect on the environment because of the products — such as solar panels — that it manufactures. You could also chose to invest in a social impact fund, or a social benefit bonus, both products that use public funds to invest in programs that benefit society. Returns are based on how successful the programs are, for example, at preventing recidivism or restoring children previously in foster care.

Negative screening is still relevant, but it has become more of a macro practice, like the recent run of larger superannuation funds dropping tobacco companies from their investment holdings (see breakout). There are also niche investment opportunities, such as the equities fund-of-fund Third Link.

The good news is that as more investors and superannuates become engaged in what they invest in, and the potential impact that could have, there are more products available to them.

Required

A.   In 2013, the first social benefit bond was launched in Australia. This is a bond that receives government funding in order to support a program that meets a social need that also has the potential to save the government money. Identify the stakeholders in such an investment.

B.   If ethical shares earned a lower return than other shares, discuss how much lower return would you be prepared to accept and still invest in ethical shares only. (The answer could be as low as 0% if you don’t care if your investments are in ethical companies or not.)

C.   One of the first ethical fund managers was Australian Ethical Investment. It now has around $750 million funds under management. Describe its investment philosophy and identify its one and three year return for investors.

D.  Last year the $36 billion First State Super was one of the first major superannuation funds to drop tobacco investments from its portfolio. Comment on whether you believe that most employees know or care what companies their superannuation is invested in. Discuss if a lack of care may be construed as unethical behaviour.