A version of this article was originally published in The Australian.
Responsible investing starts off with the best intentions: to leverage your dollar for positive social or environmental impact, as well as financial returns.
But when those dollars are sunk into a labyrinth of funds and sub-funds, with multiple managers and across borders, how do you really know where the money is going and ensure that the ultimate destination aligns with your values?
For many investors, the sheer magnitude of investing on a large scale can make it difficult to have clear visibility – difficult, but not impossible, as our recent experience at the Paul Ramsay Foundation has shown.
With more than $700m in its investment portfolio, PRF has embarked on a journey towards a “total impact approach” with an updated Investment Policy Statement (IPS) that recognises our commitment to upholding good responsible investing practices throughout our portfolio.
Having a deep understanding of our holdings is an important milestone in the quest towards a total impact approach. To this end, we worked with Koda Capital (which holds about three-quarters of PRF’s investment portfolio) to do some digging to uncover more detail about where our investments ultimately sit and check that they align with our vision of working for a future where people and places have what they need to thrive.
The results are now in. While generally positive, they have also identified issues which we’re following up with action, including implementing a transition policy setting out steps to managing our exposure to assets identified as misaligned with our total impact approach.
PRF’s IPS contains several negative screens to block direct investments towards producers of tobacco, weapons, pornography and gambling. The audit has revealed the portfolio contains no direct investments in these industries.
A further impact risk analysis was conducted to identify indirect investments in companies in these industries as well as coal, predatory lending and private prisons – finding that the overwhelming majority (98.3 per cent) of the portfolio contained no indirect holdings linked to these industries.
We found that three funds held investments in gambling and gaming, totalling 1.22 per cent of the Koda Investment Portfolio. A further 0.44 per cent was composed of one fund holding an exposure to a producer of luxury goods, which is partly alcohol (0.14 per cent), a second fund with exposure to a wine producer (0.29 per cent) and one fund holding a position in a weapons manufacturer (0.01 per cent).
These investments have been placed onto PRF’s impact watchlist, with close monitoring and precise action plans outlined for each through our transition policy to manage our exposure.
This work took time and perseverance – 21 different funds were asked to complete comprehensive audit surveys and to dig through their systems and networks to uncover the investment data.
Not all were enthusiastic – one refused outright – but the results have shown that it is possible.
Why are we making this public? Because we want to encourage others to do more than “talk the talk” on responsible investment, and particularly to encourage more of our philanthropic peers who are similarly committed to responsible investment to check their closets for investments which may warrant closer attention.
To this end, we have published the results of the audit, believing that transparency is critical if we are to ensure responsible investing is more than skin deep and leads to genuine investment in purpose-aligned work with positive impact.
An earlier, separate report by Koda found that responsible investing is a key consideration for 97 per cent of Australian foundations, which are primarily motivated to invest in line with their mission and values, as well as the desire to generate additional social and/or environmental impact.
It is clear that our philanthropic peers want to invest responsibly, but 78 per cent of Australian foundations don’t publicly disclose their responsible investing position and 89 per cent don’t report on responsible investing outcomes or the impact of their portfolio.
Bringing these investments into the sunlight helps all of us remain accountable and ultimately paves the way for greater investment with positive impact. We can already see change occurring – the detailed audit process prompted two fund managers to enhance their ESG processes, developing documented processes. PRF plans to publish annual reports on its responsible investing. If we can do it, others can as well, and we urge our Australian and international counterparts to take similar steps and help establish a clearer pathway for responsibly investing beyond good intentions.
