Converting Financial Capital into Social Capital

Through a groundswell of consumer advocacy, ethical investment and banking is no longer a niche but an essential part of the financial landscape, writes Jim Hardy, a senior manager at Community Sector Banking.

The financial landscape is changing. With greater access to information and more prominence given to social and environmental issues, individuals are looking at how their banking and investments can do more than simply provide a return.

It’s not surprising then that ethical investment and ethical banking are on the rise, even being described by some as “mainstream”.

The Responsible Investment Association of Australasia (RIAA) reported in its recent Benchmark Report that total assets managed under responsible investment strategies in Australia have grown to $629.5 billion – 50 per cent of the total assets under management in Australia.

And those investments that are managed under “core responsible investment strategies” – that is, those that might have previously been referred to as ethical or “socially responsible investments” have grown by 24 per cent after experiencing a 50 per cent increase in the previous year.

It’s clear the growth of this sub-sector is being driven by an increase in demand, particularly following the Global Financial Crisis and related to the growth in prominence of social and environmental activism.

According to RIAA, four key factors are motivating people to invest ethically:

1. There is a growing list of examples of shareholder value being undermined by  companies’ poor management of environmental, social and other ethical issues.
2. The demand for retirement savings to match investors’ values is growing.
3. There is a growth in fiduciary awareness that issues such as climate changes can have wide-ranging investment implications.
4. There is move by activists and civil society to focus on the financial sector as a way of affecting social change.

The idea that investing ethically undercuts investor return is also diminishing. Environment, social and corporate governance focused funds show comparable returns when compared to more mainstream investments, and this trend can be traced back to 2002. In 2013, these funds outperformed the average of the ASX 300.

These trends are not just limited to investment and superannuation. Banking too, is facing an increased demand for ethical products and behaviour. Greater access to information about the ethical dilemmas of the world has driven people to make decisions based on their moral values, which have in turn led to a growth in awareness of how personal finances are being invested.

Standard Life’s Head of Responsible Investing, Amanda Young recently told Financial Observer that Generation Y investors in particular are interested in values-based investment.

“What’s driving the millennials’ thinking is the massive increase in technology over the past 10 years, which has allowed us unprecedented access to information,” Young said.

“What companies say and do and the products they make are now open to scrutiny. People can see when an oil company operates in Africa, they can see whether it is treating its employees properly or whether bribes are being paid.”

Greater access to information about the ethical dilemmas of the world online has driven people to make decisions based on their moral values, which have in turn led to a growth in awareness of how personal finances are being invested. Divestment from fossil fuels, tobacco, gambling are increasingly being advocated by customers.

Mass online petitions, campaign websites or comparison web apps now have a groundswell of popular support among those fed up with the headlines.

Ethical banking and financing isn’t new. Indeed, it has been around in the UK since the 1970s. But what is new is the evidence-based research that it really does work – for investors, financial institutions and the causes they support through their funds.

Earlier this week I read the story of Hayley, a young woman who struggled with a heroin and ice addiction who lived on the streets. She got clean with the help of the Self Help Addiction Resource Centre and through them was linked up with HoMie – a social enterprise designed to assist those experiencing homelessness.

With their support, Hayley is now about to finish her Alcohol and Other Drugs Mental Health diploma.

Hayley’s story made me feel a real sense of pride and purpose to work at a banking organisation that can help change people’s lives in this enormous way through creative and purpose-driven finance.

Our strong belief at Community Sector Banking is that business must be a force for good. It’s not enough to simply offer basic banking products; it is our responsibility to leave the community stronger than when found it.

While the increasing demand for ethical investment and banking might be challenging for some institutions, the opportunities are also vast. Businesses must align their operations with the values of the communities they operate in and ensure their long-term health and sustainability.

Ethical investment is no longer a niche demand, but a core part of the banking and investment landscape.

About the Author: Jim Hardy is senior manager of philanthropy, product delivery and expansion at Community Sector Banking. CSB is a joint venture between Bendigo Bank and the Community 21 consortium of Not for Profits.