Some recent articles in the Australian media made reference to the September's Sensis Consumer Report, rightly noting that less than half of consumers were enthusiastic about the prospect of paying more for energy under the new emissions trading scheme.  This finding is hardly a surprise, given the straightened financial circumstances many Australian families find themselves in.

What WAS a surprise to myself and other readers was some journalist's extrapolation that this was in some way bad news for the responsible investment community.  No evidence was provided for this leap of logic, but one can only assume that it is based on the mistaken, but sadly commonly-held, view that responsible investment compromises returns.  Despite this statement being frequently made by members of the traditional finance sector, there is little reliable evidence to back it up.

The most credible recent research on this subject was released by consultants to the investments of the Oxford University in late March 2008. Their review compared the performance of UK, European, US and global socially responsible investment (SRI) funds with their mainstream peers.  It found that investment in SRI funds did not automatically lead to poorer returns, and in fact SRI funds can perform better than non-SRI funds, albeit with a slightly higher level of variability in returns.

The message is getting through to the nation's superannuation funds, with a number of the larger funds including VicSuper, UniSuper, HESTA and the Local Government Superannuation Scheme signing on to the United Nations Principles for Responsible Investment (UNPRI), and implementing an exciting range of responsible investment management strategies.

Their decision is supported by the 2005 Freshfield's report.  This authoritative work was commissioned by the United Nations Environment Programme's Finance Initiative, and concluded that a pension fund trustee's fiduciary duty could in fact be compromised by NOT taking environmental, social and governance factors into account when making investment decisions.

For a local example of the robustness of responsible investment you can't go past deep-green fund manager Australian Ethical, who according to a recent article in the Australian reported a 9.3 per cent rise in value in May just as their benchmark S&P/ASX 300 Small Industrials Accumulation Index went into negative territory.

Does this mean that all responsible investment funds will make bucket-loads of cash? 

No. Returns are of course predicated on good management, careful criteria selection and disciplined portfolio construction.  Investors should choose their funds carefully to ensure that their selections and their advisors' recommendations accurately reflect their ethical as well as risk/return profile. 

The Responsible Investment Association of Australasia has recognised that this can pose a problem for the individual investor, so they have developed a certification program ensuring consumers can be confident that funds have a robust and verifiable SRI process in place, as well as maximizing transparency about their holdings.  More information on the certification symbol is available on the Association's website: www.responsibleinvestment.org

As a final note, one significant finding from the Sensis report that wasn't touched on in the articles to which I am responding.  If they could be Prime Minister for a day, the first issue that Australians would address would be environmental issues including climate change, drought, water and salinity. 

This is great news for responsible investment in Australia!  As our market broadens and deepens, there is a tremendous opportunity for the industry to benefit from a groundswell of support among Australian consumers.  It would be nice if we could focus on producing new products and services to meet this need, and put to bed the outdated argument about sacrificing returns, once and for all.

Duncan Paterson (BA F Fin) is Chief Executive Officer and founder of the Centre for Australian Ethical Research (CAER), the not-for-profit SRI research organisation based in Canberra. He has worked extensively in the field of socially responsible investment, both in Australia and in the UK with EIRIS Ltd. Duncan values the opportunity his work offers to combine research into company activities with direct dialogue through company representatives.  Duncan is a director of the industry body for SRI in Australia, the Responsible Investment Association Australasia (RIAA), and of the Hong-Kong based Association for Sustainable and Responsible Investment in Asia (ASrIA).

For institutional investors interested in responsible investment, visit our website: www.caer.org.au

For individual investors looking for responsible investment products, visit the RIAA website: www.responsibleinvestment.org