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Australia gears up for tough SRI disclosure

February 2003

Australia’s investment regulator is considering a move that would impose the world’s toughest requirements on fund managers to detail their policy on socially responsible investment.

A discussion paper issued by the Australian Securities and Investments Commission (ASIC) has proposed guidelines which specifically state how investment funds must comply with a disclosure law that forms part of the 2001 Financial Services Reform Act.

The relevant section of the act requires managers of newly-created pension funds and other investment products to disclose ‘the extent to which labour standards or environmental, social or ethical considerations are taken into account’. Existing funds must comply by 2004.

The proposed guidelines would further require fund managers to explain in detail how they put the policies into practice.

This would take Australia a big step beyond countries such as the UK and France, which require pension fund and employee savings plan managers to disclose their ethical investment policies, but not to explain how they are implemented.

The ASIC says informal consultations with government, consumer groups and industry have shown most support the proposal, but it will only decide whether to go ahead when it has digested the formal responses due by the end of this month.

Although the ASIC paper acknowledges that guidelines should only be introduced once the disclosure law ‘has been operational for some time’, it says they would bring ‘greater clarity about the exact nature of the disclosure requirements’, given that there is ‘room for improvement in how SRI disclosure is being handled’.

It says that guidelines would probably require fund managers to describe in detail their ethical investment criteria, to benchmark these against the standards on which they are based, and to explain how they apply their criteria when making investment decisions.

Fund managers are also likely to have to explain how they assess whether an ethical issue has a financial impact on an investment. The regulator may produce a ‘a non-exhaustive list’ of standards and guidelines – such as those provided by the Global Reporting Initiative – that the ASIC believes fund managers should consider.

The ASIC has the power to introduce guidelines if it feels they are needed. Its legal advisers have suggested that any investor found in breach of the guidelines could face fines or imprisonment for up to five years.

The guidelines also propose financial advisers be required to ask their clients about SRI issues.

The SRI market in Australia has grown since the disclosure law was passed, with the number of SRI-managed funds standing at 74 in 2002, compared with 46 in 2001. A recent survey of SRI in Australia by Deni Greene Consulting showed that at the end of June 2002, A$1.8bn ($1bn, £650m) was invested in SRI managed funds, an increase of 31 per cent on the previous year (A$1.3bn). However, SRI investments still represent a tiny fraction of the A$154bn Australian investment market.




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