AMP Capital: Quarantining ESG and Ethical Investment

Nicholas Taylor, Mayne Report 20 May 2009

AMP Capital positions themselves as a “pioneer in Australian sustainability research and investment”. And with good reason. A number of investment manager researchers rate AMP’s Sustainable Share Fund very highly against its sustainable and ethical peers – and it stands up admirably against its mainstream cousins too.  

According to AMP Capital, ESG [environmental, social and governance] factors are investment risks – managing them is a way to safeguard and harvest 'alpha' (or excess returns).  Since roughly 75 percent of a company’s value is hidden in such intangibles, it sounds like a smart way to invest.

Although AMP Capital also employs a number of negative screens that result in the exclusion of certain companies on purely ethical grounds.  What AMP Capital will and won’t invest in is pretty straightforward. According to the AMP Sustainable Share Fund product disclosure statement:

"This results in exclusions of companies with material exposure to the production or manufacture of alcohol, armaments, gambling, nuclear (including uranium), pornography and tobacco. ‘Material exposure’ is considered to be where a company has an exposure of more than 10% based on financial criteria such as revenue."

Stock holdings as at 31 March 2009 confirm that whilst Woolworths and Coles are out, Rio Tinto and BHP Billiton are in.  

Unlike many investors overseas, AMP Capital does not disclose what’s caught in the net of its ethical screen. For instance, in September 2009 the Norwegian Government Fund blacklisted Rio Tinto from its portfolio for ‘grossly unethical conduct’ relating to the ‘severe environmental damage’ caused by the Grasberg mine in West Papua. Freeport-McMoRan, the mine’s primary operator, was excluded by the Norwegians on similar grounds in 2006. The Norwegians make all rulings of their Ethical Council against its ethical guidelines available in both Norwegian and English online.

AMP Capital does not afford its investors such levels of transparency.

AMP Capital’s 'Sustainable Alpha Team' run two types of funds. The team conducts research and invests the $2.5 billion Sustainable Share Fund themselves, and they combine with Edwards Benefits Advisers and Mercer Responsible Investment Consulting to package $790 million in multi-manager AMP Responsible Investment Leaders single sector and balanced funds.

Product range	Sector	Investment Manager(s)
Sustainable Shares Fund	Australian Shares	AMP Capital
Responsible Investment Leaders Funds (Australian Shares, International Shares, Conservative, Balanced, Growth)	Australian Shares	AMP Capital BT Investment Management No. 2
	International Shares	Boston Common Asset Management Currents Investment Management Henderson Fund Management Lazard Asset Management
	Property	AMP Capital The GPT Group Investa Funds Management Lend Lease Real Estate Investment Macquarie Investment Management Retirement Villages Group
		AMP Capital* ING Funds Management* Macquarie Investment Management* Vianova Asset Management/AMP Capital** ESG Research

* For Responsible Investment Leaders Conservative and Growth only

** For Responsible Investment Leaders Balanced only

Both sets of products call upon ‘ethical committees’.

The AMP invested Sustainable Shares Fund has an Ethics Advisory Committee consisting of: Dr Simon Longstaff, executive director of the St James Ethics Centre (Chair); Reverend Tim Costello, CEO of World Vision; and Molly Harris Olsen, director of Eco Futures.

The Responsible Leaders multi-manager funds have an Ethics Committee made up of an undisclosed number of “SRI research and investment professionals from within AMP Capital, and client representatives” that operates within the same ethical position as outlined above.

Whilst ESG and ethical positions are not mutually exclusive – indeed both investment approaches often lead to the same outcomes – seldom do investment managers implement both so fully as do AMP Capital. Historically, this occurs since seed clients have a particular set of ethical demands, as well as the appetite for an ESG approach on the remainder of the portfolio. AMP Capital is doing its best to pander to a broad church, and an exceedingly demanding one.

The real issue, however, is whether AMP Capital sincerely believes in either approach. For it seems to me that AMP Capital only worry about all this ethical and ESG stuff on less than 3 percent of its $111 billion in funds under management.

Nicholas Taylor formed Outcrop to offer independent advice and bespoke research on environmental, social and economic issues. www.outcrop.com.au