More annual reports from Australian Ethical Investment:
2023 ReportPeers and competitors of Australian Ethical Investment:
Katana CapitalAustralian Ethical Investment Limited
Annual and Sustainability
Report 2014
Contents
About this report .................................................................................................................................2
Managing Director’s Review ...............................................................................................................4
Message from Stuart Palmer, Head of Ethics ....................................................................................7
Financial and Investment Performance .............................................................................................8
Community Grants ...........................................................................................................................12
About Australian Ethical ..................................................................................................................12
What is ethical investment? .............................................................................................................17
Responsible Investment at Australian Ethical .................................................................................18
Stakeholder Engagement .................................................................................................................24
Sustainability impacts – getting involved .........................................................................................30
Understanding the Carbon Footprint of our Portfolios ....................................................................34
Working at Australian Ethical ............................................................................................................35
Organisational ethics and integrity ...................................................................................................40
Volunteering and sponsorships ........................................................................................................41
Awards ..............................................................................................................................................42
Our environmental impact ................................................................................................................42
Consolidated Financial Report ........................................................................................................44
Directors’ Report ..............................................................................................................................45
Remuneration Report 2014 ..............................................................................................................54
Independent Auditor’s Report .........................................................................................................66
Independent Auditor’s Declaration ..................................................................................................68
Corporate Governance Statement 2014 ........................................................................................101
GRI Content Index ..........................................................................................................................108
Assurance Statement .....................................................................................................................118
1800 021 227 | australianethical.com.au 1
australianethical About this report
Australian Ethical’s Annual and Sustainability
Report 2014 is the company’s 13th report
aligned with the Global Reporting Initiative’s
(GRI) sustainability reporting framework. It
outlines the sustainability, financial, corporate
and governance activities for the period 1st
July 2013 to 30th June 2014. The report covers
these activities for Australian Ethical Investment
Ltd, and its wholly owned subsidiary Australian
Ethical Superannuation Pty Ltd, (referred to as
‘Australian Ethical’).
The report has been prepared using the
GRI’s guidelines for the G4 ‘In Accordance –
Comprehensive’ level of reporting. It is the first
combined Annual and Sustainability Report for
Australian Ethical. A moderate level of assurance
over limited data sets has been conducted.
Reporting on material issues
The GRI framework identifies three principles for
defining report content: stakeholder inclusiveness,
sustainability context, and materiality. We believe that
the methodology that we have used to determine the
material issues for Australian Ethical adheres to these
principles. Our discussion throughout the report on
the sustainability context of our business impacts
reflects that we understand the broader impacts
of our activities on our members, shareholders,
employees, and the world around us.
The overarching topics most material to Australian
Ethical are:
• Responsible Investment
•
Investors
• Employees
• Corporate Governance
In defining the key material topics for Australian
Ethical for FY2014, a materiality assessment was
conducted using the following methodology:
1. A list of 40 potentially relevant topics was
compiled from:
– Stakeholder engagement activities that
occurred throughout the year
– A review of 23 global Financial Services
Sector G4 reports
– Topics identified in the 2013 benchmarking
study undertaken by the GRI:
‘Sustainability Topics for Sectors: What do
stakeholders want to know’,
– Australian Ethical’s 2013 Sustainability
Report, and
– Australian Ethical’s three year
business strategy
2. Six senior management staff were interviewed
and asked to prioritise each of these topics in a
materiality matrix
3. Responses were collated and averaged to
provide a ranking for each topic
4. Australian Ethical’s Managing Director & CEO
validated these topics
Identified topics were mapped against the
GRI’s ‘Aspects’ using the standard framework
in conjunction with the Financial Services
Sector Supplement.
G4-17, G4-28, G4-32, G4-33
2
The final material GRI Aspects identified for reporting and their relation to the key topics were:
Responsible Investment
Investors
Employees
Corporate
Governance
Employment
Labour/Management Relations*
Labour Practices Grievance
Mechanisms*
Training and Education*
Diversity and Equal
Opportunity*
Equal Remuneration for Women
and Men*
Non-discrimination*
(Addressed in
General Standard
Disclosures)
Customer Privacy*
Product Portfolio
Active Ownership
Compliance
Investment*
Audit*
Economic Performance*
Supplier Environmental
Assessment*
Supplier Assessment for
Labour Practices*
Supplier Human Rights
Assessment*
Supplier Assessment for
Impacts on Society*
Product and Service
Labelling
* New for the FY2014 report. Although some of
these aspects have been addressed in previous
reports, they have not been identified and
reported on as formal GRI disclosures.
The boundary (internal and/or external to
Australian Ethical) for each identified aspect is
described in the GRI Content Index.
We value your feedback
on the contents of this
report. Should you wish to
discuss any topics outlined in
this report, contact Tom May,
General Counsel and Company
Secretary, Australian Ethical
Investment Limited, on
02 6201 1953.
G4-18, G4-19, G4-23, G4-31
1800 021 227 | australianethical.com.au 3
australianethical Managing Director’s Review
The past year has been an extremely successful
one with every aspect of the business performing
above expectation.
Our new client intake and net fund inflows are
well above forecast and industry averages, our
investment performance has beaten mainstream
benchmarks, our people are highly engaged and
our operations continue to improve their efficiency.
As a result we are almost at $1 billion in funds
under management, our profits are strong and our
share price has doubled in the past 12 months.
External Environment
During the year, there were three key issues in the
external environment that impacted our business:
• Market sentiment
General market sentiment has improved
over the past twelve months with markets
increasing leading to increased funds under
management and improved industry inflows.
Over the year, the ASX Small Industrials Index
increased by 13.1%, the MSCI Global Climate
Index increased by 23.8% and the UBS
Composite Bond index increased by 6.1%.
• Fossil fuel divestment
The campaign globally to encourage
companies, institutions and investment funds
to divest their fossil fuel exposed assets
has steadily increased. We have actively
supported this campaign and we remain the
least fossil fuel exposed investment manager
and superannuation fund in Australia. We
have therefore benefited from the increased
awareness amongst the investing public.
• Regulatory change
The regulatory regime in Australia continues
to evolve. The superannuation landscape in
particular will only become more stringent with
the commencement on 1 July 2014 of the new
Prudential Standards. We have invested in our
risk and compliance resources to meet the
increased requirements.
Financial performance
Our profits for the financial year to 30 June 2014
have shown a significant improvement over the
previous year which was, in turn, a significant
improvement on the year before.
This result has been despite a steady reduction
in fees, over the past few years, to ensure we
remain competitive. This reduction in fees, at the
same time as improving our profits, has only been
possible due to initiatives undertaken over the
past few years to reduce our costs and become a
far more efficient organisation.
Fee reductions
On 30 June this year we reduced administration
fees on our superannuation fund from 1.544%
to 0.934%, a reduction of 42%. This was in
recognition of the fact that our fees were out of
step with comparable products and was aimed at
passing some of the benefits of recent growth to
our members.
Investment Performance
We've strengthened the quality of our investment
team and processes in order to deliver on
our mission of strong performance with best
practice ethics.
The performance of our funds continues to
be strong over the long term with most having
performed in line with or above the median fund
in their relevant Mercer surveys. Our Larger
Companies Trust was ranked in the top quartile
performance across 1, 3, 5, 7 and 10 years for
all retail and wholesale All Growth Funds. Since
inception the Trust has returned on average 8.1%
each year (net of fees).
The long term performance of our flagship Smaller
Companies Trust remains well above benchmark
returning 9.7% per annum (net of fees) for the last
10 years versus the Small Industrial Index of 5.5%
per annum, ranking it 6th in the Australian Equity
(All Caps) Mercer Investment Survey.
4
Ethical leadership
Sales and marketing
This year, we have cemented our position as
the leader in ethical investment in Australia.
We maintain the highest ethical conviction in our
investment selections as well as taking strong
stands in encouraging more ethical behavior in the
corporate and broader community.
Appointment of a Head of Ethics
We asserted our commitment to ethical leadership
with the appointment of Dr Stuart Palmer as Head
of Ethics and Corporate Advocacy. Previously
Head of The Practice at St James Ethics Centre,
Stuart has also been a partner in a law firm and
worked in investment banking. His professional
experience has given Stuart a strong background
in the practical application of ethics, as well as
commercial and market experience and the critical
thinking required for his role at Australian Ethical.
Advocacy initiatives
A key focus for Australian Ethical is to influence
behaviour in others through our engagement and
advocacy activities with the companies we invest
in including activities such as, engaging with
Santos on CSG, advocating against Lend Lease’s
involvement in the Abbot Point coal terminal, and
divesting from Petratherm.
We are engaging with the 'big four' Australian
banks about improving their disclosure and
governance in lending to the fossil fuel sector.
We are participating in a global project involving
major domestic and international institutional
investors and lenders to develop global guidelines
for the reporting of the greenhouse gas emissions
intensity of lending and investment activities.
Recognition of our industry leadership
During the year we earned certification as a
registered B Corporation. B Corporations –
also known as benefit corporations – are a
growing global movement dedicated to using
the power of business to solve social and
environmental problems.
We are also actively involved with the United
Nations Principles of Responsible Investment
(UNPRI) through industry working groups.
This year we became the only Australian company
to voluntarily have our self-certification to the
principles independently assured.
Our sales and marketing initiatives have been
extremely successful with dramatic results in both
new clients and net inflows.
Investment in online engagement provides an
extremely effective and efficient means of building
awareness and communicating with the ethically
conscious investment community.
Platforms such as our website and social media
pages as well as Good Money magazine are used
not just for one way communication. They are
a highly interactive means of engaging with our
community. The ability to communicate through
networks provides a low-cost means of building
awareness of Australian Ethical’s activities.
•
Increase in followers and engagement
Our 'followers' on Facebook, LinkedIn and
Twitter increased tenfold. Facebook followers
increased from about 2,500 to 25,000 over
the 12 months providing increased 'reach'
and access to the market. Our 'engagement'
levels – those talking about the brand as
a percentage of total 'likes' – also remain
extremely high by industry standards.
•
Increase in client sign-ups
Our new individual client sign-ups averaged
400 per month compared to 160 per month
for the previous year. Super fund membership
grew by 18.8% for the year compared to an
industry average of -0.1%. We also tripled the
rate of new super employer clients signing up
to use the super fund during the year.
Purchase of Ethical Investor
As part of our digital content strategy, we recently
purchased Ethical Investor. The publication has
been a respected source of industry news and
information for over 10 years.
We have refreshed the website and newsletter,
increased engagement with subscribers and built
the subscriber base. Having a non-branded or
semi-branded channel for content is an emerging
marketing strategy that has been implemented
successfully by a number of leading financial
services companies.
1800 021 227 | australianethical.com.au 5
australianethical Employee Engagement
Operational improvements
We made numerous improvements to our
operations as a result of 'Superstream' regulatory
changes which are aimed at streamlining the
efficiency of the industry.
As a result we have improved the process of
receiving employer contributions and all rollover
requests are now processed within three days.
During this period, we consolidated our operations
into our Sydney office. Over the past few years
the business has gradually evolved to be
primarily based in Sydney in order to access the
appropriately skilled and qualified employees and
to be connected with clients, investee companies
and intermediaries.
In the coming financial year, we will continue our
work in providing investors with a clear ethical
alternative to traditional funds.
This year we engaged the independent firm Aon
Hewitt to conduct our employee engagement
survey and to provide an engagement score
for the first time, benchmarking us against
organisations in Australia and New Zealand. This
allows us to compare our levels of engagement
with industry peers. We were pleased to receive a
top quartile score of 78 compared to an average
'best employer' score of 82.
Product improvements
MySuper approval
On 16 September 2013 we received approval
from APRA to offer a MySuper product. This
authorisation allows us to accept employer super
contributions where the employee has not made
a choice of funds. This is a key aspect within our
strategy to be the default super fund of choice
for ethical employers, for example, for B Corps
and NGOs.
Launch of Ethical Fixed Interest Trust
In December we launched the Fixed Interest
Trust. The Trust offers investors an opportunity
to generate income from a portfolio of ethical
diversified interest-bearing investments.
It is the first ethically screened managed fund
available to Australian retail investors that invests
in longer term bonds.
Phil Vernon
Managing Director and CEO
G4-1
6
Message from Stuart Palmer,
Head of Ethics
As an ethical investor and superannuation fund,
Australian Ethical cares both about the social
and environmental impact of its investment
choices, as well as the ways in which our
members can achieve financial security from
investing in sustainable businesses and avoiding
unsustainable ones.
In pursuing solutions to key risks to our world,
we work both with existing institutions as well
as social and environmental activists seeking to
shape new institutions
By engaging with companies and also by
collaborating with individuals and organisations
throughout society, ranging from institutional
investors to charities and NGOs, we can make
a significant difference to the environmental
and social impacts of companies identifying
opportunities for companies to grow their positive
impacts and mitigate their negative ones. We
aim to influence the behaviour not only of the
companies we invest in, but also other companies
as well as governments, other investors
and consumers.
Like so many, we have had a strong focus this year
on the massive challenges of global warming.
By our own investment choices as well as
through our engagement and advocacy activities,
we have worked to increase the allocation of
investment capital to the renewables and energy
efficiency sectors. We have continued to review
our fossil fuel exclusions on an ongoing basis
to take account of research and analysis by
the International Panel on Climate Change, the
International Energy Agency and other thought
leaders in this area.
Engaging with the banking sector, we have aimed
to shape a more aware and proactive approach
to climate risk in the major bank’s lending and
investment activities, as well as influencing banks’
engagement with their own business customers
about their carbon risks, opportunities and
impacts. We believe that our work contributes to a
more ethical approach to lending and investment
activities in the future.
G4-2
Dr Stuart Palmer, Australian
Ethical's new Head of Ethics
and Corporate Advocacy
A continued focus for Australian Ethical has
been the investigation of the water and fugitive
emissions risks of coal seam gas, looking at both
local and overseas research and experience. In
the coming year, we will elevate our engagement in
the gas sector to encourage increased monitoring
and reporting of water and emissions impacts,
and the adoption of best technology and practices
to minimise these impacts.
We have also maintained our focus on a broad
range of social and environmental concerns raised
by the Australian Ethical Charter, including human
rights and human flourishing, animal welfare,
biodiversity and natural capital, food security,
gambling and tobacco, issues that are central to
organisational strategy and ethics.
Our vision remains a future where all investing
(and other) choices are active and considered
choices which, instead of being driven by a
narrow range of habitual and short term metrics,
genuinely take account of all the things which
matter to the person or organisation exercising
their power of choice.
1800 021 227 | australianethical.com.au 7
australianethical Financial and Investment
Performance
As an investment management company charged
with managing the wealth of individuals, we
have a responsibility to ensure that competitive
returns are achieved each year through our ethical
investment activities. All activities are undertaken
with reference to the Australian Ethical Charter,
which provides us with guidance on how we make
our investment decisions. In addition to ensuring
that our customers receive competitive returns,
our Community Grants program ensures that a
percentage of our shareholder profits are used to
further community projects that benefit the society
and environment in which we live.
Australian Ethical’s profits for the financial
year to 30 June 2014, increased by 139% over
the previous year due to a number of factors,
including a strong increase in new business and
flows, improved market conditions, improved
brand awareness and a continued focus on cost
management. Improving the competitiveness and
commerciality of our business and products over
the past few years has also contributed to this
significant growth and has allowed us to pass
these financial benefits to our clients.
Smaller, Larger, International and Cash investment
options exceeded their benchmarks for the year.
All managed funds have first or second quartile
performance against competitors over the past
year. The Smaller Companies Fund is ranked
third against competitors over seven years with
the Larger Companies ranked first over three
years. For Super Investment options, the Smaller
Companies options exceeded its benchmark for
the year. All other investment options are tracking
towards their target returns.
Financial Summary
Profit After Tax ($m)
1.0
1.1
1.1
0.4
Return on Equity (%)
29.9
2.5
15.0
15.2
12.5
5.8
2010
2011
2012
2013
2014
2010
2011
2012
2013
2014
FY2014 Highlights
• 139% profit increase
• Net inflows of $90.7m
• 18.6% increase in return on equity
• Market capitalisation of $36,270,561
• 25.3% increase in FUM
Funds Under Management ($m)
654
599
669
708
887
2010
2011
2012
2013
2014
G4-DMA Economic Performance, G4-9, G4-FS6
Funds under Management
by Investment ($m)
Managed
Funds
$300m
Super
$587m
8
Basic Earnings Per Share ($)
Superannuation
2.49
Investment Option
Funds under
management
($m)
33.4
9.6
228.2
93.0
21.8
146.4
8.9
4.2
3.8
18.9
3.1
7.1
0.6
2.00
1.03
1.13
1.05
0.40
2010
2011
2012
2013
2014
Revenue ($m)
Accumulation
Defensive
Conservative
Balanced
Growth
Advocacy
19.9
Smaller companies
14.1
15.7
14.8
16.4
2010
2011
2012
2013
2014
International
Pension
Defensive
Conservative
Balanced
Growth
Managed Funds
Trust
Funds under
management
($m)
Smaller companies
International
Dividends Paid ($)
Balanced Trust
Smaller Companies Trust -
Retail
Smaller Companies Trust -
Wholesale
Larger Companies Trust - Retail
Larger Companies Trust -
Wholesale
Fixed Interest Trust – Retail
Fixed Interest Trust – Wholesale
Cash Trust
International Equities Trust
Property Fund
Advocacy Fund - Retail
Advocacy Fund - Wholesale
83.8
91.6
37.7
32.8
29.5
0.2
1.1
8.2
6.9
0.2
4.7
1.8
2.00
Special
Ordinary
1.70
Special
Ordinary
0.60
0.85
2010
2011
2012
2013
2014
Economic Performance Summary
Direct economic value generated
Revenue
Economic value distributed
Operating costs
Employee wages and benefits
Payment to providers of capital
Payment to government
Community investments
Total economic value distributed
Economic value retained
$m
19.6
(9.2)
(5.9)
(1.3)
(1.5)
(0.5)
(18.4)
1.2
G4-9, G4-EC1
1800 021 227 | australianethical.com.au 9
australianethical Investment performance
Super (accumulation) returns
Defensive
Conservative
Balanced
Growth
Advocacy
Smaller Companies
International shares
Managed fund returns
Balanced Trust
Smaller Companies Trust - Retail
Smaller Companies Trust - Wholesale
Larger Companies Trust - Retail
Larger Companies Trust - Wholesale
Fixed Interest Trust – Retail
Fixed Interest Trust – Wholesale
Cash Trust
International Equities Trust
Property Fund
Advocacy Fund - Retail
Advocacy Fund - Wholesale
Calculating Returns
Total returns are calculated:
1 year
3 years (pa)
5 years (pa) 10 years (pa)
2.6%
3.7%
8.8%
10.3%
16.5%
10.7%
15.7%
3.0%
4.0%
7.6%
9.0%
11.5%
10.5%
8.9%
3.5%
n/a
5.8%
5.9%
n/a
8.9%
4.3%
3.7%
n/a
4.6%
5.0%
n/a
8.9%
n/a
1 year
3 years (pa)
5 years (pa) 10 years (pa)
13.3%
16.5%
18.1%
20.5%
22.2%
5.4%
n/a
3.4%
25.8%
(0.1%)
21.4%
23.2%
9.1%
11.0%
n/a
13.1%
n/a
n/a
n/a
4.1%
10.9%
0.2%
12.6%
n/a
7.0%
9.6%
n/a
8.6%
n/a
n/a
n/a
4.5%
5.4%
3.0%
n/a
n/a
5.2%
9.7%
n/a
6.3%
n/a
n/a
n/a
4.6%
n/a
n/a
n/a
n/a
• Net investment returns are calculated using exit prices
• Net investment returns have been calculated using prescribed standard methods and
assumptions, and take in to account administration and investment fees, taxes and other costs
• The standard calculations are based on a member with an account balance of $50,000, which will
not be relevant to all members
• The standard calculations do not allow, for example, for the effect of contributions to your account,
insurance fees or various other matters
Further information on returns can be found in our legal disclaimer at
www.australianethical.com.au/legal-disclaimer
G4-9
10
Comparative performance
A survey of managed funds published by consulting firm Mercer, in 2014, consolidated our position as a
strong player amongst wealth management companies. This sustained growth in our business has allowed
us to have greater influence over the companies that we invest in through investment and advocacy
activities that aim to influence the way that they do business.
Managed Funds Performance vs Peers
Fund
Balanced
Smaller Companies
Smaller Companies B
Larger Companies
Larger Companies B
Advocacy
Advocacy B
International Equities
Cash
1 Yr
3 Yrs
5 Yrs
7 Yrs
10 Yrs
2nd Qtr
Percentile
17 of 49
2nd Qtr
Percentile
42 of 103
2nd Qtr
Percentile
63 of 176
1st Qtr
Percentile
2 of 103
1st Qtr
Percentile
3 of 103
1st Qtr
Percentile
1 of 103
1st Qtr
Percentile
1 of 103
1st Qtr
Percentile
3 of 81
2nd Qtr
Percentile
10 of 36
3rd Qtr
Percentile
25 of 43
1st Qtr
Percentile
19 of 100
N/A
of 155
1st Qtr
Percentile
1 of 100
N/A
of 100
1st Qtr
Percentile
6 of 100
N/A
of 100
4th Qtr
Percentile
66 of 74
1st Qtr
Percentile
3 of 23
4th Qtr
Percentile
27 of 30
3rd Qtr
Percentile
42 of 79
N/A
of 138
1st Qtr
Percentile
11 of 23
1st Qtr
Percentile
3 of 68
N/A
of 120
2nd Qtr
Percentile
15 of 21
1st Qtr
Percentile
6 of 50
N/A
of 80
1st Qtr
Percentile
12 of 79
1st Qtr
Percentile
5 of 68
1st Qtr
Percentile
4 of 50
N/A
of 79
N/A
of 79
N/A
of 79
N/A
of 68
N/A
of 68
N/A
of 68
4th Qtr
Percentile
55 of 56
1st Qtr
Percentile
4 of 21
3rd Qtr
Percentile
41 of 46
1st Qtr
Percentile
5 of 18
N/A
of 50
N/A
of 50
N/A
of 50
N/A
of 29
1st Qtr
Percentile
5 of 14
• 1st Qtr Percentile: Top 1% - 25% of peer group
• 2nd Qtr Percentile: In range of 25% to 50% of peer group
• 3rd Qtr Percentile: In range of 50% to 75% of peer group
• 4th Qtr Percentile: In range of 75% to 100% of peer group
G4-9
1800 021 227 | australianethical.com.au 11
australianethical Community Grants
The greater our profits at Australian Ethical, the
more we can contribute to our Community Grants
program. Our Constitution states that before a
dividend can be declared, 10% of annual profits
(before staff bonus) must be donated to non-
profit, charitable, benevolent and conservation
organisations. This activity is just one of the ways
that we contribute to a positive and sustainable
society and we have one of the highest levels of
corporate giving in Australia based on percentage
of profits.
Grants are made from the shareholder profits of
Australian Ethical Investment Ltd, and not from
the returns of our investment products, signifying
a commitment by our shareholders to forego a
portion of their return.
Our 2014 Community Grants program has been
delayed for six months in order to give applicants
absolute certainty over the level of funding that will
be available. Recipients will be announced by the
end of 2014.
Based on our profit, grants of $302,300 will be
paid in FY15, bringing our total amount donated
over the past 13 years to almost $1.8 million.
Grants declared for FY13 and paid in FY14 were
$117,291 and divided amongst 11 organisations.
About Australian Ethical
Australian Ethical is a publicly listed funds
management company offering superannuation,
pensions, and managed funds products and
is one of only a handful of funds management
companies in Australia that specialises in ethical
only investments. Australian Ethical actively seeks
out high quality investments that are positive
for society and the environment and avoids
investments in harmful activities. Since pioneering
ethical investment in Australia in 1986, Australian
Ethical has grown to manage investments and
superannuation on behalf of approximately
17,500 responsible investors. Our headquarters,
along with our primary operations, are located in
Sydney, and we have a satellite office in Canberra.
Australian Ethical takes a leadership approach
to ethical investing, and actively advocates
businesses, both investee and non-investee
companies, to modify their business practices
to align with principles of the Australian
Ethical Charter.
We pursue a unique combination of ethical and
financial objectives when selecting investments,
including containment of investment risk;
achieving a financial return commensurate with
any risk taken; avoiding investment in activities
that are socially or environmentally detrimental,
and, investing in profitable activities that bring
social or environmental benefits.
G4-3, G4-5, G4-9, G4-DMA Product Portfolio
12
Our Company Structure
Audit,
Compliance
& Risk
Committee
Australian Ethical
Investment Ltd
(Responsible Entity)
Wholly-owned
Subsidiary
Australian Ethical
Superannuation Pty Ltd
Investment
Committee
People
Remuneration
& Nominations
Committee
Senior
Management
Team
Ethical
Advisory
Group
Audit,
Compliance
& Risk
Committee
G4-7
Our Business Model
We aim to be a broad based ethical wealth
manager providing investment, superannuation,
and insurance to clients wishing to save and invest
for their retirement, to do so in a positive and
ethical way and to participate in having a positive
impact to create a better world. Through growth,
we will further our purpose by touching more
clients, having a greater voice and having larger
funds under management, and hence, a greater
ability to bring about change.
Individuals
Advisors
Employers
Institutions
Ethics & Financial Wellbeing
Positive Social &
Environmental Impact
Superannuation
Investments
Pensions
1800 021 227 | australianethical.com.au 13
australianethical CLIENTSSERVICES Our product range is designed to make ethical investment an option
for everyone.
Super
For individuals and
employers.
Pensions
Managed Funds
For retirees and
people transitioning
to retirement.
For individuals,
self-managed super
funds and organisations.
Changes to fee structures and products
Fees on all Australian Ethical products are
reviewed regularly against competitors and
internal factors to ensure that we offer value
for money. A number of changes have been
made to our fee structure to make our products
more competitive and to bring them in line with
market best practice. All products now have a
fixed Indirect Cost Ratio (ICR), and, as a result,
investors and members only pay the fee displayed
in the Product Disclosure Statement, with no
additional expense recoveries.
Our Wholesale Smaller Companies Trust and
Larger Companies Trust fees are 0.95% pa, one
of the lowest wholesale fees available for ethical
managed funds, and there are no upfront fees
from direct investment.
To further provide members with better value, from
30 June, 2014, the following changes to fees have
taken place:
• Administration fees on our Superannuation
fund were reduced by 0.61% (from 1.544%
to 0.934%)
• Fees on our MySuper product were
reduced from 2.49% to 1.848% (based on
a $50,000 member).
G4-4
Fixed Interest Trust product launch
Australian Ethical’s Fixed Interest Trust, launched
in December 2013, is the only ethically managed
fixed interest fund available in Australia.
Investments in the Trust are reviewed against our
Charter in the same way as all other funds. The
Trust provides investors with low to medium level
risk exposures in primarily Australian fixed interest
securities, to generate income with some capital
growth potential over the medium to long term.
MySuper
In line with the Government’s introduction of
MySuper products, Australian Ethical Super has
been authorised to offer a MySuper product,
meaning that that we are now one of the
superannuation funds that employers can choose
as a default option in which to pay employee
super. MySuper gives employees access to
default, low cost superannuation that provides
standard product features, such as default
insurance. From 1 January 2014, employers were
obligated to pay Superannuation Guarantee (SG)
contributions to a MySuper product for employees
that have not made an investment choice.
14
Our supply chain
Our memberships
Australian Ethical’s primary supply chain inputs
include various outsourced functions. Within the
tendering process, all new material outsourced
service providers are subject to positive and
negative screening to determine alignment with
the Australian Ethical Charter. During the reporting
year, the primary changes in our major outsourced
service providers were Metlife and bringing in-
house the management of risk and compliance
services, previously performed by Professional
Financial Solutions (PFS).
The downstream impacts of our business are the
ethically screened products and services that
we provide to our investors, of which 99.997%
are screened via our Charter, which include
assessment against labour, environmental, and
human rights performance, amongst others. As at
30th June 2014, we owned $23,784 in unscreened
investments which were held for the purposes of
corporate advocacy. During the reporting year,
Petratherm was the only divestment from our
portfolio. The divestment was due to the potential
negative future impacts of their intention to begin
oil and gas exploration activities in Tasmania.
Australian Ethical actively participates in industry
associations to highlight the importance of
ethical investment, including the Association of
Superannuation funds of Australia (ASFA) and the
Financial Services Council (FSC).
We are active members of the Carbon Disclosure
Project – Climate Change group, the Investor
Group on Climate Change (IGCC)–Australia/
New Zealand, and the United Nations Principles
for Responsible Investment (UNPRI). Australian
Ethical is a founding member of the Responsible
Investment Association of Australasia (RIAA) and
the Association for Sustainable and Responsible
Investment in Asia (ASrIA).
“It is core
to our ethos to care
about all of our stakeholders
(people, planet, shareholders
and clients) and that is the key to
a successful business. We have been
on a journey over the past few years of
steadily improving the competitiveness
and commerciality of our business and
products. Our significant growth over the
past year has allowed us to take another
step toward passing some of those
improvements onto our clients.”
Phil Vernon, Managing
Director & CEO.
Upstream Inputs
Downstream Impacts
Link-administrator of Australian Ethical super fund
National Australia Bank
– custodial services,
banking facilities and lending facilities
Boardroom Pty Ltd
– unit fund and share registry
KPMG – external audit
CAER – ethical consultants
Metlife – insurance to super fund members
Australian Ethical
Group
Investee
Companies
Ethically screened
superannuation,
pensions and managed
funds products
G4-12, G4-15, G4-16, G4-EN32, G4-EN33, G4-LA14, G4HR1, G4-HR10, G4-FS11, G4-S09
Investor/
Member
1800 021 227 | australianethical.com.au 15
australianethical B Corporation certification
Super Fund geographical distribution
2% 4%
9%
New South Wales
Northern Territory
Queensland
33%
33%
South Australia
Tasmania
Victoria
6%
5%
11%
2%
Western Australia
Other
A.C.T.
• Our customer engagement stands at more
than 30% – six times the industry average
• 83% of Funds under Management is from
direct investors.
Managed Fund geographical distribution
1% 1%
4%
6%
7%
12%
31%
New South Wales
32%
A.C.T.
Victoria
Queensland
South Australia
6%
Western Australia
Tasmania
Northern Territory
Unknown Region
During the reporting year, Australian Ethical
became the first publicly listed company in
Australia to achieve B-Corp status (Benefit
Corporation). Certified B Corporations are
certified by the non-profit B Lab to meet
rigorous standards of social and environmental
performance, accountability, and transparency.
We are now part of a growing global movement
dedicated to using the power of business to solve
social and environmental problems. The B Corp
movement aligns with all elements of the
Australian Ethical Charter.
We believe that the movement of money can
make a positive impact in the world, and that the
investment industry in particular has substantial
power which should be channelled in the right
direction. If every company, large or small,
operated in a similar way, many of the world’s
challenges would be solved.
Our client profile
Australian Ethical clients number approximately
17,500 and represent a growing portion of
Australians that want to be certain that their
choice of investment and superannuation funds
will not only make a difference to their own
future, but also takes into account the broader
Number of Ethical
Number of Ethical
environmental and social impacts of businesses
within their portfolio.
Accounts Held
Accounts Held
Number of ethical accounts held
5,515
5,515
17,663
17,663
Superannuation
Superannuation
Managed Funds
Managed Funds
• 24.8% of customers have their money in
both super and managed funds.
G4-8, G4-16, G4-F6
16
What is ethical investment?
Ethical investment takes account of the impacts
of investment choices on the world, as well as
the financial implications of those choices. So
an ethical investor will consider their values and
principles alongside their financial objectives
when investigating potential investments. They will
look at the social and environmental impacts of
companies as well as their financial performance
and prospects. While many ethical funds apply
one or two ethical investment methods, Australian
Ethical adopts three approaches to identify and
encourage positive investments:
• Negative screening – Avoiding investment in
industries which have a negative impact on
society and the environment.
• Positive screening – Proactive search for
investments that contribute positively to
society and the environment.
• Corporate engagement – Dialogue with
companies for the purpose of raising issues
of concern and advocating positive change to
company practices.
Responsible Investment Association Australasia’s
(RIAA) report ‘Responsible Investment Benchmark
Report’ has predicted an increase in public
demand for responsible investments, based upon
a 2.3% increase in the 2013 calendar year.
Average Managed Fund Peformance against Average Ethical Fund
12
10
8
6
4
2
0
Average Fund Return
Average Ethical Fund Return
Australian
Shares
International
Shares
Multi-Sector
Growth
Source: Responsible Investing Association of Australasia, 2014. 10 year per annum returns to 31 December, 2013.
1800 021 227 | australianethical.com.au 17
australianethical Responsible Investment at
Australian Ethical
Responsible Investment at Australian Ethical
OUR ETHICS
Highest ethical standards
supported by the
Australian Ethical Charter
OUR INVESTMENT
APPROACH
Rigorous ethical
assessment, deep
financial analysis
with small cap expertise
OUR IMPACT
Change agent through
advocating for positive
corporate and
industry behaviour
We envisage a world where every decision made
has a positive impact on the global community.
We believe in the transformative power of capital
to achieve a socially just and sustainable future for
all. Australian Ethical’s investments are selected
and managed in alignment with the Australian
Ethical Charter, which provides the screening
process that we use to select companies to invest
in. The Charter provides guidance to us to ensure
that the companies that we choose to invest
in contribute to a just and sustainable society,
protect the natural environment, and provide
a competitive financial return to investors. The
precautionary principle is applied throughout the
assessment of companies in accordance with the
Charter, however, there are differences between
the way we would assess a newer activity like
CSG extraction compared to an older activity
like conventional gas extraction as the newer
activity bears a greater burden of proving that it is
safe. Our new Head of Ethics manages the firm’s
corporate advocacy and engagement, and works
with the Ethical Advisory Group, CAER consultants
and the investment team to ensure that the
Charter is applied transparently and consistently
in a complex, changing world.
Our ethics
• We will always act with integrity and honesty
and maintain the highest ethical standards.
We will never compromise our ethics and will
always act and invest in accordance with the
Australian Ethical Charter
Our investment approach
• At the heart of what we do is a commitment
to the financial wellbeing of our clients and
investors. We believe that aligning ethics and
financial decisions provides competitive long
term returns and improves quality of life for all
Our impact
• We are driven by positive social and
environmental purpose and will be a strong
advocate for corporate and industry behaviour
change. We believe our actions will empower
others to behave in a way that enhances the
wellbeing of everyone on the planet
G4-14, G4-DMA Supplier Environmental Assessment, G4-DMA Supplier Assessment for Labour Practices, G4-DMA Investment,
G4-DMA Supplier Human Rights Assessment, G4-DMA Supplier Assessment for Impacts or Society
18
Australian Ethical Charter
Our Charter uses positive and negative screening and focuses on three broad themes: Sustainable
Growth, Environment, and Social Impact. The majority of Australian Ethical’s portfolios are subject to
regular positive and negative screening based upon its alignment with the Ethical Charter.
Australian Ethical shall seek out investments
which provide for and support:
Australian Ethical shall avoid any investment
which is considered to unnecessarily:
a. the development of workers' participation
in the ownership and control of their work
organisations and places
i. pollute land, air or water
b. the production of high quality and properly
ii. destroy or waste non-recurring resources
presented products and services
c. the development of locally based ventures
iii. extract, create, produce, manufacture, or
market materials, products, goods or services
which have a harmful effect on humans, non-
human animals or the environment
d. the development of appropriate
iv. market, promote or advertise, products or
technological systems
services in a misleading or deceitful manner
e. the amelioration of wasteful or
v. create markets by the promotion or advertising
polluting practices
of unwanted products or services
f.
the development of sustainable land use and
food production
g. the preservation of endangered eco-systems
vi. acquire land or commodities primarily for the
purpose of speculative gain
vii. create, encourage or perpetuate militarism or
engage in the manufacture of armaments
h. activities which contribute to human happiness,
viii. entice people into financial over-commitment
dignity and education
i.
the dignity and wellbeing of non-human animals ix. exploit people through the payment
j.
the efficient use of human waste
of low wages or the provision of poor
working conditions
x. discriminate by way of race, religion or sex
in employment, marketing, or advertising
practices
k. the alleviation of poverty in all its forms
xi. contribute to the inhibition of human
rights generally
l.
the development and preservation of
appropriate human buildings and landscape
Disclosure and Transparency
The issue of disclosure and transparency in
the investment and superannuation industry
is becoming increasingly visible. Investors are
‘ethics savvy’, and question whether their money
is being invested in companies that are truly
aligned with their ethical values, including in the
investee company’s supply chain. A difficulty for
investors, is that although funds currently do not
legally have to disclose which companies they
invest in, they are allowed to label their funds as
‘Ethical’, ‘Responsible’ or ‘Sustainable’ without
putting their funds or business through any official
certification process.
G4-15
Australian Ethical is one of the few fund managers
that voluntarily discloses all investments. We
believe it is important that investors know where
their money is invested and what activities it
is funding.
As with most active managers, Australian Ethical
continually monitors its investments to ensure
that each one will continue to provide superior
and sustainable returns. However, unlike most
managers, we also rigorously monitor and engage
with our investee companies to make sure that
their ethical standards are maintained.
1800 021 227 | australianethical.com.au 19
australianethical Responsible marketing
All of our investment and superannuation
fund products are accompanied by a product
disclosure statement, and any changes to our
products are communicated to our investors
and members. Our Risk & Compliance Manager
develops, implements and monitors compliance
processes which are monitored by the Audit and
Compliance Committee. The Board approves
all new products, including product disclosure
statements. Various aspects of the compliance
system are externally audited and reports are
provided to ASIC and APRA.
Regulations and codes underpinning the
labelling of Australian Ethical products include
the Corporations Act (2001), the Superannuation
Industry (Supervision) Act (1993) and the Financial
Services Council (FSC) Standards.
Australian Ethical is committed to protecting
the privacy of customer’s personal
information in accordance with the Privacy
Act 1988 (Cth). Our Privacy Policy at
www.australianethical.com.au/privacy-policy
details how we collect, hold, use, disclose and
keep customer’s personal information secure.
Our investments
Australian Ethical invests in companies to promote
positive change. The vast majority of companies in
which we invest in have passed a rigorous positive
and negative screening process and directly align
with the Australian Ethical Charter. We understand
that if we were to not undergo this process, we
would not be supporting our client’s desire to
invest their money in ethical businesses, and
our reputation as a leader in ethical investment
would be challenged. For advocacy purposes, we
acquire a nominal holding of shares in companies
that are not screened.
24.1%
23.5%
Investments by sector
30%
25%
20%
15%
10%
5%
0%
5%
0%
0%
C onsu m er Discretionary
C onsu m er Staples
Energy
Financials
H ealth C are
Investments by
Geographical Region
Investments by geographical region
*Note: Australian Ethical does not invest in the Consumer Staples or Energy sectors.
12.6%
11.7%
9.4%
7.3%
Industrials
Inform ation Technology
4.1%
1.9%
M aterials
m unication Services
Property Trusts
Teleco m
0.4%
Utilities
U nlisted E quities
5.9%
5.7%
88.4%
North America
Pacific Rim
Western Europe
Note:
• North America investments are from the United
States and Canada
• Pacific Rim investments are from Australia, Japan,
Malaysia and New Zealand
• Western Europe investments are from Denmark,
Finland, France, Germany, Netherlands, Norway,
Spain, Sweden, Switzerland and the United Kingdom
G4-DMA Product and Service Labelling, G4-PR3, G4-DMA Customer Privacy, G4-DMA Compliance
20
Our ethical investment framework
Our Ethical Investment Framework
Ideas generation
Ethical research
using sources
such as:
Financial
analysis
(cid:127) Look out for market
trends on ethical
companies or sectors
(cid:127) Obtain expert opinion
from industry groups
and academic
institutions
(cid:127) Gauge market reaction
with regards to
government intervention
or support, consumer
preferences and
market barriers.
Ethical research
using sources such as:
(cid:127) the media
(cid:127) government
information
(cid:127) NGO information, and
(cid:127) specialist journals.
Ethical merits assessed
using positive and
negative screening,
as set out by our
Ethical Charter.
Assessment of
investment based on
cash flow, profitability,
balance sheets,
management, products
and markets.
Information used for
analysis are from
sources such as:
(cid:127) company releases
and reports
(cid:127) industry networks
(cid:127) publications
(cid:127) journal articles, and
(cid:127) broker research.
Continue
investment
Continual
monitoring of
investment
Approval of
investment
Divestment
Reviews conducted:
(cid:127) Portfolios and limits
are reviewed by the
Chief Investment
Officer on a regular
basis
(cid:127) Discussions with
companies prior to
and after an event
(cid:127) Head of Ethics
conducts regular
reviews.
Chief Investment Officer
makes a decision
to approve or reject
companies based on
the ethical and financial
analyses.
If approved, an
investment limit is
established for that
company.
Rejection of
investment
1800 021 227 | australianethical.com.au 21
australianethical
Voting for change
Corporate governance and the exercise of
voting rights are an important aspect of any
investment decision process. As a signatory
to the United Nations sponsored Principles for
Responsible Investment (UNPRI) Australian
Ethical is committed to being an ‘active owner’ as
defined by Principle 2: ‘We will be active owners
and incorporate ESG issues into our ownership
policies and practices’, by voting on shareholder
issues and participating in collective engagement
activities. In some cases, we may have the
potential to influence corporate governance
and policy by the exercise of voting rights. The
principle outlines possible actions to achieve
active ownership such as:
• Develop and disclose an active ownership
policy consistent with the Principles
• Exercise voting rights or monitor compliance
with voting policy (if outsourced)
• Develop an engagement capability (either
directly or through outsourcing)
• Participate in the development of policy,
regulation, and standard setting (such as
promoting and protecting shareholder rights)
• File shareholder resolutions consistent with
long-term ESG considerations
• Engage with companies on ESG issues
• Participate in collaborative
engagement initiatives
• Ask investment managers to undertake and
report on ESG-related engagement
We also have an Advocacy Fund that invests in
some companies that are not screened against
the Charter. Our Advocacy Fund aims to invest in
these companies so that we can use our rights
as a shareholder to raise ethical issues and make
a difference.
For the period 1 July 2013 to 30 June 2014 a total of 1,120 resolutions were voted, covering both domestic
and international stocks:
Number
voted for
Number
voted against
Number
abstained
Total
Resolutions
Australian Ethical Smaller
Companies Trust
Australian Ethical Larger
Companies Trust
Australian Ethical
International Equities Trust
Advocacy Fund
Total
Domestic stocks
ASX listed companies
International companies
234
267
510
59
1070
560
510
19
5
23
3
50
27
23
0
0
0
0
0
0
0
254
272
534
62
1122
588
533
Of the 1,120 resolutions voted on across the four
Trusts, 50 were voted ‘Against’ and we did not
‘Abstain’ from voting any resolutions. The negative
votes related to the appointment of directors,
re-election of directors, and remuneration issues
(director fees and the issue of options or shares to
directors and CEOs).
All information regarding our Proxy
Voting activities can be accessed at:
australianethical.com.au/corporate-governance
G4-DMA Active Ownership
22
Who we invest in
Interface
First Solar
Turning plastic pollution
into carpets
Nine thousand kilos of discarded fi
shing nets have been collected for
recycling into carpet tiles by Interface.
This has drastically transformed
littered beaches along the Danajon
Bank in the Philippines and provided
an income for the developing
communities who live there.
Building Australia’s largest Solar
PV Plant
Work has started on the Nyngan Solar
Plant in NSW – the largest of its kind
in the Southern Hemisphere. Once
completed by First Solar (and partner
AGL who we do not invest in), the
plant will produce enough electricity
to power more than 33,000 NSW
homes and to reduce greenhouse gas
pollution by more than 203,000 tonnes
every year.
Stratasys/
Peppermint Energy
Delivering innovative energy
technologies to those who need
it most
Stratasys, have partnered with
Peppermint Energy to help build a
portable solar generator using its
3D Printer technology. The project
provides clean, renewable energy to
the developing world. Described as a
solar plant in a suitcase, the FORTY2
draws enough energy from the sun to
power lights, laptops — even a fridge.
They most recently provided Typhon
Haiyan survivors with solar power
enabling them to transport lifesaving
medicines to rural areas.
Vestas
Universal Biosensors
SunPower
Producing renewable energy
4.5 Billion
Blood-glucose tests conducted by
sufferers of diabetes each year, with
Universal Biosensors self-testing
technology.
In 2013, Vacon’s wind turbine
components helped produce
approximately 22 TWh of renewable
energy, up from 20TWh in 2012. This
corresponds to the annual electricity
consumption of approximately 5 million
households in Europe or approximately
nine hours of the world’s entire annual
electrical energy production according
to IEA estimates.
Providing affordable solar lighting
for sub-Saharan Africa
The ‘Little Sun’ solar lamp, built using
Sunpower’s solar panels is being used
to provide clear, affordable energy to
places currently dependent on costly
and toxic kerosene lighting in sub-
Saharan Africa.
A list of all of Australian Ethical’s investee companies can be found at www.australianethical.com.au/who-we-invest-in
1800 021 227 | australianethical.com.au 23
australianethical Stakeholder Engagement
Underpinning our engagement with internal and external stakeholders is the desire to drive ethical change
and maximise customer value and experience.
Critical to effective stakeholder engagement is our commitment to maintaining our position of leadership
amongst ethical, sustainable and responsible investment managers. With this as a core principle, we can
encourage investee companies to continue to operate in a manner that aligns with the principles of the
Ethical Charter.
Australian Ethical’s key stakeholder groups and the ways that we engaged in FY2014 are:
Stakeholder group
Engagement method
What we heard
Our clients
Superannuation
members and managed
fund investors
Social media, including
Facebook and Twitter
through a combination
of ethical and
financial posts
Our followers care
about environmental
and political issues,
as well as (to a lesser
extent) social justice
issues. They are not as
engaged by financial
literacy issues.
How Australian
Ethical will address
these topics?
One of our aims is
to bring financial
literacy material to the
fore and make super
a more frequently
considered product.
Proactive phone calls
to new joiners and
high balance members
through phone and
email communication
These members are
very positive regarding
our ethics
We will continue regular
communication with
the groups and address
topical issues
Employers (that select
Australian Ethical as
their recommended
superannuation fund)
Financial Advisors
Information sessions
with employer groups
through regular phone
communication and one
on one visits
Phone and face to face
meetings, presentations
from investment team
Creation of
superannuation
fact sheets*
We will continue to
conduct more education
and induction sessions
Employees of these
groups want to know
more about what their
super is supporting
Whilst there is growing
public demand for
ethical investment
products, more
education is required
for advisers to fully
understand the benefits
of these products
We will continue to
educate on a one on
one basis and secure
places at adviser
personal development
days to gain greater
traction
Our world
Companies that we
invest in
Email/phone call/
meeting as part of an
annual review or review
of company changes
as part of ongoing
monitoring with a key
focus this year on
animal welfare
Some companies
respond accordingly,
whereas others do not
Australian Ethical will
continue to proactively
review and follow up
with investee companies
regarding alignment with
topics in the Australian
Ethical Charter
24
Stakeholder group
Engagement method
What we heard
Our shareholders
Shareholders
Annual General Meeting Deliver strong financial
return that also has
a positive social and
environmental impact
across all activities
Our people
Australian Ethical
employees
Employee survey,
face to face business
updates from the
Managing Director,
written updates from
the Managing Director,
lunch time business
series sessions and
team building days
Positive response to
business sessions and
regular communications.
Positive feedback in
employee survey on
some areas of the
business, and room for
improvement identified
in other areas.
*Identified as a target in FY2013, but not achieved during the reporting year
How Australian
Ethical will address
these topics?
We will continue to
deliver strong financial
returns through our
ethical investments
and increasing our
client base
We will run employee
focus groups and
engage employees
to contribute to how
we can address
areas identified for
improvement.
G4-24, G4-25, G4-26, G4-27
1800 021 227 | australianethical.com.au 25
australianethical Driving Ethical Change
Australian Ethical communicates with both
investee and non-investee companies. Every
investment or potential investment is subject to
regular monitoring and review to ensure ongoing
compliance with the Australian Ethical Charter,
which defines the characteristics of the investment
universe for managed funds.
There are three stages to our engagement process
with investee and non-investee companies:
• Enquiry – occurs as an annual review or
a review of company changes as part of
ongoing monitoring. The objective is to review
a list of questions that test alignment with
the Australian Ethical Charter, based upon a
regular check and any other news that has
come to light
• Engagement – occurs when there might
be cause for concern that one or more of
the elements of the Charter are not being
addressed. The objective is to explore
identified areas of non-alignment or potential
non-alignment with the Charter
• Advocacy – involves addressing the issues
that do not align with an element/s of the
Charter. The objective is to encourage the
investee or non-investee company to modify
their business practices to achieve alignment
with the Charter.
The engagement process is shaped by our
Industry Sector Frameworks, and our Charter
Issues Frameworks, which have been developed
to assist us in the efficient and consistent
interpretation of the Australian Ethical Charter.
Industry Sector Framework – Overview
Industry sector frameworks
Focus on positive,
few negatives
Strong
positive
Company report
– makes a recommendation
Company report
– makes a recommendation
Mild
positive
Note company and
nature of activities
Yes
Examine nature of business.
Where relevant, apply Charter Issues Framework
Ideas
generation
Matrix/Research
identifies
Charter
positives?
Industry Sector Frameworks
determine whether or not companies
within that sector are likely to meet
the objectives of the Charter
No
Matrix and/or research
identifies serious
negatives or absence
of Charter positives
Avoid/
Neutral
The Charter Issues frameworks considers
elements of the Charter that are applied to a range
of different sectors. We currently have issues
frameworks that address:
• Animal testing
• Human rights
• Military issues and
• Genetically modified organisms.
26
In the next reporting year, we will finalise our
formal review and updating of industry frameworks
for the following sectors:
•
Information technology ad
• Telecommunications.
• Consumer discretionary
• Consumer staples
• Energy and energy utilities
• Financials
•
Industrials
We will also review elements of the
Charter Principles.
During the reporting year, Australian Ethical
undertook 17 new engagements, 11 (65%) with
investee companies, and six (35%) engagements
with non-investee companies.
Engagements covered by the environmental and social parameters of the Charter:
Environmental
Social
Harm to animals and the environment
Poor working practices
Amelioration of wasteful and polluting practices
Supply chain
Manufacture of armaments
Encouragement of militarism
Harm to humans
Market in a misleading way
Human rights
We also undertook engagements with investee
and non-investee companies on various issues
including military involvement and sustainable
land use and food production. As an example of
the depth of conversation around these topics,
company engagements on military issues included
determining which products were specially made
for the military, their military applications, and
the revenue generated from sales to the military.
Engagements on poor working conditions
included talking to companies about safety and
the steps they have taken to improve the safety of
employees and contractors.
G4-FS10, G4-FS11
1800 021 227 | australianethical.com.au 27
australianethical Case study: Innate Immunotherapeutics
Australian Ethical supports investment in companies involved in healthcare. Investing in biotech
supports our ethical philosophy as the emerging therapies we take an interest in are for the
treatment of serious conditions with few medical options available. The biotech sector lends itself
to meeting multiple aspects of our Australian Ethical Charter, such as ‘activities which contribute to
happiness, dignity and education’.
Innate Immunotherapeutics is developing a drug to treat Secondary Progressive Multiple Sclerosis.
Early clinical data suggests the drug may reverse some of the disabilities that patients have recently
acquired. Given that multiple sclerosis effects between two and two and a half million people
worldwide, and causes significant visual, motor and sensory problems, a drug to alleviate suffering
caused by the disease which currently has no cure, could be significant.
While there is a natural attraction to the healthcare sector for the ethical investor, there are also
issues that need to be considered when looking at potential investments. There are clearly some
activities which are going to have greater attractions than others – these are generally characterised
by the number of people who are benefited by the activity, the degree of suffering that is relieved by
the activity, and whether or not the company has a direct or an indirect involvement in the provision
of the service. These are the positive screens.
Australian Ethical’s screening process
Before Australian Ethical could commit to investing in the company, a series of negative screens
was also applied. The company is exposed to ethical concerns as it has engaged in animal
testing as part of its product development. The company also has a joint venture in the bio-
defence industry which is currently dormant and not generating any revenue. With the application
of our Healthcare Sector and Animal Testing frameworks, Australian Ethical rated Innate
Immunotherapeutics as follows:
• Strong positive for the provision of treatments for multiple sclerosis (ethical adjustment lifted)
• Mild negative for testing on mice specifically bred to have characteristics of multiple sclerosis
(ethical adjustment reduced)
• No ethical adjustment for the joint venture as it is currently dormant.
Relevant positive Charter element:
(h) Activities which contribute to human happiness, dignity and education.
Relevant negative Charter elements
(iii) Extract, create, produce, manufacture, or market materials, products, goods or services which
have a harmful effect on humans, non-human animals or the environment
(vii) Create, encourage or perpetuate militarism or engage in the manufacture of armaments
Application of the Animal Testing Framework
The Australian Ethical Charter calls on us to consider investment in companies that support human
happiness and dignity, and as a result the provision of healthcare and the development of new
medical treatments are considered to be positive activities. This is set out in the Healthcare Sector
Framework. In some instances, however, companies developing medical treatments are found to be
conducting research which is harmful to animals. This creates a conflict, as tenet (iii) of the Charter
states that Australian Ethical shall avoid companies which have a harmful effect on humans, non-
human animals or the environment.
28
Case study (cont.)
The Animal Testing Framework has been developed to assist Australian Ethical resolve this conflict.
It is designed to ensure that companies that are involved in medical research and perform tests
using animals are assessed in a clear and consistent manner. The key concept that is taken
from the Charter and used when resolving the ethical conflict presented by animal testing is that
of ‘necessity’. There is not an absolute prohibition on animal testing – rather a commitment to
avoid it if it is cruel and unnecessary. If animal testing is required as part of the development of a
treatment for a serious medical condition, then this may be seen as ‘necessary’ harm and therefore
acceptable under the Charter.
Animal Testing Framework
Industry Sector Framework – Overview
How cruel
is the testing?
Mild
Moderate
Mild
negative
Strong
negative
Severe
Avoid
Initial research shows
evidence of animal testing
Yes
Testing for healthcare products
Animal
Testing
Is the
testing
necessary?
No
(cid:127) Non-essential testing eg. cosmetics
(cid:127) Testing when viable alternatives exist
Avoid/
Neutral
1800 021 227 | australianethical.com.au 29
australianethical Sustainability impacts –
getting involved
Australian Ethical is an active participant in a
global community of ‘active owners’ – retail and
institutional shareholders that actively engage
with companies in order to improve their social,
environmental or governance behaviour. As ethical
and responsible investors we want global capital
to behave in a way that is positive for investors,
society and the planet.
We do this at a company specific level as part of our
investment activities to ensure the companies that
we invest in continue to meet the ethical standards
we expect to warrant our continued participation.
Most critically though, collective action is where
the true power of the investment markets can
have the most influence particularly in areas
of monumental systemic risk such as climate
change. Having numerous individual investors all
interacting with individual companies in different
ways with different messages can have an
impact, but doesn’t cause in some cases shifts in
behaviour needed.
Campaigns
In addition to regular stakeholder engagement
with investee and non-investee companies,
Australian Ethical acts as an advocate for ethical
issues driven campaigns.
Bank Disclosure on Climate Change and
Carbon risk in Lending
As an investor in some Australian banks,
Australian Ethical looks for opportunities to
influence bank decision making so that it is
more aligned with the social and environmental
principles of the Australian Ethical Charter.
Significant effort was put into disclosure from the
‘big four’ Australian banks during the reporting
year regarding their climate change and carbon
risk impacts in lending activities. A current focus
for us is the role of the four major banks in funding
coal projects and infrastructure.
Our recent work includes putting specific fossil
fuel and renewables information requests to each
of the four major banks, and meeting with each of
them to explain the rationale for the requests and
to gain insight into their thinking on these issues.
Stakeholder engagement occurred with the
banks, Australian Ethical members, NGOs, RIAA,
and investors.
A range of environmental groups are also
pressuring international and Australian banks to
specifically rule out funding of expansion of the
Abbot Point coal port near the Great Barrier Reef
because of reef and climate impacts.
We are strong supporters of these initiatives,
believing that a diversity of approaches and
perspectives is needed to bring about change.
We scrutinise not only individual lending decisions,
we also look at the policies which govern those
decisions. Most importantly, we want to know how
the bank is putting those policies into practice in
day to day decision making throughout the bank.
We want to see how banks ensure that social
and environmental impacts are properly analysed
and taken into account before a decision is
made to allocate capital. How, for example, does
the bank assess and take account of risks and
opportunities associated with climate change, for
itself, for the companies it lends to, and for the
society it operates in? How does it avoid a culture
of unthinking, business as usual lending and
investment decision making? How does it disclose
its level of lending to different industry sectors –
such as coal and renewables?
This type of bank analysis and questioning
requires detailed and ongoing engagement with
the banks. It also requires us to consult with
other investors, including mainstream institutional
superannuation funds, to exchange perspectives
and to seek to leverage the influence which their
massive shareholdings give them.
We received responses to our initial request from
some of the banks and those responses varied.
We continue to work on this issue with retail and
institutional investors and investor groups to
garner joint support for a revised request.
At the same time, we are keeping communication
channels open with the banks to craft a solution
which meets both investor needs and which can
be practically implemented by the banks in their
reporting this year.
30
Other work with banks
Our interest in the banks extends beyond climate
impacts. A recent report by Oxfam highlighted
the links between the major Australian banks
and companies involved in ‘land grabs’ in
countries such as Papua New Guinea and Brazil.
Oxfam describes ‘land grabs’ as large-scale
land acquisitions which violate human rights,
are undertaken without free, prior and informed
consent or which involve other unacceptable
practices. We consulted with Oxfam and Westpac
(the one major bank which we do currently invest
in) both before and after the report’s release, and
spoke in the media about the issues raised from
the perspective of an ethical investor. We continue
to monitor Westpac’s investigation of and
response both to the specific cases raised as well
as to the more general recommendations made by
Oxfam about the way banks can lend responsibly
in important but sensitive agricultural sectors.
Collaborating with others
The following are some initiatives in which
Australian Ethical is participating or driving, where
the collective power of the investment community
is having an impact and working toward change.
Unconventional Gas Working Group
(Principles of Responsible Investment) (PRI)
Whilst we don’t invest in coal seam gas (CSG)
extraction, we are active participants in a
working group focused on assessing best
practice principles in the coal seam gas sector
and engaging with listed Australian companies
operating in the sector regarding their CSG
operational practices and risk management.
A collaborative engagement between investors to
encourage improvement in standards by the gas
industry is intended for late 2014.
Carbon Asset Risk Initiative (through Ceres)
Over the past year there has been an initiative
arranged by Ceres, a US not for profit that
mobilises investors in collaborative actions against
companies. This is co-ordinated in Australia
through the Investor Group on Climate Change.
The initiative involves 70 of the world’s institutional
investors (Australian Ethical is participating)
representing US$3 trillion in assets requesting
the world’s 45 largest oil and gas companies to
assess and report to shareholders the viability
of their capital expenditure plans in the face of
risks associated with climate change and what
options they have for addressing them, including,
divestment and diversifying their businesses into
low carbon energy sources.
Collective groups
We are also involved in various industry groups
and professional bodies where we facilitate
collective action where needed.
Responsible Investment Association
Australia (RIAA)
The Responsible Investment Association
represents the interests of responsible and ethical
investors in Australia. It has recently established
an Engagement Working Group, currently chaired
by Australian Ethical, a forum focused on bringing
together members interested in collaborating on
making the corporate engagement process more
effective. These members include a broad cross
section of the investment community including
retail investors, advisers, proxy advisers, not for
profits and institutional investors. As part of the
Engagement Working Group, we contributed to
a RIAA submission to the Governance Institute
regarding their draft ‘Guidelines on Engagement’.
Guidelines of this type can help build recognition
of investors’ responsibilities including taking
account of the impacts of their investment.
Such guidelines can also raise the effectiveness
of engagement between companies and
their shareholders.
United Nations Principles of Responsible
Investment (UNPRI)
The UNPRI is an investor-led coalition, in
partnership with the United Nations Environmental
Programme Finance Initiative (UNEP-FI), and
the United Nations Global Compact, designed
to further the aims of responsible investment
amongst the global investment community.
The six principles include a commitment to ‘active
ownership’. The UNPRI supports its members
with a clearing house website that allows
investors to share information on engagements
against companies and collaborate to make the
engagement more effective.
G4-15
1800 021 227 | australianethical.com.au 31
australianethical The Global Investor Coalition on
Climate Change
The Global Investor Coalition on Climate
Change represents 84 institutional investment
organisations globally with $US14 trillion under
management and operates in Australia through
the Investor Group for Climate Change. The group
allows a sharing of information, coordination
of advocacy initiatives and establishment
of standards.
Greenhouse Gas Protocol/UNEP FI
Financial Sector Technical Working Group 1
(Companies and projects)
We are participating in these Technical Working
Groups convened by the GHG Protocol and UNEP
FI to develop mandatory and optional guidelines
for the calculation and reporting of Scope 3
emissions of financial institutions in respect of
their lending and investment activities.
Future Economy Group
The Future Economy Group is a coalition of
business and environmental leaders who are
working together to research and advocate the
importance of innovation and natural capital to
Victoria’s economy. Australian Ethical CEO Phil
Vernon, has been involved in the group participate
in an initiative to raise awareness of the economic
benefits of investing in natural capital.
A report commissioned by the group ‘Bringing
Victoria’s Economy into the 21st Century’
outlines ideas, that, if adopted would provide
resilience and improve the performance of
Victoria’s economy and its natural environment.
The research underpinning the report is
transferrable to other Australian state economies
and environments.
Engaging with policymakers
At a corporate level we are also very active when
it comes to engaging with legislators at a State
and Federal Government level:
Submission to Government opposing the
repeal of the Australian Charities and Not for
Profits Commission Bill 2014 (May 2014)
We strongly oppose the repeal of the Australian
Charities and Not for Profits Commission (ACNC).
The Federal Government proposed that the
ACNC is replaced by a Centre of Excellence,
and that regulation of Australian charities would
return to the Australian Securities and Investment
Commission (ASIC) and the Australian Taxation
Office (ATO). The ACNC is a fit for purpose
regulator that has achieved many of its objectives
in the short time since its inception. We believe
that the ATO has a conflict of interest in managing
the charities and is not best equipped to do this
given the specialist nature of charity regulation.
Submission to Government with respect to
the Emissions Reduction Fund and Direct
Action on Climate Change (February 2014)
Whilst we welcome any action on climate
change, we do not believe that the Government's
Emissions Reduction Fund will be adequate.
Indeed, we believe it will even fall short in
achieving Australia's five per cent emissions
reduction target. In addition, we strongly oppose
the repeal of the carbon price.
Submission to Government opposing
the repeal of the Carbon Price legislation
(October 2013)
We strongly oppose the repeal of the carbon price.
We also created a form that anyone could use, to
make their own submission. We raised awareness
via social media and over 700 people made
a submission.
Submission to NSW Environmental
Protection Agency regarding the burning of
native forest waste to generate electricity
(August 2013)
We strongly oppose the proposed amendments to
current NSW laws to allow the burning of logging
waste from native forests to generate electricity.
G4-15
32
Corporate advocacy
Lend Lease
As long term investors in Lend Lease, we were
disappointed when they were considering a
contract in relation to the Abbott Point coal
terminal in the Great Barrier Reef. Together
with other activist organisations, we advocated
strongly against their involvement, and, in 2014,
they announced they would not proceed.
Petratherm
Another long term investee company, Petratherm
had been working on the development of
geothermal energy technologies. We divested the
company from our portfolio when they announced
that they would conduct oil and gas exploration
in Tasmania.
Australian Ethical is a strong advocate for
businesses to improve their positive and reduce
their negative social and environmental impacts,
no matter whether they are investee companies or
non-investee companies.
Supporting the Santos shareholder
resolution
We supported the shareholder resolution for
Santos to divest its investment in the Narrabri
coal seam gas project. Santos is an example of
a company which Australian Ethical’s Advocacy
Fund invests in to support engagement that aims
to reduce negative impacts of their business
activities. Advocacy groups The Wilderness
Society and Getup prepared the resolution and
marshalled support from over 150 shareholders
to have the resolution included on the agenda for
Santos’ AGM.
The main focus of our concerns was the risk
that the CSG sector as a whole poses to critical
Australian groundwater supplies. We believe that
more data collection, openness and analysis are
needed on this and other potential impacts of CSG
practices to make informed decisions about the
growth and regulation of the industry.
1800 021 227 | australianethical.com.au 33
australianethical Understanding the Carbon
Footprint of our Portfolios
In order to understand more clearly the
environmental impact of Australian Ethical’s
portfolios and how they perform against their
benchmark market indices as well as other
Australian equity portfolios of superannuation
funds, we engaged with TruCost, a company that
specialises in calculating environmental impacts
across an organisation’s interests.
We asked them to calculate the carbon footprint
of the Australian Ethical Superannuation Balanced
Accumulation option and the Australian Ethical
Smaller Companies Trust. This research supports
the theme of ‘environment’ under the Australian
Ethical Charter, and provides an insight into how
climate change may play a part in how we allocate
our future investments.
An initial study ‘Carbon Counts 2011, The
Carbon Footprints of Australian Superannuation
Investment Managers’ was conducted by
TruCost in 2011 on behalf of the super industry
and analysed the carbon footprint of 88 equity
portfolios. To normalise the data for our study,
TruCost extrapolated the 2011 results to
December 2013 to provide an indication of an
approximate carbon footprint of these portfolios
for comparison purposes.
The carbon footprint of both Australian Ethical
portfolios fell at the lowest end of the range,
ranking as 2nd and 3rd smallest out of the 90
portfolios analysed (for the Smaller Companies
Trust and Balanced Accumulation respectively).
The carbon footprint of the ASX 200 was 276
tCO2e/A$m which was slightly higher than the
2013 sample’s mean carbon footprint of 263
tCO2 A$m.
The chart below illustrates the comparison
between our Balanced Accumulation option
and major market indices including the ASX200
(noted below as Benchmark). The average carbon
footprint of the 2011 study, extrapolated to 2013,
was 263 tCO2/A$m.
The findings show that our portfolios are over 70% less carbon
intensive than our average peer and the market.
Australian Ethical Superannuation Balanced Accumulation*
Australian Ethical Smaller Companies Trust
ASX200
Total Footprint
(tCO2e/A$mn)
75.60
68.31
276.03
*
AES Balanced Accumulation includes only domestic equity holdings held in the ASX200 to allow direct comparison with the
extrapolated 2011 study mentioned above.
G4-EC2
34
Working at Australian Ethical
Australian Ethical is an equal opportunity
employer with a talent management strategy that
is designed to attract, develop and retain talented
employees by providing an environment that
encourages employees to contribute and develop
in a way that makes the world a better place and
one that reflects the Australian Ethical Charter.
Throughout the reporting year, we have focused
our efforts in the following areas:
• A focus on communication involving consulting
with employees on the ‘how’ and ‘what’
• Growing leadership capability in developing
and sustaining a values based culture
• Enabling a learning and development
environment aligned to employee strengths
and sense of purpose
• Cultivating a collaborative team environment as
we integrate new hires, and
• A focus on creating a performance based
culture that is supported by equal opportunity
and diversity measures.
The selection of these key areas reflects
the outcomes of an employee engagement
survey undertaken in the last reporting year.
The underpinning activities in these focus areas
have made the Australian Ethical team cohesive
during the transitioning of many functions
from our Canberra office to the Sydney office.
Where redundancies occurred, employees
were offered independent outplacement career
coaching services which included sessions on:
•
Identifying career values, motivations,
transferable skills and development options
• Understanding best career fit
• Career planning and goal setting
• Effective job search strategies
• Development of a targeted resume
•
Interview preparation and performance skills
• Creating an effective digital profile.
Communication through
Collaboration
New methods of company-wide communication
were introduced in the reporting year, with a
new lunchtime business series, involving each
functional area presenting on their strategy, team
goals and objectives, and the interrelated nature
of their work with other departments. While this
activity was designed for all employees, it was
particularly relevant to new hires as they were able
to establish an understanding of all areas of the
business. There were a number of departmental
teambuilding off site activities with a focus on
team dynamics and building high performance
team cultures. Organisation wide team building
events were put in place in the spirit of building
greater collaboration in our workplace.
With the significant number of new hires to
the business (48%), a planned integration
and induction program was put in place
for each employee. Our induction program
ensures each new hire is supported in their
learning and development process during the
probationary period.
Growing leadership capability
A key hire to the management team this year
was the Head of Ethics appointment – Dr Stuart
Palmer. Stuart is a leading expert in business
ethics, with over 20 years’ experience in the
financial, investment and legal sectors. Prior to
joining Australian Ethical, Stuart was Head of
Ethics Services at St James Ethics Centre.
A focus area for the next reporting year is to revisit
Australian Ethical’s company purpose, values
and vision. All employees will be involved and we
aim to achieve greater alignment of our passion,
our purpose and create further ethical leadership
capabilities in our people.
G4-DMA Employment, G4-LA10
1800 021 227 | australianethical.com.au 35
australianethical Training and Education
We are committed to the training, education and
development of all our employees. Australian
Ethical recognises that appropriate continual
learning can contribute to the quality and
competence of employees, and, in turn, increase
the productivity and success of our company.
Our learning and development initiatives
cover a wide range of learning interventions
including: on the job coaching and mentoring,
management skills coaching, formal training
programs, association updates, conferences
and memberships and employee training to meet
regulatory obligations.
Training and education policies include a
subsidised employee personal development
program, an individual training budget including a
Responsible Investment Association Australasia
(RIAA) training budget and an employee study
assistance program. Both financial assistance and
help with working arrangements may be provided
to assist employees to balance the demands of
work and further studies.
Performance reviews
and remuneration
Australian Ethical’s remuneration policy is
designed to create a motivating and engaging
environment for employees where they feel
appropriately paid and incentivised for the
contribution they make to the performance of
the company.
Employees are set Key Performance Indicators
(KPIs) each year, selected to reflect critical
success factors to Australian Ethical. Employees
receive regular feedback on their performance
and associated KPIs both formally and informally.
Formal performance and career development
reviews take place twice yearly as an interim
and end of year performance review discussion,
and informal discussions take place in regular
interactions between teams and managers.
All permanent employees of Australian Ethical are
included in our Performance Management system.
As part of our employment offering we regularly
review our remuneration and benefits offering
to ensure we are equitable in our offering to
all employees.
We reference best practice in this area and
benchmark our remuneration and benefits
externally. Our employee value proposition
positions us as an attractive employer in a culture
that is shaped based on our vision, values and
purpose. Our benefit offering is reviewed regularly
and is shaped around the needs of our employee
demographic and employee input.
The principles underpinning our performance
management and remuneration frameworks are:
• Promote the value of the charter
• Attract and retain talented people
• Align shareholder interests and the company’s
capacity to pay
• Pay people fairly for the work that they do
• Build long term ownership in the company
amongst employees
• Reward people according to their contribution
to the company’s performance
Further information about Australian Ethical's
remuneration policy and structure can be found in
our Remuneration Report (pp. 54-65)
Diversity & equal opportunity
Australian Ethical conducts all activities in a
non-discriminatory manner with regard to race,
gender, marital status, pregnancy, religion,
impairment, political persuasion, or sexual
preference, or any reason given under State and
Federal EEO legislation. In addition to providing
an environment of equal employment opportunity
for all employees, Australian Ethical maintains
and actively supports an Equal Employment
Opportunity for Women in the Workplace
program. This initiative is aimed at identifying and
eliminating any sources or potential sources of
discrimination against women in their employment
and works in accordance with the requirements of
the Federal Equal Opportunity for Women in the
Workplace Act (1999).
The program is focused on employment
matters including:
• Recruitment and selection
• Promotion, transfer and termination
• Training and development
• Conditions of service
G4-DMA Training and Education, G4-LA11, G4-HR3, G4-DMA Diversity and Equal Opportunity,
G4-DMA Equal Remuneration for Women and Men, G4-DMA Non-discrimination
36
• Work organisation, and
• Arrangements for dealing with pregnant and
potentially pregnant employees and employees
who are breastfeeding.
We also consider that diversity in our workplace
encompasses the ways people differ in terms
of education, life experience, job function,
work experience, personality, location, marital
status and carer responsibilities, and these
elements have shaped diversity management at
Australian Ethical.
Our Board has established measurable objectives
for achieving gender diversity in management and
undertakes a review of progress against these
objectives annually.
Australian Ethical does not tolerate any form
of discrimination and complies with all anti-
discrimination and EEO laws. All managers and
employees are responsible for maintaining the
highest equal opportunity and non-discriminatory
practices in their work activities and behaviours.
There were no incidents of discrimination in the
reporting year.
Our talent management strategy is focused on
merit based appointments evidenced through our
practice in recruiting the best person suitable for
the role, regardless of diversity indicators.
A continuous focus for this reporting period was to
work towards achieving our gender and diversity
targets, particularly in the area of increasing
female representation in the workplace, and we
continue to focus on attracting and developing
female talent in the organisation. We have
achieved mixed results in this area.
While we have already surpassed our FY16 gender
diversity target of 25% female membership of
the Board (achieving 40%), our FY13 and FY16
target of having a 25% and 40% representation
of women in management roles, has not
been achieved.
Although our focus on equal opportunity
focuses on many aspects, our policy is to
base remuneration on merit, not gender as this
would be a discriminatory practice. However,
pay equality between women and men varies,
with female employees on average paid 88%
of the male salary, primarily due to women
being under represented in the management
employee category.
Labour and management
relations
Australian Ethical’s management team strives
to consult with all employees during change
initiatives. All employees are notified of operational
changes via the Managing Director or their direct
manager as soon as is reasonably practicable
from a business perspective. As a small
organisation in an open plan work environment,
our management approach is to consult with
employees around changes that impact them
and the business. An employee representative is
elected by employees every two years. Employees
are free to discuss any issues surrounding their
employment with their employee representative
who has the option to discuss these issues with
management and escalate to the Board if required.
Grievance mechanisms
Australian Ethical is committed to promoting
a healthy and productive work environment.
We recognise that this is a critical factor to
ensure that employees feel that their opinions
matter. The company’s grievance procedure is
an important tool to help us achieve this goal.
Employees are encouraged to proactively manage
legitimate concerns, issues or complaints,
regardless of their nature of severity, in accordance
with the grievance procedure. There were no
grievances reported during the year.
Employee benefits
Our employee benefits form an integral part of
our remuneration package, and the employee
value proposition that we offer to all employees in
promoting and developing best practice reward
and benefits programs. The purpose of offering
employee benefits is to ensure we align our
reward policies with our business performance
and standards.
All benefits offered to permanent employees are
offered to permanent part time employees on
a pro-rata basis. Some of our benefits include
employee personal development program,
employee assistance program, flu vaccination,
and study assistance, long service leave after
five years, flexible working arrangements and
three additional annual leave days at Christmas.
Fixed term contractors have access to all leave
accrual entitlements.
G4-HR3, G4-LA2, G4-LA4, G4-DMA-Labour Management and Relations, G4-DMA Labour Practices Grievance Mechanisms, G4-LA16
1800 021 227 | australianethical.com.au 37
australianethical Employee Engagement
To address these areas for improvement, we
plan to:
• Highlight employee opportunities with a view to
career pathing and development opportunities
•
Identify training and coaching initiatives to
enable employees to manage their career in a
meaningful way
• Rollout, educate and communicate to all
employees around our proposed remuneration
policy. The proposed changes will strengthen
and simplify the alignment of the remuneration
framework to the business purpose
and strategy
• Realign employee benefit offerings to
market practice and the diverse needs of
our employees
• Maximise employee engagement and
motivation at work by consulting with
employees around organisational
communication initiative and measures in `how`
we can improve communication
• Engage in project management systems
to scope projects, timelines, resources,
communication and post implementation
review of change initiatives.
Engagement Score:
• Australian Ethical Overall 2014/15 (78%)
• Aon Hewitt Best Employers 2014 (82%)
In accordance with the Australian Ethical Charter,
we aim to provide a place to work that is fulfilling
and rewarding for our employees. Our Constitution
(Clause 2.1a) states that Australian Ethical must
seek to promote ‘the development of workers’
participation in the ownership and control of their
work organisations and places’.
This year, we have moved from an employee
engagement survey conducted internally, to
an externally run best practice survey with
consulting firm Aon Hewitt. This year’s survey has
benchmarked Australian Ethical against the best
employers in Australia and New Zealand and has
placed us in the top quartile.
Employee responses told us that Australian
Ethical provides:
• A meaningful organisational strategy, goals
and objectives
• A diverse and respectful working environment
• Supportive leadership and management.
Employees also feel:
• A commitment to working for a social and
responsible organisation
• A sense of accomplishment and pride in
working for Australian Ethical.
Regardless of these relatively positive results,
some survey areas revealed that employees
feel that there could be improvement in the
following areas:
• Career development and opportunities
• Performance and rewards
• Managing organisational change initiatives
• Organisational communication.
Engagement Behaviours
Say
Stay
Strive
Given the opportunity, I tell others the great things about
working here
I would not hesitate to recommend this organisation to a
friend seeking employment
It would take a lot to get me to leave this organisation
I rarely think about leaving this organisation to work
somewhere else
This organisation inspires me to do my best work
every day
This organisation motivates me to contribute more than
is normally required to complete my work
Australian
Ethical Overall
2014/15
81%
Aon Hewitt
Best Employers
2014
86%
77%
67%
67%
78%
63%
87%
75%
72%
83%
79%
38
Key Facts about our People
Total
employees
= 29
Total FTE
= 27.64
Total employees by region
20
6
25
20
15
10
5
0
2
1
Male
Female
Sydney
Canberra
• 76% of employees are male
• 24% of employees are female
Total number of employees by
employment contract and gender
25
20
15
10
5
0
20
6
2
1
1
0
Permanent
Permanent
Part-time
Fixed term
contract
Male
Female
Employees by employment type
12
10
8
6
4
2
0
11
2
7
0
5
4
Male
Female
Professional
Management
Support
Total employees by age
20
18
16
14
12
10
8
6
4
2
0
18
7
4
<30
30-50
>50
• 24% of employees are under 30 years of age
• 62% of employees are between 30-50 years of age
• 14% of employees are over 50 years of age
Australian Ethical Investment
board members – age and gender
diversity
5
4
3
2
1
0
3
1
1
0
0
<30
0
30-50
>50
Male
Female
Australian Ethical
Superannuation Pty Ltd
board members – age and
gender diversity
3
2
1
0
0
0
<30
0
0
30-50
3
1
>50
Male
Female
G4-9, G4-10, G4-LA12
1800 021 227 | australianethical.com.au 39
australianethical Age range of new hires
Employee turnover by age
10
9
8
7
6
5
4
3
2
1
0
7
6
0
<30
30-50
0
1
>50
Male
Female
New Hire Statistics
• Male: 43%
• Female: 57%
• <30 yrs.: 43%
• 30-50 yrs.: 50%
• >50 yrs.: 7%
• All new hires were employed
in Sydney
Employee turnover by gender
8
7
6
5
4
3
2
1
0
7
3
4
3
2
1
Male
Female
Involuntary
End of Contract
Resignation
Notes:
• Australian Ethical experienced a turnover rate of 48.27%
• 100% of involuntary turnover from Canberra was due to
the centralising of activities to Sydney: 70% male, and
30% female
• Two contracts expired in Sydney and one in Canberra: 66.6%
male, and 33.3% female
• Three resignations occurred in Sydney and one in Canberra:
25% male and 75% female.
8
7
5
4
3
1
0
3
2
1
<30
5
4
1
0
30-50
0
0
>50
Involuntary
End of contract
Resignation
Average training hours per
employee by gender and
employee category
100
90
80
70
60
50
40
30
20
10
0
93
48.1
33.75
20.25 19.3
0
Male
Female
Professional
Management
Support
Ratio of basic salary and
remuneration of women to men
by employee category:
2010-11 2011-12 2012-13 2013-14
Management
0.59:1
0.65:1
0.68:1
0.63:1
Professional
0.87:1
0.64:1
0.61:1
0.66:1
Support
0.92:1
0.87:1
1.02:1
1.66:1
Organisational ethics and integrity
The Australian Ethical Code of Conduct applies
to all employees, contractors and directors of
Australian Ethical. The Code sets out principles
to guide decisions and behaviour, rather than
prescribing detailed dos and don’ts. The Code
deals with expectations for both internal conduct
(e.g. around equal opportunity) and external
conduct (e.g. around fair competition).
G4-9, G4-10, G4-LA1, G4-LA9, G4-LA12, G4-LA13
Australian Ethical has an open culture where
people are encouraged to raise concerns and ask
questions about any incidents or practices they
encounter. Management are available to discuss
the activities of the company at a day to day or
strategic level.
40
An employee representative is available for
consultation and representation with and on behalf
of employees. Employees are also able to access
the St James Ethics Centre Ethi-call service, a free
and confidential service which provides guidance
to work through ethical choices and dilemmas.
Australian Ethical operates in a highly regulated
environment and has a number of formal internal
and external reporting systems. For example, we
use ‘Tickit’ risk and compliance software, which
allows online incident reporting by employees.
More generally, our open, ‘speak up’ culture
is nurtured to encourage prompt and candid
conversations and raising of concerns.
External enquiries, concerns and complaints may
be communicated to us by phone, email, online,
social media or letter. Complaints are recorded
in a complaints register and dealt with within
designated time frames by experienced and
qualified people. A complainant who is dissatisfied
with our response may raise their complaint
with the Superannuation Complaints Tribunal
(superannuation) and Financial Ombudsman
Service (financial services).
Impact Committee
Australian Ethical’s Impact Committee had its
genesis in a Sustainability Committee which was
set up many years ago with the primary purpose
of adopting green office practices.
The purpose of the Impact Committee is to:
1. Promote the Australian Ethical Charter, the
Purpose and Values of Australian Ethical to
all stakeholders
2. Review and make recommendations to
management regarding sustainability
issues, procurement policies, community
grants and community relations, and our
physical environment
3. Set sustainability KPIs for company activities
and engage employees on and promote
sustainable behaviours and activities,
including volunteering.
Volunteering and sponsorships
As part of our ethos in making the world
a better place through direct impact, our
employees are involved in volunteering activities
throughout the year and we eventually plan to
allocate two full days per employee per year to
volunteering activities.
Australian Ethical is also involved in sponsorship
of various events that align with the Australian
Ethical Charter, including, in 2013/2014, the
Sustainable Living Festivals in Victoria and
Tasmania, the Australian tour of Dr Jane Goodall,
The Human Rights Film Festival, National Climate
Action Day, Impact Investment seminars, Fair@Sq
and the RIAA conference.
During the reporting year, six of our employees
participated in the Achieve Australia volunteering
day to perform maintenance and painting at
Araluen House Day Centre for people with
disabilities, which totalled 45 volunteering hours,
and four employees donated blood at the Red
Cross Blood Service, totalling four hours. This
equates to an estimated value of $3,528 in
volunteering time.
In 2014/2015, we estimate that six of our
employees will donate blood each quarter, and
volunteering activities are planned at the Exodus
Foundation’s ‘Loaves and Fishes’ restaurant for
the homeless, and a kayaking garbage cleanup
at Sydney Harbour.
G4-35, G4-56, G4-57, G4-58, G4-EC1
1800 021 227 | australianethical.com.au 41
australianethical Awards
During 2013/2014, Australian Ethical was pleased
to receive the following awards:
• Best Use of Social Media Award – presented
at the inaugural Association of Superannuation
Funds of Australia (ASFA) Marketing
Communications Awards
•
•
‘Leading in sustainability – Setting the
standard for a Small to Medium Business’ –
Banksia Awards
‘Excellence as a Sustainable Large Business
(over 15 employees)’ – Green Lifestyle
consumer publication
Our environmental impact
In line with the Australian Ethical Charter, we
place the same expectations of responsible
environmental behaviour on ourselves as we do
for our customers. This means that we strive to
have a minimal impact on the environment. As an
office based organisation, our primary impacts
on the environment relate to energy use and the
associated emissions from travel. We also aim to
be responsible in our use of materials in the office
and in a waste generation.
Energy use and emissions
With the consolidation of the majority of staff from
Canberra to Sydney, there was a consequent
reduction in energy use in Canberra. However,
with our Sydney office operating at full capacity
there has been an increase in overall energy use
as the Sydney building is not as efficient as the
Canberra building (4 NABERS stars compared
to 6 NABERS stars). In the next reporting year,
we will purchase Green Energy to abate some
environmental impact through energy use.
Our greenhouse gas emissions compared
relatively favourably at 0.125 tCO2-e on a per
square meter basis, in comparison with an
average of 0.163 tCO2-e for Australia’s existing
office building stock.
Travel trips and emissions
In 2013-14, our employees took 334 flights and
812 taxi trips, slightly decreased from 2012-13
(422 flights and 733 trips). GHG emissions from
our travel increased by 7.65 tonnes from the
previous reporting year as a result of the higher
number of international versus domestic flights
taken this year.
Total greenhouse gas emissions
GHG from energy
Electricity
Gas
Total GHG from energy
GHG from Travel
Taxi usage
Private vehicle use for business
related travel
Flights
Total GHG from Travel
Total GHG
tCO2-e
43.7
6.87
50.6
3.38
10.60
84.92
98.9
149.5
42
Offsetting our emissions
Paper consumption
Australian Ethical offsets emissions by purchasing
carbon credits in worthwhile projects. Emissions
of 149.5 tCO2-e will be offset during FY15.
Total emissions calculated include greenhouse
gases emissions from energy and from travel.
Projects that our carbon offset credits will assist
are ‘Cookstove’ projects in Mali and Cambodia.
The projects replace high polluting traditional
cookstoves with fuel efficient stoves. Large
volumes of wood and charcoal are required for
the traditional cookstoves, which contribute to
CO2 emissions from burning these fuels, but also
increased desertification. The traditional stoves
also contribute to indoor air pollution, which is
linked to respiratory and eye diseases.
By replacing these with ceramic lined modern
cookstoves, demand for wood and charcoal is
reduced, and a healthier indoor environment is
created. Both projects also provide employment
and business opportunities throughout the local
supply chain, including in the manufacturing,
retailing and distribution of the stoves.
These projects align with many elements of the
Australian Ethical Charter.
In 2013-14 we consumed 185,249 sheets of 100%
recycled paper. This represents 6,702 sheets of
A4 paper per FTE. This is a significant increase
in paper usage from 2012-13 (1,805 sheets per
FTE) as a result of more printing being conducted
in-house rather than being printed offsite. During
the reporting year, we changed our paper supply
to 100% Australian made, FSC® certified post-
consumer recycled waste paper.
When printing newsletters, product disclosure
statements and annual reports, we use 100%
post-consumer recycled paper using vegetable
based inks.
Waste
Although waste in our Canberra office is minimal,
it is separated and recycling facilities are utilised.
In our Sydney office, waste is separated into
recyclables, organics, and non-recyclables. Each
desk has a recycling bin only, with no bins for
non recyclables.
1800 021 227 | australianethical.com.au 43
australianethical Consolidated Financial Report
Australian Ethical Investment Limited
and its Controlled Entity
ABN 47 003 188 930
Consolidated Financial Report for the year ended 30 June 2014
44
Directors’ Report
The Directors present their report together with
the consolidated financial report of Australian
Ethical Investment Limited (the Company)
and its controlled entity, Australian Ethical
Superannuation Pty Limited (together known as
the Group), for the year ended 30 June 2014 and
the auditor’s report thereon.
Directors
The Directors of the Company at any time during
or since the end of the financial year are:
Stephen Gibbs,
Chair and Non-Executive Director
Mara Bun,
Non-Executive Director
Tony Cole,
Non-Executive Director
Kate Greenhill,
Non-Executive Director
Phil Vernon,
Chief Executive Officer and Managing Director
André Morony,
Non-Executive Director – resigned 20 November 2013
Stephen Newnham,
Executive Director – resigned 26 July 2013
Director’s Particulars
Stephen Gibbs
Chair and Non-Executive Director
BEc, MBA
Stephen joined the Board in July 2012 as a
Non-Executive Director and on 4 February 2013
was appointed Chair. He Chairs the People,
Remuneration and Nominations Committee, is
a member of the Audit, Compliance and Risk
Committee and the Investment Committee.
Stephen is a director of Australian Ethical
Superannuation Pty Limited and a member of it’s
Audit, Compliance and Risk Committee.
Stephen was formerly Chair of the Responsible
Investment Academy Advisory Council. From early
2000 he was CEO of ARIA, the trustee of the
PSS and CSS – the superannuation schemes for
federal government employees. When Stephen left
ARIA in January 2008 it had close to $A20 billion
under management. Prior to ARIA Stephen was
the Executive Officer of the Australian Institute of
Superannuation Trustees (AIST). His earlier career
was in the trade union movement.
Other career highlights for Stephen include his
personal invitation from the then UN General
Secretary to join the steering committee and
investor group which developed what became
the United Nations Principles of Responsible
Investment–UNPRI and membership of the ASX
Corporate Governance Council from its inception
until 2008.
Mara Bun
Non-Executive Director
BA
Mara was appointed as a Non-Executive Director
on 4 February 2013.
Mara was a Senior Financial Analyst with Morgan
Stanley’s San Francisco High Technology Group
before immigrating to Australia in 1991. Mara
worked for The Wilderness Society, Greenpeace
Australia Pacific and Choice in the 1990s.
She served as Director of the Board of Bush
Heritage Australia for eight years, and on the
Advisory Council of the NSW Sustainable Energy
Development Authority for six years.
In the 2000’s Mara led Macquarie Bank’s Internet
equities research team as Senior Analyst and
Associate Director; was a Director in The Allen
Consulting Group’s Sydney ICT and sustainability
public policy consulting practice; and then
Director of Business Development for the CSIRO.
In 2008 Mara became the founding CEO of Green
Cross Australia. Green Cross International was
founded in 1993 by former Soviet statesman
Mikhail Gorbachev to create a new approach to
solving the world's most pressing environmental
challenges by reconnecting humanity to the
environment. In 2014 Mara became a Director of
the Board of Green Cross Australia.
1800 021 227 | australianethical.com.au 45
australianethical Tony Cole
Non-Executive Director
AO, BEc
Tony was appointed as a Non-Executive
Director on 4 February 2013. Tony is the
Chair of the Investment Committee and a
member of the People, Remuneration and
Nominations Committee.
For the past 17 years he has been a senior
investment consultant and executive in Mercer’s
Investment Consulting business, including heading
the business in the Asia Pacific region for more
than five years. Tony remains a Senior Partner with
Mercer in a consulting capacity.
Prior to joining Mercer, Tony held several senior
positions in the Commonwealth Public Service,
including Secretary to the Treasury, Secretary of
the Department of Health and Social Security,
Deputy Secretary to the Department of the Prime
Minister and Cabinet and Chair of the Industry
Commission (now the Productivity Commission).
Tony served as an Alternative Director of the World
Bank and was Treasurer Paul Keating’s principal
economic adviser and head of office in the early
years of the Hawke-Keating government.
Tony is currently a Trustee Director of the
Commonwealth Superannuation Corporation and
a member of the Advisory Board of the Northern
Territory Treasury Corporation. He Chaired the
Advisory Board of the Melbourne Institute for
10 years and was a longstanding member of
the Australian Office of Funds Management
Advisory Board.
Kate Greenhill
Non-Executive Director
BEc FCA GAICD
Kate was appointed as a Non-Executive Director
on 22 February 2013. Kate is Chair of the Audit,
Compliance and Risk Committee and a member
of the People, Remuneration and Nominations
Committee. Kate is also a member of the
Australian Ethical Superannuation Pty Limited
Audit, Compliance and Risk Committee.
Kate has over 19 years’ experience working
with organisations in the financial services
industry both in Australia and overseas. Kate was
formerly a Partner with PricewaterhouseCoopers
assisting clients with advice and assurance in
relation to financial statement audit opinions,
accounting and regulatory developments, capital
raisings, accounting for complex transactions,
due diligence, valuations, compliance, risk
management, organisational structure and the
operation of controls.
Kate is a director, and member of the finance
committee, for a not for profit organisation.
Phil Vernon
Chief Executive Officer and Managing Director
BEc, MCom, MBA, FCPA, FAICD
Phil joined the Company as Chief Executive Officer
in December 2009 and was appointed Managing
Director in July 2010. He is also a director of
Australian Ethical Superannuation Pty Limited.
Phil has 25 years’ experience in financial services
including funds management and superannuation.
Prior to joining the Company he was a member
of the Executive Committee of Perpetual
Limited. He has extensive experience in strategy,
people management and leadership, corporate
governance and industry regulation.
Phil is a Director of Planet Ark, an environmental
not for profit organisation. He is also a Director
and Treasurer of the Responsible Investment
Association of Australia and a member of the
Advisory Board of the Association for Sustainable
and Responsible Investment in Asia.
Directors Who Resigned During
the Period
André Morony
Non-Executive Director
BEc (Hons), MEc
André joined the Board of Australian Ethical as
a Non-Executive Director in June 2008. André
stepped down as the Chair on 4 February 2013.
André resigned as a Director on
20 November 2013.
Stephen Newnham
Executive Director
BA, LLB, DFP
Stephen joined the Board in December 2010 as a
Non-Executive Director and in 2012, he became
an Executive Director, focussed on for sales
and marketing.
Stephen resigned as a Director on 26 July 2013.
46
Company secretary
Principal activities
Tom May
BA, LLB, MBA
Tom has experience in the superannuation and
distribution aspects of financial services law. He
has been a lawyer since 1990 when he was a legal
officer in the federal government. He subsequently
worked in house with funds management and life
insurance companies before working in private
practice in London and Tokyo.
The principal activities of the Company during the
financial year was to be the responsible entity for a
range of public offer ethically managed investment
schemes and as the Trustee of the Australian
Ethical Retail Superannuation Fund. Included in
these activities are funds management, portfolio
management, investment administration and
custody. Other than as described in this report,
there were no significant changes in the nature of
the controlling entity’s activities during the year.
Subsidiary Board directors and
Board committee members
Ruth Medd
Chair and Non-Executive Director, Australian
Ethical Superannuation Pty Limited
BSc, Dip Comp Science, CPA, MAICD
Ruth is Chair of the Company’s wholly owned
subsidiary Australian Ethical Superannuation
Pty Limited and a member of the it’s Audit,
Compliance and Risk Committee. She is also a
member of the Company’s Audit, Compliance and
Risk Committee.
Ruth is currently on the board of the NFAW Ltd
(National Foundation for Australian Women) and
WOB Pty Ltd (Women on Boards). Ruth started in
IT in the 1970s. Since then she has been a senior
public servant, a broadcasting regulator, the
inaugural Company Secretary at Telstra and the
Executive Director of an industry association.
Les Coleman
Non-Executive Director, Australian Ethical
Superannuation Pty Limited
B.Eng.(Hons), B.Sc.(Hons), M.Ec., PhD
Les is a member of the Company’s Audit,
Compliance and Risk Committee. Les is also a
director of Australian Ethical Superannuation Pty
Limited and Chairs it’s Audit, Compliance and
Risk Committee.
Since 2004, Les has taught in the Finance
Department of the University of Melbourne.
He is currently a member of the investment
committee of IOOF Holdings Limited. Previously
Les had over 20 years’ experience in senior
operational, planning and finance roles in
Australia and overseas, and has been a trustee
of two superannuation funds, and a director
of ten companies involved in finance, retail
and distribution.
Changes in the state of affairs
There were no significant changes in the state of
affairs of the Company that occurred during the
year not otherwise disclosed in this report or the
financial statements.
Review of Operations
For the financial year to 30 June 2014, the
Company reported a net profit after tax of
$2,542,526 compared to the net profit after tax for
the financial year to 30 June 2013 of $1,063,037.
In looking at the consolidated entity’s performance
during 2014, the following are the key points:
Funds Under Management and Revenue
• Funds under management increased by
$179.6m, $88.1m due to market movements
in addition to net inflows of $91.5m. Funds
under management as at 30 June 2014 was
$887.2m which is the highest for the Company
since inception.
• Net inflows of $91.5m are made up of positive
inflows of $77.6m (up from $18.0m last year)
into our superannuation fund in addition to
net inflows of $14.0m into our managed funds
($16.7m net outflow last year). Inflows into
our managed funds have improved markedly
reflective of improved investor sentiment and
strong performance across all funds.
• Revenues increased by $3.5m representing an
increase of 21% over the previous year. The
main reasons for the revenue increase were
the growth in equity markets and strong net
inflows during the year which increased our
funds under management.
• This was the first full year with our new
fee structures across all products. The fee
changes we have made in the last few years
have had a significant impact on inflows and
reducing outflows.
1800 021 227 | australianethical.com.au 47
australianethical • Following a detailed review of product fees
on the 30 June 2014 we reduced the fees
on some of our products whilst increasing
fees on others. The most significant change
was a reduction of the administration fee
charged in our superannuation product from
1.43% to 0.83%. The potential impact of
the change in fees during the 2014/15 will
be to reduce revenue margins and therefore
revenue however lower fees will make our
Superannuation product more competitive
which will assist with future growth. The
table below shows the change in revenue
margins for each product and overall. Revenue
margins have been calculated as annualised
revenue divided by funds under management
based on actual funds under management at
30 June 2014.
Revenue
margin
based on
current fees
Managed funds
Superannuation
Overall
1.88%
2.27%
2.14%
Revenue
margin
based on
proposed
fees
1.99%
1.79%
1.86%
Expenses
• Operating expenses1 increased by $0.50m, an
increase of 3.6% over the previous year.
• Employee benefits expense increased overall
by 7.9% as a result of the improved result
and the resultant increased staff bonuses
and rights expense. Employee benefits
expense comprises both fixed and variable
components. Fixed staff remuneration
decreased by 8.6% due to a number of vacant
positions during the year.
• Bonus and rights expense (variable
components) increased from $0.51m in 2013
to $1.22m in 2014. Provisions for rights issued
were $1.16m (2013 $0.44m) as a result of the
increase in share price during the year and the
increased probability of the rights vesting.
• Costs to outsource providers have increased
primarily due to the use of consultants to assist
with the significant regulatory changes in
superannuation. Amounts paid to consultants
increased by $0.34m (2014 $0.77m,
2013 $0.43m).
• Marketing expenses have increased by $0.37m
as a result of additional marketing campaigns
that have improved brand awareness and
net flows.
•
IT expenses have increased by $0.26m as a
result of increased use of IT service providers.
• The effective tax rate of 38% was lower than
the prior year, 45%. The Company’s effective
tax rate is impacted by items that are not
deductible for tax purposes which are detailed
in Note 6 of the attached financial report.
• A reconciliation of Total expenses excluding tax to Operating expenses is shown below:
Revenue
Less: Profit/(Loss) for the year
Total Expenses
Less:
Income tax expense
Depreciation
Rights amortisation
Community Grants
Non-recurring Expenses
Impairment of available for sale securities
Impairment of property, plant and equipment
Employment restructure expenses
Legal costs for shareholder actions
Loss on disposal of assets
Other
Operating expenses
30 June 2014
$’000
30 June 2013
$’000
19,889
(2,543)
17,346
(1,590)
(271)
(931)
(302)
-
(282)
(409)
-
(15)
-
16,378
(1,063)
15,315
(873)
(392)
(179)
(117)
(117)
(436)
-
(85)
(63)
(47)
13,546
13,006
Operating expense comprise expenses that the Company has incurred as a result of performing its normal business operations.
48
Community Grants
Underlying Profit
• $302,300 has been provisioned for payment
to charitable and conservation organisations
under our community grants program. The
Company’s constitution requires that 10% of
operating profit, after notional tax, be paid to
non profit organisations involved in charitable,
benevolent or conservation purposes. Staff
and shareholders are actively involved in the
selection of the organisations that receive
community grants.
• $1.75m, including the amount above, has
now been paid by the Company to charitable
and conservation organisations under the
community grants program since inception.
Underlying profit is provided to assist
shareholders in understanding the Company’s
performance. Underlying profit excludes
certain items, as determined by the Board and
management, that are either significant by virtue
of their size and impact on Net Profit After Tax
and which could be re-occurring. It reflects an
assessment of the result for the ongoing business
of the Group.
The reconciliation of net profit after tax to underlying profit after tax for the 2014 financial year is
as follows:
Net profit after tax
Adjustments (gross)
Add: Employment restructure expenses
Add: Legal costs for shareholder actions
Add: Property revaluation
Add: Available for Sale assets revaluation
Tax on adjustments
Underlying profit after tax
30 June 2014
$’000
30 June 2013
$’000
2,543
1,063
409
-
282
-
(123)
3,111
-
85
436
117
(26)
1,675
This table has been prepared in accordance with
the Australian Institute of Company Directors
(AICD)/Finsia principles for reporting underlying
profit and ASIC’s Regulatory Guide 230 Disclosing
non-IFRS financial information. Underlying profit
after tax has not been reviewed or audited by our
external auditors, however the adjustments to net
profit have been extracted from the books and
records that have been audited.
Statement of Financial Position
(as at 30 June 2014)
Assets
• Total assets have increased by $3.96m to
$14.24m during the financial year ended
30 June 2014.
Tangible Asset levels along with a significant
cash balance. At all times during the financial
year and as at 30 June 2014 the Company has
met the conditions of its AFS Licence.
• Trade and other receivables increased
marginally by $0.27 million to $2.75 million.
These receivables primarily represent the
accrual of fees on our products for the
previous month.
• Due to a weakening commercial property
market in Canberra the Company owned
property in Bruce, ACT was independently
re-valued resulting in an impairment charge
of $0.282 million. This impairment charge is
a non-cash charge to profit. The company
has an active sales campaign underway with
16 parties introduced to the property over the
past 12 months.
• Cash balances increased by $4.05m to $7.94m
• The majority of the shares held by the
primarily as a result of increased revenue
from our funds as funds under management
have grown. As a condition of the Company’s
Australian Financial Services (AFS) Licence the
Company is required to maintain minimum Net
Company to support the advocacy activities
were sold during the year resulting in a
realised loss of $6,965. An impairment charge
of $116,811 was posted to profit and loss
in 2012/13. The Company has changed its
1800 021 227 | australianethical.com.au 49
australianethical approach to its Advocacy activities and in
the future will not be purchasing shares on
its balance sheet to obtain voting blocks in
target companies.
suppliers. Rebates payable to the Superannuation
fund (to eliminate double charging of fees) also
increased in line with the increase in the size of
the fund.
Liabilities
Equity
Total liabilities increased by $1.78m to $4.76m
due to an increase in trade payables which partly
as a result of a change in the process for paying
Equity has increased by $2.19 million due to net
profit after tax of $2.54 million offset by dividends
paid during the year.
Dividends
Dividends paid or declared by the Company to members since the end of the previous financial year were:
Cents per share
Total amount
$
Franked/
Unfranked
Date of payment
Declared and paid during the financial year
Final 2013
Interim 2014
Total
Declared after end of year
45
80
460,416
818,522
1,278,938
Franked
Franked
4 October 2013
28 March 2014
After balance sheet date, the directors declared the following dividend:
Final 2014
120
1,227,776
Franked
3 October 20142
2 Planned payment date
Investment Performance
All the Australian Ethical products performed strongly over the year with all managed funds ranking in the
first or second quartiles when measured against their peers over the past year.
1 year
Quartile
3 years
Quartile
5 years
Quartile
7 years
Quartile
10 years
Quartile
Fund
Balanced
Smaller
companies
Smaller
companies –
Wholesale
Larger
companies
Larger
companies –
Wholesale
Advocacy
Advocacy –
Wholesale
International
equities
2nd
2nd
2nd
1st
1st
1st
1st
1st
Cash
2nd
3rd
1st
-
1st
-
1st
-
4th
1st
4th
3rd
-
1st
-
-
-
4th
1st
1st
1st
-
1st
-
-
-
3rd
1st
2nd
1st
-
1st
-
-
-
-
1st
Source: Mercers 30 June 2014. Ranking based on Mercer peer group category.
50
Our Larger Companies fund has achieved top
quartile performance over all periods in the
past 10 years, confirming again that investment
returns do not have to be compromised for ethics.
Our Smaller Companies fund is the strongest
performing fund in its class over 10 years,
demonstrating our long track record on managing
money ethically.
Events subsequent to reporting date
The Company’s fees are primarily based on
its funds under management which in turn is
impacted by changes in equity markets. Between
30 June 2014 and the date of signing this report
the Company’s Funds under Management has
increased by 6.1% which is estimated would
impact the net profit after tax by $700,500 on a full
year basis.
Other than as outlined in this report, no matters
or circumstances have arisen since the end of
the financial year which have or may significantly
affect the operations of the Company and its
controlled entity, the results of those operations
or the state of affairs of the Company in financial
years subsequent to the financial year ended
30 June 2014.
Outlook–Likely developments and
business strategies
There is increasing regulatory and competitor
pressure on fees within superannuation
particularly in MySuper products. The Australian
Ethical Retail Superannuation Fund provides a
unique offering amongst MySuper regulated funds
with strict adherence to a well-developed ethical
charter. The strong net inflows into the Fund in
2013/14 demonstrate that members assess the
Fund on a number of factors, not just fees.
The largest driver of total revenues is the value of
funds under management (FUM) which is in turn
influenced by the level of the Australian equity
market. We have estimated that a 1% change in
the S&P/ASX All Ordinaries index will have a full
year impact of $82,500 on net profit after tax.
Changes to the markets are monitored constantly
and where there are sustained drops action will be
taken to reduce variable expenses.
As noted in the Review of Operations section
the Company is actively seeking buyers for its
Canberra property.
Environmental Regulation
The consolidated entity acts as a responsible
entity for the Australian Ethical Property Trust
and the Australian Ethical Balanced Trust both
of which own direct property assets. These
fiduciary operations are subject to environmental
regulations under both Commonwealth and State
legislation in relation to property developments.
Approvals for commercial property developments
are required by state planning authorities and
environmental protection agencies. The licence
requirements relate to air, noise, water and waste
disposal. The responsible entity is responsible
for compliance and reporting under the
government legislation.
The consolidated entity is not aware of any
material non-compliance in relation to these
licences during the financial year.
The consolidated entity has determined that it
is not required to register to report under the
National Greenhouse and Energy Reporting Act
2007, which is Commonwealth environmental
legislation that imposes reporting obligations on
entities that reach reporting thresholds during the
financial year.
The properties held in the Australian Ethical
Property Trust are required to have a minimum
of 5 Green star rated or be in respect to social
infrastructure. The properties held in the Australian
Ethical Balanced Trust do not have a minimum of
Green star rating.
Auditor’s Independence Declaration
A copy of the Auditor’s Independence
Declaration as required under section 307C of the
Corporations Act 2001 is set out on page 33.
Indemnification of Directors’ and officers
The Company and its controlled entity indemnify
the current Directors and officers of the Company
against all liabilities to another person (other than
the Company or a related body corporate) that
may arise from their position as Directors of the
consolidated entity, except where the liabilities
arise out of conduct involving a lack of good faith.
The Company and its controlled entity will meet
the full amount of any such liabilities, including
costs and expenses.
1800 021 227 | australianethical.com.au 51
australianethical Insurance
The constitution of the Company provides a
general indemnity for officers of the company
against liabilities incurred in that capacity,
including costs and expenses in successfully
defending legal proceedings.
During the financial year, the company paid a
premium to insure the directors (named above),
the company secretary and all officers of the
company and of any related body corporate
against a liability incurred as a director, secretary
or officer to the extent permitted by the
Corporations Act 2001. The contract of insurance
prohibits disclosure of the nature of the liability
and the amount of the premium.
During the year the company entered into or
maintained deeds of indemnity, insurance and
access (Deed) with directors and officers which
provides a general indemnity against liabilities
incurred in that capacity to the extent permitted by
the Corporations Act 2001.
The Deed obligates the company to use its
reasonable endeavours to obtain and maintain
insurance for the benefit of a director or officer
of the company and any subsidiary, to the extent
that such coverage is available in the market on
terms which the company reasonably considers
financially prudent and on terms consistent with
the practice of comparable companies operating
in similar markets.
The Deed also provides that the company will pay
on behalf of the director or officer or lend to the
director or officer the amount necessary to pay
the reasonable legal costs incurred by the director
or officer in defending an action for a liability
incurred as a director or officer of the company
or a subsidiary on such terms as the company
reasonably determines. The director or officer
must repay to the company such legal costs if
they become legal costs for which the company
was not permitted by law to indemnify the director
or officer. The company need not pay or provide a
loan to the director or officer to the extent that the
director or officer is actually reimbursed for legal
costs as they fall due under an insurance policy
or otherwise.
The company has not otherwise, during or
since the financial year, indemnified or agreed
to indemnify a director, officer or auditor of
the company or of any related body corporate
against a liability incurred as such director, officer
or auditor.
Director’s meetings
The number of Directors’ meetings (including
meetings of committees of directors of which
not all directors are members) and number of
meetings attended by each of the directors of the
controlling entity during the financial year are set
out below.
Australian Ethical Investment Limited
Director
Stephen Gibbs
Mara Bun
Tony Cole
Kate Greenhill
Phil Vernon*
Ruth Medd
Les Coleman
André Morony
Board
Investment
People,
remuneration
and nominations
Audit,
compliance
and risk
Eligible
Attend
Eligible
Attend
Eligible
Attend
Eligible
Attend
5
5
5
5
5
-
-
-
5
5
5
5
5
-
-
-
4
-
4
-
-
-
-
5
4
-
4
-
-
-
-
5
5
-
4
5
-
-
-
1
5
-
4
5
-
-
-
1
5
-
-
5
-
5
5
-
5
-
-
5
-
5
4
-
* Whilst Phil Vernon is not a member of the Investment, the People, remuneration and nominations and the Audit, compliance and risk
committees he attended all meetings during the year
52
Australian Ethical Superannuation Pty Limited
Director
Stephen Gibbs
Ruth Medd
Les Coleman
Phil Vernon*
Kate Greenhill
Board
Audit, compliance and risk
Eligible
Attend
Eligible
Attend
7
7
7
7
-
7
7
7
7
-
5
5
5
-
5
5
5
5
-
5
* Whilst Phil Vernon is not a member of the Audit, compliance and risk committees he attended all meetings during the year
Directors’ relevant interests in securities of the Company
Parent entity
directors
Phil Vernon
Fully paid ordinary shares
2014
2,082
2013
1,474
Rights
2014
10,136
2013
6,993
Only Directors with interests are shown in the table above.
Directors’ holdings in registered
schemes made available by the
Company
None of the current Directors have holdings
in the registered schemes made available by
the Company.
Several Directors are members of the Australian
Ethical Retail Superannuation Fund.
Rights as at the date of this report
Rights over unissued shares as at the date of this
report are as follows:
Performance
rights reference
Number of rights
on issue
AEFAA
AEFAC
AEFAE
AEFAF
7,589
17,819
17,955
10,693
All performance rights are over unissued shares
in the Company. Performance rights expire if
the performance conditions are not met at the
end of the performance period. No holder of
performance rights is entitled, by virtue of holding
the performance rights, to participate in any other
share issue of the Company or of any other entity.
Further details on rights over unissued shares
are provided in Note 27 of the attached
financial report.
Shares issued upon the exercise of
share rights
8,061 ordinary shares of the Company were
issued during the year ended 30 June 2014 on the
conversion of performance rights granted under
the Company’s employee share ownership plan.
No further shares have been issued since
30 June 2014 to the date of this report.
No amounts are unpaid on any of the shares.
1800 021 227 | australianethical.com.au 53
australianethical Remuneration Report 2014
The past year has seen considerable growth
in our business as a result of the significant
improvements made over the past few years.
This has seen us improving the skills and
knowledge of the teams across the business
and implementing operating efficiencies resulting
in improved investment performance and
significantly increased net inflows.
Structural changes and improvements in operating
efficiencies have seen us consolidating and
relocating the majority of the business to Sydney.
We have invested in the skills of our employees
and progressively aligned salaries to more market
based levels.
As a result of the improved performance of the
business the hurdles on Performance Rights
issued under our Employee Share Incentive
Scheme in 2011 will be met and as a result,
50% will vest.
We plan to implement a number of structural
changes during the coming year to our
remuneration framework following a review
conducted by the Board (with the assistance of
KPMG) in financial year 2013/14. The proposed
changes strengthen and simplify the alignment
of the remuneration framework to the business
purpose and strategy, and therefore shareholders’
interests. The Board considers this appropriate for
the size and structure of the Company.
Whilst we will continue to review and refine
our remuneration arrangements, we believe
the changes we have made have transformed
our remuneration practices so that they are
contemporary, strongly aligned with shareholders’
interests and motivating for our employees.
Stephen Gibbs
Chair
People, Remuneration & Nominations Committee
This report deals with the remuneration
arrangements for Australian Ethical Investment
Limited’s (“The Company”) Key Management
Personnel (KMP). This includes the Non-executive
Directors, the Managing Director and the
Executives. This has been audited as required
by section 308(3C) of the Corporations Act 2001.
Terms used throughout the report are defined in
the section “Key Terms Used in this Report”.
G4-52, G4-53
Governance structure
The Role of the People, Remuneration and
Nominations Committee
The role of the People, Remuneration and
Nominations Committee (PRNC) is to help the
Board fulfil its responsibilities to shareholders
through a strong focus on governance, and
in particular, the principles of accountability
and transparency. The PRNC operates under
delegated authority from the Board.
The terms of reference are broad, encompassing
remuneration as well as executive development,
talent management and succession planning.
The PRNC members for the 2013/14 financial
year were:
• Stephen Gibbs (Chair);
• Kate Greenhill; and
• Tony Cole.
The PRNC met five times during the year.
A standing invitation exists to all Directors and the
Chair of Australian Ethical Superannuation Pty Ltd
to attend PRNC meetings. Attendance at these
meetings is set out in the Directors’ Report. At
the PRNC’s invitation, the Managing Director and
the People and Culture Consultant attended all
meetings except where matters associated with
their own performance evaluation, development
and remuneration were to be considered. The
PRNC considers advice and views from those
invited to attend meetings and draws on services
from a range of external sources, including
remuneration consultants.
Use of Remuneration Consultants
In May 2014, the PRNC appointed KPMG as its
principal remuneration consultant to provide
specialist advice on executive remuneration
and other Group-wide remuneration matters.
During the year KPMG provided information to
the PRNC in the context of the PRNC’s review
of the Remuneration structure which will be
implemented from 2014/15. This information did
not include any remuneration recommendations
pursuant to the Corporations Act. The PRNC
also utilised the services of Egan Associates to
advise on the company’s non-executive director
remuneration arrangements.
54
The PRNC is satisfied that the advice received
from both KPMG and Egan Associates was
free from undue influence by members of the
KMP, about whom the advice may relate, as the
advisors were engaged by and reported directly to
the PRNC.
Managing Director and KMP Performance
An annual assessment of the Managing Director
is completed by the Chairman and is overseen by
the Board, with input from the PRNC. The review
includes a 360 review process, measurement
of performance against agreed KPI’s and
Company performance.
The bonus received by the Managing Director
during 2013/14 is shown in Table 1: Remuneration
Elements and relates to the previous financial year
of 2012/2013. This flows from a formula linking
the bonus to year on year profit changes and
reflects an increase in the results for that previous
financial year.
The Managing Director is responsible for reviewing
the performance of Executives and determining
whether their performance requirements were
met. Both quantitative and qualitative data is
used to determine whether performance criteria
are achieved.
• align shareholder interests and the Company’s
capacity to pay
• attract and retain talented people
• promote the values of the Charter and be
aligned with the purpose of the Company
• be simple to administer and to communicate
The remuneration philosophy is also consistent
with the principles of the Company’s Constitution
and Charter. In particular:
•
•
•
it is designed to ensure that the Company
facilitates “the development of workers
participation in the ownership and control of
their work organisations and places”–Charter
element (a)
it is designed so as to not “exploit people
through the payment of low wages or the
provision of poor working conditions”–
Charter element (ix)
the incentive structure meets the requirements
of Rule 15.1(c) of the Constitution which
provides that prior to recommending or
declaring any dividend, provision must be
made for a bonus or incentive for employees to
be paid of up to 30 percent (30%) of what the
profit for that year would have been had not the
bonus or incentive payment been deducted.
Remuneration Policy and Structure
Outcomes of votes at Annual General Meetings
The Company’s remuneration policy is designed to
create a motivating and engaging environment for
employees where they feel appropriately paid and
incentivised for the contribution they make to the
performance of the company.
General principles
The principles underpinning our remuneration
framework are:
• pay people fairly for the work that they do
• build long term ownership in the company
• be motivating for employees
• align reward with contribution to
Company’s performance
At the 2013 AGM, the Remuneration Report
received 38.19% of the vote against it out of 61.7%
of shareholders that voted on the report. This
result constituted a ‘first strike’. A further vote
against the Remuneration Report by 25% or more
of the voted shares at the 2014 AGM will require
another spill motion being put to shareholders.
The only comment received from shareholders at
the 2013 AGM was regarding the suitability of the
average return on equity over 3 years as a KPI for
LTIs. The board considered this feedback as part
of its review of the Company's remuneration policy
and structure for 2014/15 as detailed on page 62.
G4-51
1800 021 227 | australianethical.com.au 55
australianethical Remuneration Structure in 2013/14
For the financial year ended 30 June 2014, the remuneration structure comprised the following elements:
Remuneration element
Fixed Remuneration
Each employee’s remuneration is assessed against market data based
on their position and the skills and experience they bring to the role.
How paid
Comprises:
• Cash
• Superannuation
• Packaged employee
benefits and associated
fringe benefits tax (FBT)
Employee Bonus Plan
Available to all employees excluding employees who have access to
the Short Term Incentive (STI) Program and Non-executive Directors.
• Cash
Total pool determined with reference to Company’s performance and
allocated based on relative remuneration and adjusted to reflect the
individual’s performance.
Short Term Incentive
Management team & certain other employees
• Cash (50%)
Bonus awarded based on Company profits and performance against
set objectives. For the Managing Director objectives include company
performance, key strategic outcomes and risk management. For sales
and marketing employees objectives include performance against new
business and net inflow targets.
Investment team
Bonus awarded based on Company profits and performance against
investment benchmarks. Performance rights linked to the performance
of the investment portfolio that their work is most directly related to.
Long Term Incentive
• Performance Rights (50%)
• Cash (50%)
• Performance Rights (50%)
Total pool is determined and allocated to all employees based on
relative remuneration. Certain employees have additional amounts
allocated based on market assessments.
• Performance Rights
Rights vest as shares in 3 years and are subject to company
performance hurdles as follows:
•
•
•
If Return on Equity “RoE” is less than 15%, no shares are issued
If RoE is greater than 15% but less than 20%, half the rights will vest
If RoE is greater than 20%, 100% of the rights vest
• RoE determined as average over each 6 months over the 3 years
Employee Share Incentive Schemes
Performance rights issued in respect of the STI
and LTI are issued under the employee share
incentive schemes (ESIS). Under this scheme
a pool of performance rights which would, if
exercised, amount to less than 5% per annum of the
company’s existing ordinary share capital, is made
available. This scheme was originally approved by
members at the 2008 Annual General Meeting. The
ESIS is split into two categories: individual (issued
as part of the Short Term Incentive) and general
(issued as the Long Term Incentive).
The number of performance rights granted in
the 2013/14 financial year (in respect of the
2012/13 financial year) under the general category
has been determined based on the previous
methodology and then adjusting for the lower
number of employees. In 2013/14 there were a
number of redundancies prior to the issuance of
the 2012/13 LTI rights that reduced the number
of employees in the business. In order to ensure
the remaining employees did not benefit from the
lower employee numbers the LTI pool has been
adjusted downwards.
56
Overall constraint
In 2012/13 an overall constraint on incentive
expense in any performance year was introduced
as follows:
The total of the following will be no more than 30%
of pre-bonus Net Profit After Tax (“NPAT”):
• employee bonus plan
• all STI other than those excluded below
•
total LTI amortisation expense
• any discretionary allotments to employees
It does not include:
•
that portion of investment team STI that is
subject to investment performance. These
were paid as the outcomes require; and
• Managing Director and CEO’s STI
The excluded amounts above have no profit
related cap however the amounts are constrained
as they are calculated as a percentage of Gross
Employment Cost (“GEC”) for each employee
Non-executive Directors
A review of Non-executive Directors’ remuneration
is undertaken annually by the Company Board,
taking into account recommendations from the
PRNC. The review includes the positions of
Chairman and Non-executive Directors and covers
duties undertaken, accountability and market
rates. Non-executive Directors’ remuneration
has been consistently below that of comparative
companies and the annual review in June 2013
saw an increase to Non-executive Director
remuneration of $12,000 pa, the first increase
since 2008, effective from the first full pay period
on or after 1 July 2013.
The total of Non Executive remuneration remains
within the pool approved by shareholders at
the 2010 Annual General Meeting. The current
Non-executive Director remuneration is still well
below comparative companies and the Directors
will be seeking to increase the pool available for
Non-Executive Director remuneration at the 2014
Annual General Meeting.
In addition to fixed remuneration, Non-executive
Directors are entitled to be paid reasonable
expenses, remuneration for additional services
and superannuation contributions. They also
receive payment for serving on board committees.
Committee payments have not increased since
July 2008.
Non-executive Directors are not eligible to
participate in employee incentive plans.
Non-executive Directors’ remuneration by position
is as follows:
Position
Remuneration *
($ p.a.)
Australian Ethical Investment Limited
Chair
Non-Executive Director
Audit, Compliance & Risk
Committee Chair
Audit, Compliance & Risk
Committee Member
Investment Committee Chair
Investment Committee
Member
People, Remuneration and
Nominations Chair
People, Remuneration and
Nominations Member
54,000
36,000
9,810
4,360
5,450
3,270
2,180
1,635
Australian Ethical Superannuation Pty Ltd
Chair
Non-Executive Director
Audit Compliance and Risk
Committee Chair
Audit Compliance and Risk
Committee Member
* inclusive of superannuation
30,000
20,000
9,810
4,360
1800 021 227 | australianethical.com.au 57
australianethical Remuneration Structure in 2014/15
Review of Remuneration structure
During the year the PRNC undertook a review of the remuneration structure with the assistance of KPMG.
The aim of the review was to simplify the structure, improve employee retention, provide a better line of
sight between effort and reward and foster a better culture of employee participation and control as per
our Charter.
Remuneration element
Fixed remuneration
Each employee’s remuneration is assessed against market data based
on their position and the skills and experience they bring to the role.
How paid
Comprises:
• Cash
• Superannuation
• Packaged employee
benefits and associated
fringe benefits tax (FBT)
Conditional remuneration
All permanent employees are offered an amount of Deferred Shares
based on market remuneration data. Shares vest after 3 years subject
to continued employment.
• Deferred shares
This aspect was introduced to strengthen employee retention and
foster a long term interest in the performance of the Company. It is
consistent with our Charter element which requires the encouragement
of employee participation and control. The previous scheme had not
achieved the level of employee share ownership it was designed to.
Short Term Incentive
The purpose of this aspect is to incentivise and reward employees for
achieving annual objectives. Employees are assigned a target incentive
based on market remuneration data and awarded an outcome based
on the achievements against objectives. The specific mix of objectives
applicable to an individual will depend on their specific job role.
Objectives include strategic projects, social and environmental impact,
investment performance, net inflows, client growth, satisfaction and
retention, risk management and operational and efficiency measures.
The payment method of STIs was changed to 100% cash to simplify
the structure and to provide a greater line of sight between the
achievement of annual objectives and the reward improving motivation.
Long Term Incentive
All permanent employees are offered an amount of shares based on
market data. The purpose of this aspect is to retain employees and to
foster an interest in the long term performance of the Company. Shares
vest after 3 years subject to performance hurdles described below
under “Performance Hurdles”.
Changes to this element include:
• change from an RoE hurdle to an Earnings per Share (“EPS”) hurdle
described below
• change from an allocated pool of rights to be based on a
percentage of employee’s remuneration to ensure overall
remuneration is market based.
• Cash
• Deferred shares
58
Deferred shares
Deferred shares will be issued under the Employee
Share Scheme. However the nature of the scheme
will change whereby, rather than being issued as
Performance Rights, shares will be issued under
an employee share trust. Under this arrangement
employees will receive dividends on unvested
shares and have voting rights. This is being
introduced to foster a greater interest in the
performance of the company amongst employees
and a greater alignment between employees and
shareholders. We believe that this method is far
more consistent with the Charter requirement of
encouraging employees’ participation and control.
Dividends received will be taken into account
when benchmarking total remuneration against
market data.
Performance hurdles
The performance hurdles attaching to the Deferred
Shares issued as part of the Long Term Incentive
will be changed from Return on Equity (“RoE”) to
an Earnings per Share (“EPS”) hurdle. We believe
that Earnings per Share is a more appropriate
target as it is more within the influence of
employees and is a driver of long term shareholder
value thereby providing better alignment between
employees effort and shareholder interests.
The hurdles are:
•
•
•
if compound EPS growth over 3 years is less
than 5%, no shares will vest
if compound EPS growth over 3 years is
greater than 10%, 100% will vest
if compound EPS growth over 3 years is
greater than 5% and less than 10%, then a pro
rata amount will vest on a straight line basis
Constraint
A constraint is applied such that the total STI and
LTI is no more than 30% of pre-incentive Net Profit
After Tax (“NPAT”).
Other Matters
Employment Contracts
All KMPs have formal contracts of employment
and are permanent employees of the Company.
The Managing Director’s contract is for a fixed
term, concluding on 30 March 2016. 12 weeks
before the Contract expiry date, the Managing
Director may resign by giving the company 12
weeks’ notice in writing. 52 weeks before the
Contract expiry date, the Company may terminate
the Managing Director’s employment by giving 52
weeks’ notice in writing. In the event the Contract
has less than 52 weeks to run before the expiry
date, the Company may terminate the Managing
Director’s employment by giving notice to the
expiry date.
All other KMPs have no pre-determined duration
of employment or a termination date. The
contracts for service between the Company and
these KMPs are on a continuing basis. All KMPs
have a 12 week notice period in their employment
contract and no termination provisions are
provided other than the payout of accrued
entitlements and notice period. No changes to
the contractual arrangements are expected in the
immediate future.
Hedging Policy
Directors and executives participating in the
Company’s equity-based plans are prohibited
from entering into any transaction which
would have the effect of hedging or otherwise
transferring to any other person the risk of any
fluctuation in the value of any unvested entitlement
in the Company’s securities.
1800 021 227 | australianethical.com.au 59
australianethical Key Terms Used in this Report
EPS: Earnings per share for the purpose
of determining performance against LTI
performance targets.
Executives: The Managing Director’s direct
reports other than his Executive Assistant.
KMP: Key Management Personnel. Those people
who have the authority and responsibility for
planning, directing and controlling the Company’s
activities, either directly or indirectly. This includes
directors, whether executive or otherwise, of
Australian Ethical Limited.
KPI: Key Performance Indicators. KPI’s are
quantifiable measurements, agreed with
employees each year that reflect the critical
success factors of the company. Targets
are set with each employee for each Key
Performance Indicator.
STI: Short-term incentive. A discretionary
incentive paid to employees for meeting annual
objectives which are aimed at delivering our
strategic plan.
LTI: Long-term incentive. An incentive that
aligns employee remuneration and sustainable
shareholder wealth creation
Market Peers: For the purposes of benchmarking
remuneration practices Australian Ethical refers
to the remuneration practices of listed companies
in the diversified financial services industry
(excluding major banks and financial services
companies in the S&P/ASX 50).
RoE: Return on Equity was previously used for the
purpose of determining performance against LTI
performance targets.
Remuneration outcomes
Linkage between Company Performance
and Remuneration
As outlined earlier in this report, STI rewards for
KMPs are based on a range of key performance
measures. Depending on the position these
include a portion linked to current year profit,
for the Investment team a portion linked to
the performance of the investment funds for
which they’re responsible and for the sales and
marketing team a portion linked to net flows.
The profit portion of these will relate to the
previous year to which it is paid. Other elements
(eg: investment performance and net flows) are
focussed on building long term value and will
impact profit performance over the longer term.
LTI is subject to average Return on Equity
(“RoE”) performance hurdles over the three year
vesting period2.
The following table shows the Company’s five-
year performance.
30 June
2010
30 June
2011
30 June
2012
30 June
2013
30 June
2014
1,023
1,543
2.00
1.03
23.20
12.5%
-
1,125
981
2.45
1.13
19.10
15.0%
14.1%
402
859
0.60
0.40
17.50
5.7%
11.1%
1,063
1,675
0.85
1.05
19.50
15.4%
12.0%
2,543
3,111
2.00
2.49
$35.45
29.9%
16.8%
Five Year Performance
Statutory net profit after tax ($’000)
UPAT reported ($’000)
Ordinary dividend per share declared with
respect to the year ($)
Basic earnings per share ($)
Closing share price ($)
Return on Equity
Average Return on Equity over prior three years
Outstanding Performance Rights
Performance rights issued under the LTI and that
are outstanding as at 30 June 2014 are:
Issued year
Amount Outstanding
2012
2013
2014
7,589
17,819
28,648
2 Commencing from 14/15 EPS growth will replace average RoE as the performance hurdle for LTI. Three year average RoE will remain
relevant until past performance rights which use this hurdle either vest or lapse.
60
Key Management Personnel
KMP is defined under the Corporations Act as
persons having authority and responsibility for
planning, directing and controlling the activities
of the entity, directly or indirectly, including
any director (whether executive or otherwise)
of that entity. The information contained in the
Remuneration Report has been audited by the
Company’s external auditor and named directors
and executives are key management personnel of
the consolidated entity.
The Company’s KMPs for the year ended 30 June 2014 are set out below:
Name
Non-executive Directors
Stephen Gibbs
Mara Bun
Kate Greenhill
Tony Cole
Ruth Medd
Les Coleman
Managing Director
Position
Chair
Non-Executive Director
Non-Executive Director
Non-Executive Director
Non-Executive Director – Subsidiary Board
Non-Executive Director – Subsidiary Board
Term
Full year
Full year
Full year
Full year
Full year
Full year
Phil Vernon
Managing Director and Chief Executive Officer
Full year
Current Management
David Barton
Adam Kirk
David Macri
Tom May
Stuart Palmer
Paul Smith
Chief Financial Officer
Head of Business Development & Client relations
Chief Investment Officer
General Counsel & Company Secretary
Head of Ethics
Head of Marketing
Full Year
Full Year
Full Year
Full Year
Part Year
Full Year
The compensation of the KMP’s for the 2013/14 financial year is shown below.
Short term employment benefits
Post-employment benefits
Other long-term benefits
Termination benefits
Share-based payments
Total Compensation
2014 $
1,830,107
156,522
37,269
-
83,309
2,107,207
2013 $
1,391,480
121,613
21,313
-
150,310
1,684,716
1800 021 227 | australianethical.com.au 61
australianethical Table 1: Remuneration Elements of KMP
The following table illustrates the proportion of remuneration that was performance and non-performance
based, and the proportion of remuneration received in the form of performance rights during the
financial year.
Non-executive Directors receive their total remuneration as cash or superannuation contributions.
No element is dependent on performance. Non-executive Directors are not eligible to participate in
employee incentive plans.
NON-EXECUTIVE DIRECTOR'S REMUNERATION
SHORT TERM BENEFITS
POST
EMPLOYMENT
BENEFITS
LONG TERM
BENEFITS
Cash Bonus
Superannuation
$
Long Service Leave
$
EQUITY
Settled Share-
based Payments
$
Termination
Benefits
$
Total
$
9,702
3,889
3,588
894
3,863
819
3,043
800
3,404
2,790
2,778
1,710
1,287
3,424
-
2,121
-
190
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
27,665
16,637
-
-
-
-
-
-
87,261
46,959
42,333
10,797
45,578
9,890
35,889
9,656
40,150
33,691
32,777
20,649
15,158
41,345
-
25,613
-
2,299
299,146
200,899
SHORT TERM BENEFITS
POST
EMPLOYMENT
BENEFITS
LONG TERM
BENEFITS
Salary, Fees and
Leave
$
Cash Bonus
Superannuation
$
Long Service Leave
$
EQUITY
Settled Share-
based Payments
$
Termination
Benefits
$
Total
$
Name
Stephen Gibbs
Tony Cole
Kate Greenhill
Mara Bun
Ruth Medd
Les Coleman
André Morony
Justine Hickey
Louise Herron
TOTAL
MANAGING DIRECTOR AND
MANAGEMENT REMUNERATION
Name
Managing Director & CEO
Phil Vernon
Current Management
David Barton
Adam Kirk
David Macri
Tom May
Stuart Palmer
Paul Smith
2014
2013
2014
2013
2014
2013
2014
2013
2014
2013
2014
2013
2014
2013
2014
2013
2014
2013
2014
2013
2014
2013
2014
2013
2014
2013
2014
2013
2014
2013
2014
2013
2014
2013
Management who have departed during the year
Stephen Newnham
Philip George
TOTAL
Salary, Fees and
Leave
$
77,559
43,070
38,745
9,903
41,714
9,071
32,847
8,856
36,746
30,901
29,999
18,939
13,871
37,921
-
23,492
-
2,109
271,481
184,262
$
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
304,814
285,851
228,627
-
233,143
207,937
243,850
228,234
189,867
-
43,615
-
183,813
165,974
17,459
147,553
$
49,771
15,263
-
-
7,247
9,680
43,623
13,956
5,084
-
-
-
7,713
8,187
-
-
-
11,760
113,438
58,846
2014
2013
2014
2013
2014
2013
-
112,823
1,445,188
1,148,372
25,000
24,962
21,146
7,623
5,751
5,068
-
-
17,773
18,978
24,999
20,923
17,143
-
3,993
4,858
4,217
7,299
4,627
4,103
-
4,045
-
-
17,688
15,725
1,116
13,275
4,274
3,514
-
2,108
-
-
11,113
128,857
104,976
1,096
37,269
21,314
13,790
49,534
-
-
-
-
8,574
24,994
48,719
55,185
5,670
-
-
-
6,555
20,597
-
-
-
-
83,309
150,310
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
400,998
381,361
254,841
-
271,595
265,806
368,490
322,925
221,867
-
51,653
-
220,043
213,997
18,574
162,936
-
136,792
1,808,061
1,483,818
62
Table 2A: Rights held by KMP
Rights Class
Balance at
beginning of
year
RIGHTS HOLDINGS
No. granted
No. forfeited/
Expired
No. vested &
excercised
Balance at
end of year
Name
Managing Director & Management
Phil Vernon
AEFAF
AEFAE
AEFAD
AEFAC
AEFAA
AEFAY
2014 Total
2013 Total
AEFAF
AEFAE
AEFAD
AEFAC
2014 Total
2013 Total
AEFAF
AEFAE
AEFAD
AEFAC
AEFAA
AEFAY
2014 Total
2013 Total
AEFAF
AEFAE
AEFAD
AEFAC
AEFAA
2014 Total
2013 Total
AEFAF
AEFAE
AEFAD
AEFAC
2014 Total
2013 Total
-
-
608
2,432
1,472
2,481
6,993
5,744
-
-
378
1,142
1,520
-
-
-
1,790
1,379
827
666
4,662
4,005
-
-
250
939
758
1,947
1,098
-
-
289
968
1,257
-
2,195
4,037
-
-
6,232
3,040
320
856
-
-
1,176
1,520
1,924
3,223
358
-
-
5,505
3,169
224
720
-
-
-
944
1,189
340
706
-
-
1,046
1,257
-
-
(2,481)
(2,481)
(317)
-
-
-
-
-
-
-
-
-
-
-
(666)
(666)
(250)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
(608)
-
(608)
(1,474)
-
-
(378)
-
(378)
-
-
-
(2,148)
-
-
(2,148)
(2,262)
-
-
(250)
-
-
(250)
-
-
-
(289)
-
(289)
-
2,195
4,037
-
2,432
1,472
-
10,136
6,993
320
856
-
1,142
2,318
1,520
1,924
3,223
-
1,379
827
-
7,353
4,662
224
720
-
939
758
2,641
2,287
340
706
-
968
2,014
1,257
Adam Kirk
David Macri
Tom May
Paul Smith
Management who have departed during the year
Philip George
2014 Total
2013 Total
-
2,981
-
1,744
-
(4,335)
-
(390)
-
-
1800 021 227 | australianethical.com.au 63
australianethical Table 2B: Shares held by KMP
SHARE HOLDINGS
Balance at begining
of year
Acquired/Granted as
remuneration
On exercise of
options/rights
Net Change Other
Balance at end of year
PARENT ENTITY NON-EXECUTIVE DIRECTOR'S HOLDINGS
2014
Justine Hickey
2013
MANAGING DIRECTOR AND MANAGEMENT HOLDINGS
Name
Managing Director & CEO
Phil Vernon
2014
2013
Current Management
Adam Kirk
David Macri
Tom May
Paul Smith
Management who have departed during the year
Philip George
2014
2013
2014
2013
2014
2013
2014
2013
2014
2013
1,200
1,200
-
-
-
-
-
-
1,474
-
-
-
608
1,474
-
-
266
-
344
-
-
-
-
-
-
2,262
-
-
-
-
378
-
2,148
-
250
344
289
794
1,104
-
-
-
-
390
-
-
-
-
-
(1,996)
(594)
-
-
-
(100)
(700)
1,200
1,200
2,082
1,474
378
-
2,414
266
-
344
289
-
694
794
"Net change other" incorporates changes resulting from purchases, sales and forfeitures during the year:
• shares issued are fully paid
• balance represents shareholdings by key management personnel including their related parties as required by AASB 124 Related
Party Disclosures
Equity based remuneration consisting of performance rights under the Company’s employee share
incentive scheme are provided above and in Note 27 of the attached financial report.
Table 3: Remuneration of KMP’s by components
The following table sets out the actual remuneration received by executives at the Company including cash
paid and the value of equity vested.
Proportion of elements of remuneration
related to performance
Proportion of elements of
remuneration not related to
performance
Name
Non-Executive Directors
Stephen Gibbs
Tony Cole
Kate Greenhill
Mara Bun
Ruth Medd
Les Coleman
André Morony
Justine Hickey
Louise Herron
%
%
-
-
-
-
-
-
-
-
-
Managing Director and Management
Non-salary cash-
based incentives
Options/rights
Fixed salary/fees
Total
Shares
%
%
%
%
%
%
%
%
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
100
100
100
100
100
100
100
100
100
100
100
100
100
100
-
-
-
-
Phil Vernon
David Barton
Adam Kirk
David Macri
Tom May
Stuart Palmer
Paul Smith
12
-
3
12
2
-
4
-
-
-
-
-
-
-
3
-
3
13
3
-
3
84
100
94
75
95
100
94
100
100
100
100
100
100
100
Executives who left during the year
Stephen Newnham
Philip George
-
-
-
-
-
-
100
100
-
-
64
KMP Loans
The employee loan scheme was initiated in 2009 to allow employees to purchase company shares.
The scheme was in existence for the 2009/2010 year and not offered subsequently. The final remaining
loan was repaid in full in December 2012.
Start of year
balance
$
Interest
charged
$
Interest not
charged
$
Write-off
$
End of year
balance
$
No. of
KMP’s at
end of year
2014
2013
-
7,455
-
204
-
-
-
-
-
-
-
-
This directors’ report, incorporating the remuneration report, is signed in accordance with a resolution of
the Board of Directors.
Phil Vernon
Managing Director & Chief Executive Officer
Dated: 29 August 2014
1800 021 227 | australianethical.com.au 65
australianethical
Independent Auditor’s Report
66
1800 021 227 | australianethical.com.au 67
australianethical Independent Auditor’s Declaration
68
Consolidated statement of financial position as at 30 June 2014
Current assets
Cash and cash equivalents
Trade and other receivables
Financial assets
Other current assets
Assets classified as held for sale
Total current assets
Non-current assets
Property, plant and equipment
Intangible assets
Deferred tax assets
Total non-current assets
Total assets
Current liabilities
Trade and other payables
Current tax liabilities
Short-term provisions
Total current liabilities
Non-current liabilities
Trade and other payables
Deferred tax liabilities
Other long-term provisions
Total non-current liabilities
Total liabilities
Net assets
Equity
Issued capital
Reserves
Retained earnings
Total equity
The accompanying notes form part of these Consolidated Financial Statements.
Consolidated entity
Note
30 June
2014
$
30 June
2013
$
9
10
11
12
22
13
14
15
16
17
18
16
17
18
7,944,669
2,745,404
11,576
361,971
2,237,500
13,301,120
3,894,666
2,474,109
107,150
220,039
2,519,599
9,215,563
459,480
83,222
395,856
938,558
620,110
94,573
348,165
1,062,848
14,239,678
10,278,411
3,470,104
757,459
232,175
4,459,738
1,936,805
409,094
259,298
2,605,197
202,382
1,110
93,800
297,292
253,632
30,896
92,061
376,589
4,757,030
2,981,786
9,482,648
7,296,625
19
20
21
6,432,479
1,117,509
1,932,660
9,482,648
6,278,225
349,328
669,072
7,296,625
1800 021 227 | australianethical.com.au 69
australianethical Australian Ethical Investment Limited and its Controlled Entity – ABN: 47 003 188 930Consolidated Financial Report Consolidated statement of profit or loss and other comprehensive
income for the year ended 30 June 2014
Revenue
External services
Employee benefits
Depreciation and amortisation
Occupancy
Marketing and communication costs
Fund related expenses
Other expenses
Loss on disposal of assets
Impairment of available-for-sale securities
Impairment of property, plant and equipment
Community grants expense
Profit/(Loss) before income tax expense
Income tax expense
Profit/(Loss) for the year
Consolidated entity
Note
30 June
2014
4
5
5
5
5
5
5
5
$
19,889,186
(2,018,497)
(7,147,703)
(271,402)
(439,408)
(1,007,823)
(2,769,603)
(1,502,344)
(15,214)
-
13,22 (282,099)
(302,300)
4,132,793
30 June
2013
Restated
$
16,378,387
(1,345,329)
(6,626,560)
(392,436)
(435,937)
(643,932)
(2,857,325)
(1,406,994)
(63,308)
(116,811)
(436,000)
(117,291)
1,936,464
6
(1,590,267)
(873,427)
2,542,526
1,063,037
Other comprehensive income, net of income tax
Items that may be reclassified subsequently to profit or loss
Net gain/(loss) on revaluation of available-for-sale-investments,
net of tax
Net realised loss on available-for-sale-investments, net of tax
20
(1,157)
(6,965)
(1,259)
-
Reclassification adjustments relating to available-for-sale
financial assets disposed of during the year, net of tax
Reclassification adjustments relating to available-for-sale
financial assets impaired during the year, net of income tax
Total items that may be reclassified subsequently to profit or
loss
Other comprehensive income/(loss) for the year, net of tax
Total comprehensive income for the year
-
-
5,924
116,811
(8,122)
121,476
(8,122)
121,476
2,534,404
1,184,513
Profit attributable to members of the parent entity
2,542,526
1,063,037
Total comprehensive income attributable to members of the
parent entity
2,534,404
1,184,513
Earnings per share
Basic (cents per share)
Diluted (cents per share)
8
8
248.51
241.13
104.84
102.37
The accompanying notes form part of these Consolidated Financial Statements.
70
Australian Ethical Investment Limited and its Controlled Entity – ABN: 47 003 188 930Consolidated Financial Report Consolidated statement of changes in equity for the year ended
30 June 2014
Issued
Capital
Ordinary
$
Asset
Revaluation
Reserve
$
Note
Share-
based
Payment
Reserve
$
Retained
Earnings
$
Total
$
6,038,301
(117,429)
419,500
367,349
6,707,721
-
-
-
1,063,037
1,063,037
-
121,476
-
-
121,476
-
121,476
-
1,063,037
1,184,513
19 239,924
-
7
- (239,924)
-
- (761,314)
(761,314)
-
-
Balance at 1 July 2012
Profit attributable to members of
the parent entity
Other comprehensive income for
the year
Total comprehensive income for
the year
Transactions with owners in their
capacity as owners:
Shares issued during the year
Dividends paid or provided for
Share-based payment expense
27 (C)
-
-
165,705
-
165,705
Balance at 30 June 2013
6,278,225
4,047
345,281
669,072
7,296,625
Balance at 1 July 2013
Profit attributable to members of
the parent entity
Other comprehensive
income/(loss) for the year
Total comprehensive income for
the year
Transactions with owners in their
capacity as owners:
Shares issued during the year
Dividends paid or provided for
6,278,225
4,047
345,281
669,072
7,296,625
-
-
-
2,542,526
2,542,526
-
(8,122)
-
-
(8,122)
- (8,122)
-
2,542,526
2,534,404
19 154,254
-
7
- (154,254)
-
- (1,278,938)
(1,278,938)
-
-
Share-based payment expense
27 (C)
-
-
930,557
-
930,557
Balance at 30 June 2014
6,432,479
(4,075)
1,121,584
1,932,660
9,482,648
The accompanying notes form part of these Consolidated Financial Statements.
1800 021 227 | australianethical.com.au 71
australianethical Australian Ethical Investment Limited and its Controlled Entity – ABN: 47 003 188 930Consolidated Financial Report Consolidated statement of cash flows for the year ended 30 June 2014
Consolidated entity
Note
30 June
2014
$
30 June
2013
$
Cash flows from operating activities
Receipts from operations
Payment to suppliers & employees
Interest/distributions received
Income tax paid
Community grants paid
Net cash provided by operating activities
24(b)
Cash flows from investing activities
Purchase of property, plant & equipment
Proceeds from sale of property, plant & equipment
Reimbursement for the purchase of property, plant & equipment
Proceeds from sale of investments
Purchase of intangibles
Proceeds from loan repayments
Net cash provided by investing activities
Cash flows from financing activities
Dividends paid
Net cash used in financing activities
27,867,317
(21,215,081)
142,725
(1,320,489)
(117,300)
16,046,911
(13,455,797)
93,699
(452,908)
(53,325)
5,357,172
2,178,580
(87,000)
1,364
-
86,755
(29,350)
-
(28,231)
(335,997)
-
320,601
230,645
(99,550)
52,114
167,813
(1,278,938)
(1,278,938)
(761,314)
(761,314)
Net increase in cash and cash equivalents
4,050,003
1,585,079
Cash and cash equivalents at beginning of year
3,894,666
2,309,587
Cash and cash equivalents at end of year
24(a)
7,944,669
3,894,666
The accompanying notes form part of these Consolidated Financial Statements.
72
Australian Ethical Investment Limited and its Controlled Entity – ABN: 47 003 188 930Consolidated Financial Report Notes to the Consolidated Financial Statements
1. Reporting Entity
Australian Ethical Investment Limited (the
'Company') is a company domiciled in Australia.
The consolidated financial report of the Company
as at and for the year ended 30 June 2014
comprises the Company and its wholly owned
subsidiary, Australian Ethical Superannuation
Pty Limited (together referred to as the 'Group'
and individually as 'Group entities'). The Group
is a for-profit entity for the purposes of preparing
financial statements. Australian Ethical Investment
Limited is the Responsible Entity (RE) for a
range of ethically managed investment schemes.
Australian Ethical Superannuation Pty Limited is
the Registrable Superannuation Entity (RSE) of
Australian Ethical Retail Superannuation Fund.
The consolidated financial report for the
consolidated entity as of and for the year
ended 30 June 2014 is available at
www.australianethical.com.au.
The consolidated financial report was authorised
for issue by the directors on 25 August 2014.
2. Statement of significant
accounting policies
a) Statement of compliance
These consolidated financial statements are
general purpose financial statements which have
been prepared in accordance with Australian
Accounting Standards (AASB's) adopted by the
Australian Accounting Standards Board (AASB)
and the Corporations Act 2001. The consolidated
financial statements comply with International
Financial Reporting Standards (IFRS) as adopted
by the International Accounting Standards Board
(IASB).
b) Basis of preparation
The consolidated financial statements have been
prepared on the historical cost basis, except for
the property, plant and equipment and financial
instruments which are measured at fair value or
amortised cost, as explained in the accounting
policies below.
The consolidated financial statements are
presented in Australian dollars, which is the
Group's functional currency.
The following is a summary of the material
accounting policies adopted by the consolidated
entity in the preparation of the financial
statements. The accounting policies have been
consistently applied, unless otherwise stated.
c) Business combinations
Subsidiaries are all entities over which the group
has control. The group controls an entity when
the group is exposed to, or has rights to, variable
returns from its involvement with the entity and
has the ability to affect those returns through
its power to direct the activities of the entity.
Subsidiaries are fully consolidated from the date
on which control is transferred to the group.
They are deconsolidated from the date that
control ceases.
The acquisition method of accounting is used
to account for business combinations by the
group. Intercompany transactions, balances and
unrealised gains on transactions between group
companies are eliminated. Unrealised losses are
also eliminated unless the transaction provides
evidence of an impairment of the transferred
asset. Accounting policies of subsidiaries have
been changed where necessary to ensure
consistency with the policies adopted by
the group.
d) Income tax
i. Current income tax expense
The charge for current income tax expenses
is based on the profit for the year adjusted for
any non-assessable or disallowed items and
any adjustment to tax payable in respect to
previous years. It is calculated using tax rates
that have been enacted or are substantively
enacted by the reporting date.
ii. Deferred tax asset
Deferred tax is accounted for using the
statement of financial position liability method
in respect of temporary differences arising
between the tax bases of assets and liabilities
and their carrying amounts in the financial
statements. No deferred income tax will be
recognised from the initial recognition of
an asset or liability, excluding a business
combination, where there is no effect on
accounting or taxable profit or loss.
Deferred tax is calculated at the tax rates that
are expected to be applied to the temporary
differences when they reverse. Deferred tax
is credited in the consolidated statement of
1800 021 227 | australianethical.com.au 73
australianethical Australian Ethical Investment Limited and its Controlled Entity – ABN: 47 003 188 930Consolidated Financial Report profit or loss and other comprehensive income
except where it relates to items that may be
credited directly to equity, in which case the
deferred tax is adjusted directly against equity.
A deferred tax asset is recognised to the
extent that it is probable that future taxable
profits will be available against which
temporary differences can be utilised. Deferred
tax assets are reviewed at each balance sheet
date and are reduced to the extent that it is no
longer probable that the related tax benefit will
be realised.
Additional income taxes that arise from the
distribution of dividends are recognised at the
same time as the liability to pay the related
dividend is recognised.
iii. Tax group
Australian Ethical Investment Limited and
its wholly owned entity Australian Ethical
Superannuation Pty Limited have formed
an income tax consolidated group under
the Tax Consolidation System. Australian
Ethical Investment Limited is responsible
for recognising the current and deferred
tax assets and liabilities for the tax
consolidated group.
The tax consolidated group has a tax sharing
agreement whereby each company in the
Group contributes to the income tax payable in
proportion to their contribution to the net profit
before tax of the tax consolidated group.
Under the tax sharing agreement Australian
Ethical Superannuation Pty Limited agrees
to pay its share of the income tax payable to
Australian Ethical Investment Limited on the
same day that Australian Ethical Investment
Limited pays the ATO for group tax liabilities.
e) Property, plant and equipment
i. Recognition and measurement
Property, plant and equipment are measured
at cost less accumulated depreciation and
impairment losses (see accounting policy e(iii)).
Cost includes expenditures that are directly
attributable to the acquisition of the asset.
Cost of self-constructed assets includes cost
of materials, direct labour, an appropriate
proportion of overheads, and where relevant,
the initial estimates of the costs of dismantling
and removing the items and restoring the
site on which they are located. Purchased
software that is integral to the functionality of
the related equipment is capitalised as part of
that equipment.
Where parts of an item of property, plant and
equipment have different useful lives, they are
accounted for as separate items of property,
plant and equipment.
Gains and losses on disposal of an item of
property, plant and equipment are determined
by comparing the proceeds from disposal with
the carrying amount of property, plant and
equipment. When revalued assets are sold, the
amounts included in the revaluation reserve are
transferred to retained earnings.
ii. Subsequent costs
The consolidated entity recognises the cost
of replacing part of an item of property, plant
and equipment in the carrying amount of that
item when the cost is incurred, it is probable
that future economic benefits embodied within
the item will flow to the consolidated entity and
the cost of the item can be measured reliably.
The carrying amount of the replaced part is
derecognised. All other costs are recognised in
profit or loss as an expense when incurred.
iii. Impairment of tangible assets
At the end of each reporting period, the Group
reviews the carrying amounts of its tangible
assets to determine whether there is any
indication that those assets have suffered
an impairment loss. If any such indication
exists, the recoverable amount of the asset is
estimated in order to determine the extent of
the impairment loss (if any).
The recoverable amount is the higher of fair
value less costs to sell and value in use. In
assessing value in use, the estimated future
cash flows are discounted to their present
value using a pre-tax discount rate that reflects
the current market assessments of the time
value of money and the risks specific to the
asset for which the estimates of future cash
flows have not been adjusted.
If the recoverable amount of an asset is
estimated to be less than its carrying amount,
the carrying amount of the asset is reduced to
its recoverable amount. An impairment loss is
recognised immediately in profit or loss.
When an impairment loss subsequently
reverses, the carrying amount of the asset
is increased to the revised estimate of its
recoverable amount, but so that the increased
carrying amount does not exceed the carrying
amount that would have been determined
74
Australian Ethical Investment Limited and its Controlled Entity – ABN: 47 003 188 930Consolidated Financial Report Notes to the Consolidated Financial Statements had no impairment loss been recognised
for the asset in prior years. A reversal of an
impairment loss is recognised immediately in
profit or loss.
iv. Depreciation
The depreciable amount of all fixed assets
including buildings, is depreciated over their
estimated useful lives on a straight-line basis to
the consolidated entity commencing from the
time the asset is held ready for use. Leasehold
improvements are depreciated over the period
of the lease or estimated useful life, whichever
is the shorter, using the straight line method.
The estimated useful lives for current and
comparative periods are as follows:
Class of fixed asset Estimated useful life
Buildings
5 – 40 years
Plant & Equipment
2.6 – 10 years
The assets’ residual values and useful lives are
reviewed, and adjusted if appropriate, annually.
v.
Intangible assets
The development of the Group's website
has been capitalised as an intangible
asset and carried at cost less accumulated
amortisation and accumulated impairment
losses. Additional developments were made
to the website during the year ended 2014.
Amortisation is recognised on a straight-line
basis over the estimated useful life of two and
a half years. The estimated useful life and
amortisation method are reviewed at the end of
each annual reporting period, with the effect of
any changes in estimates being accounted for
on a prospective basis.
f) Cash and cash equivalents
Cash and cash equivalents include cash on hand
and deposits held at call with banks.
g) Financial instruments
i. Recognition
The Group initially recognises loans and
receivables, trade and other payables at fair
value on the date that they are originated.
All other financial instruments are initially
recognised on trade date, which is the date
the Group becomes party to the contractual
rights or obligations. Subsequent to initial
recognition these instruments are measured as
set out below.
ii. Available-for-sale financial assets
The Group holds available-for-sale financial
assets, which are financial assets not
classified as assets held at fair value through
profit or loss, loans and receivables or held-
to-maturity investments. Available-for-sale
financial assets are initially recognised at fair
value plus any directly attributable transaction
costs. Subsequent to initial recognition
they are measured at fair value other than
impairment losses and are recognised in other
comprehensive income and presented in the
Asset Revaluation Reserve in equity.
iii. Loans and receivables
Trade receivables, loans, and other receivables
that have fixed or determinable payables
that are not quoted in an active market
are classified as 'loans and receivables'
subsequent to initial recognition. Loans and
receivables are measured at amortised cost
using the effective interest method, less any
impairment. Interest income is recognised
by applying the effective interest rate, except
for short-term receivables when the effect of
discounting is immaterial.
iv. Fair value
Fair value is determined based on current bid
prices for all quoted investments. Investments
in unlisted unit trusts are valued at the
redemption price as reported by the fund's
responsible entity.
v. Effective interest method
The effective interest method is a method of
calculating the amortised cost of a financial
asset and of allocating interest income over the
relevant period. The effective interest rate is
the rate that exactly discounts estimated future
cash receipts (including all fees on points
paid or received that form an integral part of
the effective interest rate, transaction costs
and other premiums or discounts) through the
expected life of the financial asset, or, where
appropriate, a shorter period.
vi. Impairment
At each reporting date, the Group assesses
whether there is objective evidence that a
financial instrument has been impaired. In the
case of available-for sale financial instruments,
a significant or prolonged decline in the value
of the instrument is considered to determine
whether an impairment has arisen. Impairment
losses are recognised in the consolidated
statement of profit or loss and other
comprehensive income.
1800 021 227 | australianethical.com.au 75
australianethical Australian Ethical Investment Limited and its Controlled Entity – ABN: 47 003 188 930Consolidated Financial Report Notes to the Consolidated Financial Statements
h) Other financial liabilities
iii. Share-based payment transactions
Other financial liabilities, including borrowings and
trade and other payables, are initially measured at
fair value, net of transaction costs.
Other financial liabilities are subsequently
measured at amortised cost using the effective
interest method, with interest expense recognised
on an effective yield basis.
i) Employee Benefits
i. Wages, salaries, annual leave, sick leave
and non-monetary benefits
Liability for employee benefits for wages,
salaries and annual leave expected to be
settled within 12 months of the reporting
date represent present obligations resulting
from employees' services provided to the
reporting date. These liabilities are calculated
at undiscounted amounts based on wage
and salary rates that the consolidated entity
expects to pay as at the reporting date
including related on-costs, such as workers
compensation insurance and payroll tax.
Non-accumulating benefits, such as sick leave,
are not provided for but are expensed as the
benefits are taken by the employees.
Non-accumulating non-monetary benefits,
such as medical care, housing, cars and
free or subsidised goods and services are
expensed based on the net marginal cost to
the consolidated entity as the benefits are
taken by the employees.
A provision is recognised for the amount
expected to be paid under short-term bonus or
profit-sharing plans if the consolidated entity
has a present legal or constructive obligation
to pay this amount as a result of past service
provided by the employee.
Employee benefits includes an amount of
$409,831 for redundancy costs incurred
during the year as a result of closure of the
Canberra office.
ii. Long service leave
The liability for long service leave is recognised
in the provision for employee benefits and
expected future payments are discounted
based on period of service.
The grant-date fair value of share-based
payment awards granted to employees is
recognised as an employee expense, with
a corresponding increase in equity, over
the period that the employees become
unconditionally entitled to the awards.
The amount recognised as an expense is
adjusted to reflect the number of awards for
which the related service and non-market
performance conditions are expected to
be met, such that the amount ultimately
recognised as an expense is based on the
number of awards that meet the related service
and non-market performance conditions at the
vesting date.
For share-based payments with non-vesting
conditions, the grant-date fair value of
the share-based payment is measured to
reflect such conditions and there is no true-
up for differences between expected and
actual outcomes.
iv. Employee bonus
The Group recognises a liability and an
expense for bonuses and profit-sharing based
on a formula that takes into consideration the
profit attributable to the Group's shareholders
after certain adjustments. The Group
recognises a provision where contractually
obliged or where there is a past practice that
has created a constructive obligation.
j) Community grants expense
The Company’s Constitution states that the
directors before recommending or declaring any
dividend to be paid out of the profits of any one
year must have first:
(i) paid or provisioned for payment to current
employees, or other persons performing
work for the Group, a work related bonus
or incentive payment, set at the discretion
of the directors, but to be no more than 30
percent (30%) of what the profit for that
year would have been had not the bonus or
incentive payment been deducted.
(ii) gifted or provisioned for gifting an amount
equivalent to ten percent (10%) of what the
profit for that year would have been had not
the above mentioned bonus and amount
gifted been deducted.
Provision for community grants expense has been
made in the current year.
76
Australian Ethical Investment Limited and its Controlled Entity – ABN: 47 003 188 930Consolidated Financial Report Notes to the Consolidated Financial Statements k) Provisions
n) Earnings per share
Provisions are recognised when the Group has
a legal or constructive obligation, as a result of a
past event, for which it is probable that an outflow
of economic benefits will result and that outflow
can be reliably measured.
l) Revenue and income recognition
i. Revenue from the provision of services
Revenue is earned from provision of services
to customers outside the consolidated entity.
Revenue is recognised when services are
provided.
ii.
Investment income
Interest income is recognised as it accrues
taking into account the effective yield of the
financial asset.
Dividend income is recognised in profit or
loss on the date the entity's right to receive
payment is established which, in the case of
quoted securities, is the ex-dividend date.
Unit trust distributions are recognised in profit
or loss as they are received.
iii. Proceeds from sale of investments
Net gains or losses on disposal of non-current
assets are included in profit or loss. The gain
or loss arising from disposal of an item of
property, plant and equipment is determined
as the difference between net disposal
proceeds, being the cash price equivalent
where payment is deferred, and the carrying
amount of the item.
Profit or loss on disposal of assets is brought
to account at the date an unconditional
contract of sale is signed.
m) Goods and services tax (GST)
Revenues, expenses and assets are recognised
net of the amount of GST, except where the
amount of GST incurred is not recoverable
from the Australian Taxation Office. In these
circumstances the GST is recognised as part of
the cost of acquisition of the asset or as part of an
item of the expense. Receivables and payables in
the consolidated statement of financial position
are shown inclusive of GST.
Cash flows are presented in the consolidated
statement of cash flows on a gross basis, except
for the GST component of investing and financing
activities, which are disclosed as operating
cash flows.
All revenue is stated net of the amount of GST.
The consolidated entity presents basic and
diluted earnings per share (EPS) data for its
ordinary shares.
i. Basic earnings per share
Basic earnings per share is calculated by
dividing the profit attributable to equity holders
of the Company, by the weighted average
number of ordinary shares outstanding during
the financial year.
ii. Diluted earnings per share
Diluted earnings per share adjusts the figures
used in the determination of basic earnings per
share to take into account the after income tax
effect of the interest and other financing costs
associated with dilutive potential ordinary
shares and the weighted average number of
shares assumed to have been issued for no
consideration in relation to dilutive potential
ordinary shares.
o) Leases
For the current and prior financial year only
operating leases have been held by the Group.
Operating lease payments are recognised as an
expense on a straight-line basis over the lease
term, except where another systematic basis
is more representative of the time pattern in
which economic benefits from the leased asset
are consumed. Contingent rentals arising under
operating leases are recognised as an expense in
the period in which they are incurred.
In the event that lease incentives are received to
enter into operating leases, such incentives are
recognised as a liability. The aggregate benefit of
incentives is recognised as a reduction of rental
expense on a straight-line basis, except where
another systematic basis is more representative of
the time pattern in which economic benefits from
the leased asset are consumed.
p) Segment reporting
The consolidated entity determines and represents
operating segments based on the information that
internally is provided to the Managing Director
(MD), who is the consolidated entity's chief
operating decision maker.
An operating segment is a component of the
consolidated entity that engages in business
activities from which it may earn revenues
and incur expenses, including revenues and
expenses that relate to transactions with any
of the consolidated entity's other components.
All operating segments' operating results are
1800 021 227 | australianethical.com.au 77
australianethical Australian Ethical Investment Limited and its Controlled Entity – ABN: 47 003 188 930Consolidated Financial Report Notes to the Consolidated Financial Statements regularly reviewed by the consolidated entity's MD
to make decisions about resources to be allocated
to the segment and assess its performance, and
for which discrete financial information is available.
Segment results are reported to the MD including
items directly attributable to a segment as well as
those that can be allocated on a reasonable basis.
Unallocated items comprise mainly corporate
assets, head office expenses, and income tax
expenses, assets and liabilities.
q) Comparative figures
Certain comparative amounts in the consolidated
statement of profit and loss and other
comprehensive income have been reclassified
or represented, primarily as a result of a change
in the classification of member administration
services from external services to fund related
expenses (see Note 5) during the current year.
r) Critical accounting estimates
and judgements
The preparation of the consolidated financial
statements in conformity with IFRS requires
management to make judgements, estimates
and assumptions that affect the application of
accounting policies and the reported amount of
assets, liabilities, income and expenses. Actual
results may differ from these estimates.
Estimates and underlying assumptions are
reviewed on an ongoing basis.
Revisions to accounting estimates are recognised
in the period in which the estimates are revised
and in any future period affected.
Information about significant areas of estimation,
uncertainty and critical judgements in applying
accounting policies that have the most significant
effect on the amounts recognised in the
consolidated financial statements is discussed in:
• Note 11–Valuation of financial instruments
• Note 13–Valuation of property, plant and
equipment
• Note 15–Recoverability of deferred tax assets
• Note 18–Provisions
• Note 27–Recognition and measurement of
share based payments
s) Application of new and revised
accounting standards
Standards and interpretations affecting amounts
reported in the current period
The Group has adopted the following new
standards and amendments to standards,
including any consequential amendments to other
standards, with a date of initial application of
1 July 2013.
• AASB 10 Consolidated Financial Statements
(2011) – see (i);
• AASB 12 Disclosure of Interests in Other
Entities – see (ii);
• AASB 13 Fair Value Measurement – see (iii);
• AASB 119 Employee Benefits – see (iv);
• AASB 2012-5 Annual Improvements to
Australian Accounting Standards 2009-2011
Cycle – see (v); and
• AASB 2011-4 Amendments to Australian
Accounting Standards to Remove Individual
Key Management Personnel Disclosure
Requirements – see (vi).
The nature and effect of the changes are further
explained below.
i. Subsidiaries
As a result of AASB 10 (2011), the Group has
changed its accounting policy for determining
whether it has control over and consequently
whether it consolidates its investees. AASB 10
(2011) introduces a new control model that
is applicable to all investees, by focusing on
whether the Group has the power over an
investee, exposure or rights to variable returns
from its involvement with the investee and
ability to use its power to affect those returns.
In particular, AASB 10 (2011) requires the
Group to consolidate investees that it controls
on the basis of de facto circumstances.
In accordance with the transitional provisions
of AASB 10 (2011), the Group reassessed
the control conclusion for its investees at
1 July 2013. As a result the Group has not
changed its control conclusion in respect of
any of its investments.
78
Australian Ethical Investment Limited and its Controlled Entity – ABN: 47 003 188 930Consolidated Financial Report Notes to the Consolidated Financial Statements ii. Disclosure of interests in other entities
As a result of changes to AASB 12, the
standard requires disclosures that inform
the users of the nature and risks associated
with interests in other entities and the effect
of those interests on the Group. Specifically,
to understand the composition of the Group,
and the impact that interests in subsidiaries,
joint arrangements, associates and/or
unconsolidated structured entity interests
have in the Group’s activities and cash flows.
Additionally, to evaluate the nature of, and
changes in, the risks associated with interests
in other entities.
As a result of the application of AASB
12, the Group reassessed the disclosure
requirements, however this did not result in any
changes to consolidated financial statements.
iii. Fair value measurement
AASB 13 establishes a single framework for
measuring fair value and making disclosures
about fair value measurements, when such
measurements are required or permitted
by other AASBs. In particular, it unifies the
definition of fair value as the price at which
an orderly transaction to sell an asset or to
transfer a liability would take place between
market participants at the measurement date.
It also replaces and expands the disclosure
requirements about fair value measurements
in other AASBs, including AASB 7 Financial
Instruments: Disclosures. Some of these
disclosures are specifically required in these
condensed consolidated interim financial
statements for financial instruments;
accordingly, the Group has included additional
disclosures in this regard.
In accordance with the transitional provisions
of AASB 13, the Group has applied the
new fair value measurement guidance
prospectively, and has not provided any
comparative information for new disclosures.
Notwithstanding the above, the change had no
significant impact on the measurements of the
Group’s assets and liabilities.
iv. Employee benefits
As a result of changes to AASB 119 (as
revised in 2011), the Group has assessed the
amendments for the first time.
ASB 119 changes the accounting for defined
benefit plans and termination benefits.
The most significant changes relate to the
accounting for changes in defined benefit
obligations and plan assets. The Group
has reassessed the relevant transitional
provisions and have deemed that this did
not result in any changes to the consolidated
financial statements.
v. Segment information
The amendment to AASB 134 clarifies that
the Group needs to disclose the measures
of total assets and liabilities for a particular
reportable segment only if the amounts
are regularly provided to the Group’s chief
operating decision maker, and there has been
a material change from the amount disclosed
in the last annual financial statements for that
reportable segment. The Group has regarded
this amendment, and it does not require any
additional disclosure of segment liabilities.
vi. Key Management Personnel disclosures
AASB 2011-4 removes the individual
key management personnel disclosure
requirements in AASB 124 ‘Related Party
Disclosures’. As a result the Group only
discloses the key management personnel
compensation in total and for each of the
categories required in AASB 124. In the
current year the individual key management
personnel disclosure previously required
by AASB 124 (note 26 in the 30 June 2013
financial statements) is now disclosed in the
remuneration report due to an amendment
to Corporations Regulations 2001 issued in
June 2013.
vii. Comparative figures
Where required comparative figures have
been adjusted to conform with changes in
presentation for the current financial period.
viii. Summary of quantitative impact
The adoption of all the new and revised
Standards and Interpretations has not resulted
in any material changes to the Group's
accounting policies and has no material
effect on the amounts reported for the
current or prior years. The application of any
amendments does not result in any impact on
profit or loss, other comprehensive income and
total comprehensive income to the Group or
its subsidiary.
1800 021 227 | australianethical.com.au 79
australianethical Australian Ethical Investment Limited and its Controlled Entity – ABN: 47 003 188 930Consolidated Financial Report Notes to the Consolidated Financial Statements Standards and interpretations in issue not yet adopted
A number of new accounting standards and amendments have been issued but are not yet effective.
The Australian Ethical Group has not elected to early adopt any of these new standards or amendments in
this Financial report. The impact on the financial position or performance of the Australian Ethical Group of
these new standards and amendments is currently being assessed by management.
Standard/Interpretation
AASB 9 ‘Financial Instruments’, and the relevant
amending standards
AASB 2012-3 'Amendments to Australian
Accounting Standards - Offsetting Financial
Assets and Financial Liabilities
Effective for annual
reporting periods
beginning on or after
Expected to be initially
applied in the financial
year ending
1 January 2018
30 June 2018
1 January 2014
30 June 2015
IFRS 15 ‘Revenue from contracts with customers’
1 January 2017
30 June 2017
3. Auditors’ remuneration
Remuneration of the auditors for:
Auditors of the Group
KPMG Australia
- Audit and review of consolidated and subsidiary financial
statements
2014
$
2013
$
31,700
31,000
- Audit services in accordance with regulatory requirements
35,600
27,000
Audit services for non-consolidated trusts and superannuation
fund:
KPMG Australia
- Audit and review of managed funds for which the consolidated
entity acts as responsible entity1
- Audit and review of superannuation fund for which the
subsidiary entity acts as responsible superannuation entity 1
- Audit services in accordance with regulatory requirements 1
109,400
88,000
20,500
15,000
49,600
24,000
Total audit fee attributable to the audit of non-consolidated funds
179,500
127,000
Non-audit services
Auditors of the Group
- Tax and other accounting advice
Total
Other audit firms
Net Balance (Audit of the Sustainability Report)
111,708
358,508
87,956
272,956
2014
$
2013
$
9,530
16,623
1 These fees are incurred by the consolidated entity and are effectively recovered from the funds via management fees.
80
Australian Ethical Investment Limited and its Controlled Entity – ABN: 47 003 188 930Consolidated Financial Report Notes to the Consolidated Financial Statements 4. Revenue
Operating activities
- Management & Trustee fees (net of rebates)
- Member & withdrawal fees
- Reimbursed expenses from Trusts and superannuation fund
- Interest income
Cash and cash equivalents
Loans and receivables at amortised cost
- Other revenue
Total revenue
5. Expenses
External services expense
- Ethical research
- Audit fees
- Consultants
- Legal services
- Other
Total external services expense
Employee benefits expense
- Staff remuneration
- Directors fees
- Bonus and rights amortisation expense
- Other employment cost
Total employee benefits expense
Depreciation and amortisation expense
- Depreciation expense
- Amortisation expense
Total depreciation and amortisation expense
2014
$
2013
$
9,451,802
1,442,946
8,835,679
11,386,962
1,348,303
3,419,530
142,725
-
16,034
19,889,186
86,927
2,491
134,174
16,378,387
2014
$
2013
$
291,612
358,508
770,132
193,806
404,439
2,018,497
295,426
272,956
430,952
143,624
202,371
1,345,329
5,649,196
243,115
1,223,083
32,309
7,147,703
5,902,946
182,992
510,884
29,738
6,626,560
230,701
40,701
271,402
369,713
22,723
392,436
1800 021 227 | australianethical.com.au 81
australianethical Australian Ethical Investment Limited and its Controlled Entity – ABN: 47 003 188 930Consolidated Financial Report Notes to the Consolidated Financial Statements
Occupancy expenses
- Premises
- Rates and taxes
- Electricity, gas & telephone
- Lease provision
- Other occupancy costs
Total occupancy expenses
Marketing & communication costs
- Printing and stationery
- Marketing
Total marketing & communication costs
Fund related expenses
- Administration and custody expenses
- Licence fee
- PDS expense
- APRA levy expense
- Other fund related expenses
Total fund related expenses
Other expenses
- Insurance
- IT
- Travel
- Subscriptions and listing
- Other expenses
Total other expenses
Total expenses
2014
$
2013
$
224,010
30,504
105,345
-
79,549
439,408
205,634
49,410
87,874
44,494
48,525
435,937
135,343
872,480
1,007,823
147,581
496,351
643,932
2,388,409
219,247
14,150
117,110
30,687
2,769,603
2,298,745
294,389
135,832
122,646
5,714
2,857,325
118,592
862,614
271,770
37,712
211,656
1,502,344
116,696
607,213
258,440
208,060
216,585
1,406,994
15,156,780
13,708,513
Restatement of 30 June 2013 Comparatives
In preparing Note 5 – Expenses, it was identified that some expenses had been incorrectly classified
in the Consolidated statement of Profit or Loss and other comprehensive income for the year ended
30 June 2013. The primary change was to the classification of Member Administration Services from
External services to Fund related expenses. Reclassifying these expenses improves the comparability
of expenses between financial years. Details are provided below.
Consolidated statement of profit or Loss
External services
Fund related expenses
Other expenses
Actual
30 June 2013
$
Reclassification
$
Restated Actual
30 June 2013
$
3,183,776
1,329,929
1,095,943
(1,838,447)
1,527,396
311,051
1,345,329
2,857,325
1,406,994
82
Australian Ethical Investment Limited and its Controlled Entity – ABN: 47 003 188 930Consolidated Financial Report Notes to the Consolidated Financial Statements 6. Income tax expense
a) The components of tax expense comprise:
- Current tax
- Deferred tax expense/(benefit)
b) Reconciliation of income tax expenses to prima facie income
tax payable
Profit Before Tax
2014
$
2013
$
1,668,854
(78,587)
1,590,267
824,368
49,059
873,427
2014
$
2013
$
4,132,793
1,936,464
Prima facie income tax expense calculated at 30% (2013: 30%)
1,239,838
580,939
Increase in income tax expense due to:
- Other non-deductible items
- Under/(over) provision for income tax in prior year
- Effect of unrecognised non-deductible permanent differences
- Net unrealised losses on available-for-sale investments
- Net realised losses on available-for-sale investments
- Impairment loss on available-for-sale securities
Income tax expense attributable to profit for the year
The applicable weighted average effective tax rates are as
follows:
c) Amounts recognised directly in equity
Deferred tax
Available-for-sale revaluation
Total income tax recognised directly in equity
(673)
(11,153)
364,692
(347)
(2,090)
-
1,590,267
25,476
(15,668)
247,637
-
-
35,043
873,427
38%
45%
2014
$
2013
$
(1,110)
(1,110)
539
539
The current tax liabilities for the consolidated entity in note 17 represents income taxes payable in respect
of the current financial year. In accordance with tax consolidation legislation, the Company, as head entity
of the Australian tax-consolidated group, has assumed the current tax asset/(liability) recognised by
members in the tax consolidated group.
1800 021 227 | australianethical.com.au 83
australianethical Australian Ethical Investment Limited and its Controlled Entity – ABN: 47 003 188 930Consolidated Financial Report Notes to the Consolidated Financial Statements 7. Dividends
a) Dividends paid
2014
Final 2013 ordinary
Interim 2014 ordinary
2013
Final 2012 ordinary
Interim 2013 ordinary
Cents Per
Share
Total Amount
$
45
80
125
460,416
818,522
1,278,938
Cents Per
Share
Total Amount
$
35
40
75
355,280
406,034
761,314
Franked1/
Unfranked
Franked
Franked
Franked1/
Unfranked
Franked
Franked
Date of Payment
4 October 2013
28 March 2014
Date of Payment
5 October 2012
28 March 2013
1 All franked dividends declared or paid during the year were franked at a rate of 30 per cent and paid out of retained earnings.
b) Subsequent Events
Since the end of the financial year, the directors declared the following dividend. The dividends have not
been provided for and there are no tax consequences.
Cents Per
Share
Total Amount
$
120
1,227,776
Franked1/
Unfranked
Franked
Date of Payment
3 October 2014
Final 2014 ordinary
8. Earnings per share
Earnings per share (EPS)
Basic earnings per share
Diluted earnings per share
The following reflects the income and share information used in
calculating the basic and diluted earnings per share:
Net profit after tax
Weighted average number of ordinary shares used in calculation
of basic EPS
Weighted average number of rights outstanding
Weighted average number of ordinary shares used in calculation
of dilutive EPS
2014
CPU
2013
CPU
248.51
241.13
104.84
102.37
2014
$
2,542,526
2013
$
1,063,037
Shares
Shares
1,023,103
1,013,963
31,315
24,435
1,054,418
1,038,398
84
Australian Ethical Investment Limited and its Controlled Entity – ABN: 47 003 188 930Consolidated Financial Report Notes to the Consolidated Financial Statements
9. Cash and cash equivalents
Cash on hand
Bank balances
Deposits at call
2014
$
300
3,994
7,940,375
7,944,669
2013
$
300
1,310,004
2,584,362
3,894,666
Cash at bank earns interest at floating rates based on daily bank deposit rates.
Deposits at call is money invested in high interest bank account. Interest is calculated daily based on daily
bank deposit rates. The average interest rate was 2.41%, (2013: 2.80%).
10. Trade and other receivables
Trade receivables
2014
$
2,745,404
2,745,404
2013
$
2,474,109
2,474,109
The average credit period is 30 days. This note should be read in conjunction with Note 28(c).
11. Financial assets
Assets and liabilities held for sale at 30 June 2014 comprise listed securities held to support the advocacy
activities of the Advocacy Fund.
Available-for-sale financial assets carried at fair value
2014
$
11,576
11,576
2013
$
107,150
107,150
-
A realised loss of $6,965 (2013: $63,308) has been recognised in the consolidated statement of profit or
loss and other comprehensive income as a result of disposal of a number of shares held.
12. Other current assets
Other current assets
Prepayments
2014
$
22,947
339,024
361,971
2013
$
40,675
179,364
220,039
-
1800 021 227 | australianethical.com.au 85
australianethical Australian Ethical Investment Limited and its Controlled Entity – ABN: 47 003 188 930Consolidated Financial Report Notes to the Consolidated Financial Statements
13. Property, plant and equipment
Land and buildings
Leasehold improvements - at cost
Accumulated depreciation
Total land and buildings
Plant and equipment - at cost
Accumulated depreciation
Total plant and equipment
Total property, plant and equipment
Movements in carrying amounts
Land
Balance at the beginning of year
Reclassified as held for sale
Carrying amount at the end of year
Leasehold improvements
Balance at the beginning of year
Additions
Depreciation expense
Reclassified as held for sale
Carrying amount at the end of year
Buildings
Balance at the beginning of year
Depreciation expense
Impairment loss 1
Reclassified as held for sale
Carrying amount at the end of year
Plant and equipment
Balance at the beginning of year
Additions
Disposals
Depreciation expense
Carrying amount at the end of year
Total
2014
$
2013
$
370,491
(36,386)
334,105
320,601
(6,632)
313,969
1,565,389
(1,440,014)
125,375
1,619,935
(1,313,794)
306,141
459,480
620,110
-
2014
$
2013
$
-
-
-
230,000
(230,000)
-
313,969
49,890
(29,754)
-
334,105
733,233
320,601
(67,550)
(672,315)
313,969
-
-
-
-
-
2,133,876
(80,592)
(436,000)
(1,617,284)
-
2014
$
2013
$
306,141
37,110
(91,656)
(126,220)
125,375
524,638
15,396
(6,284)
(227,609)
306,141
459,480
620,110
-
1 As at 30 June 2013 a valuation of the Property asset (land and buildings) classified as held for sale was conducted in accordance with
the Group's policy by Jones Lang LaSalle and Knight Frank, independent valuers not related to the Group, to determine the fair value.
Based on advice received from independent valuers the directors determined that the value of the property was below the carrying value
and have noted an impairment of $436,000. Valuers Jones Lang LaSalle and Knight Frank are both members of the Institute of Valuers
of Australia. The valuation was determined by reference to recent market transactions on arm's length terms. Estimated selling costs
of $80,401 including agent’s commission and associated legal costs were deducted from the independent valuation to determine the
carrying value.
86
Australian Ethical Investment Limited and its Controlled Entity – ABN: 47 003 188 930Consolidated Financial Report Notes to the Consolidated Financial Statements
14. Intangible assets
Capitalised Website development - at cost
Accumulated amortisation
Total intangibles
Movements in carry amounts
Capitalised Website development
Balance at the beginning of year
Additions
Disposals
Amortisation expense
Carrying amount at the end of year
15. Tax assets
Deferred tax assets
The balance comprises temporary differences attributable to:
Amounts recognised in profit or loss
Employee benefits
Community grants
Loss on sale of financial instrument
Audit fees
Movements
Opening balance at 1 July
Credited/(charged) to the consolidated statement of profit or loss
and other comprehensive income
Credited/(charged) to equity
Closing balance at 30 June
16. Trade and other payables
a) Current
Trade payables
Unearned income
Sundry payables and accrued expenses
Employee bonus payable
b) Non-current
Unearned Income
2014
$
128,900
(45,678)
83,222
2013
$
99,550
(4,977)
94,573
94,573
29,350
-
(40,701)
83,222
17,746
99,550
(6,038)
(16,685)
94,573
2014
$
2013
$
265,817
92,118
-
37,921
395,856
276,897
35,187
17,225
18,856
348,165
348,165
396,685
47,691
-
395,856
(49,059)
539
348,165
-
2014
$
2013
$
1,445,704
60,668
1,678,714
285,018
3,470,104
242,676
80,155
1,547,048
66,926
1,936,805
-
202,382
202,382
253,632
253,632
1800 021 227 | australianethical.com.au 87
australianethical Australian Ethical Investment Limited and its Controlled Entity – ABN: 47 003 188 930Consolidated Financial Report Notes to the Consolidated Financial Statements
17. Tax liabilities
Current tax liabilities
Income tax payable
Deferred tax liabilities
The balance comprises temporary differences attributable to:
Amounts recognised in profit or loss:
Stamp duty on leasehold property
Gain on revaluation of financial instrument
Movements
Opening balance at 1 July
Credited/(charged) to the consolidated statement of profit or loss
and other comprehensive income
Credited/(charged) to equity
Closing balance at 30 June
18. Provisions
Current
Employee benefits - long service leave
Onerous lease provision (see below)
Non-Current
Employee benefits - long service leave
Onerous lease provision
Opening balance at 1 July
Additional provisions recognised
Provision written off in current financial year
Closing balance at 30 June
2014
$
2013
$
757,459
757,459
409,094
409,094
-
1,110
1,110
30,896
-
30,896
30,896
35,087
(30,896)
1,110
1,110
(4,191)
-
30,896
-
2014
$
2013
$
232,175
-
232,175
214,803
44,495
259,298
93,800
93,800
92,061
92,061
44,495
(44,495)
-
-
44,495
-
44,495
-
The lease in relation to the onerous lease provision was terminated during the year. The amount for
2013 represents the present value of the future lease payments that the Consolidated Entity is presently
obligated to make under non-cancellable onerous operating lease contracts, less revenue expected to be
earned on the lease, including estimated future sub-lease revenue, where applicable.
88
Australian Ethical Investment Limited and its Controlled Entity – ABN: 47 003 188 930Consolidated Financial Report Notes to the Consolidated Financial Statements
19. Contributed equity
Share Capital: 1,023,147 (2013: 1,015,086) ordinary shares
a) Movements in Share Capital
2014
$
6,432,479
2013
$
6,278,225
Balance at the beginning of
year
Shares issued
Employee share ownership
plan
Balance at end of year
2014
2013
No. of Shares
$
No. of Shares
$
1,015,086
6,278,225
1,003,035
6,038,301
8,061
154,254
12,051
239,924
1,023,147
6,432,479
1,015,086
6,278,225
At 30 June 2014 there were 1,023,147 (2013: 1,015,086) fully paid ordinary shares which have no par value.
The Company does not have authorised capital or par value in respect of its issued shares.
b) Rights
i. For detailed information relating to the Australian Ethical Investment Limited employee share
ownership plan, including details of rights issued, exercised and lapsed during the financial year
and the rights outstanding at year-end, refer to Note 27 Share-based payments.
ii. For information related to rights issued to key management personnel during the financial year refer
to the remuneration report contained within the Directors' report.
c) Ordinary shares
Ordinary shares participate in dividends and the proceeds on winding up of the parent entity in proportion
to the number of shares held. At the shareholders meeting each ordinary share is entitled to one vote when
a poll is called, otherwise each shareholder has one vote on a show of hands.
d) Capital management
The Group manages its capital to ensure that entities in the Group will be able to continue as going
concerns while maximising the return to stakeholders through the optimisation of the debt and equity
balance. The Group's overall strategy remains unchanged from 2013.
The capital structure of the Group consists of equity of the Group (comprising issued capital, reserves,
and retained earnings).
Management effectively manages the Group's capital by assessing the Group's financial risks and
adjusting its capital structure in response to changes in these risks and in the market. These responses
include the management of distributions to shareholders and share issues. The Group has external
capital requirements and at all times during the year the Group has met all externally imposed capital
requirements. Further details on the external capital requirements are contained in Note 28(e)(ii).
1800 021 227 | australianethical.com.au 89
australianethical Australian Ethical Investment Limited and its Controlled Entity – ABN: 47 003 188 930Consolidated Financial Report Notes to the Consolidated Financial Statements 20. Reserves, net of tax
Asset revaluation reserve
Balance at the beginning of year
Unrealised gains/ (losses) from revaluation
Cumulative unrealised loss reclassified to profit or loss on
impairment of available-for-sale financial assets
Cumulative realised loss reclassified to profit or loss on sale of
available-for-sale financial assets
Balance at the end of year
Share-based payments reserve
Balance at the beginning of year
Shares issued during the year
Share based payment expense
Balance at the end of year
Total Reserves
a) Nature and purpose of reserves
i. Asset revaluation reserve
2014
$
2013
$
4,047
(1,157)
(117,429)
(1,259)
-
116,811
(6,965)
(4,075)
5,924
4,047
345,281
(154,254)
930,557
1,121,584
419,500
(239,924)
165,705
345,281
1,117,509
349,328
The asset revaluation reserve represents the cumulative gains and losses arising on the revaluation of
available-for-sale financial assets that have been recognised in other comprehensive income, net of
amounts reclassified to the consolidated statement of profit or loss and other comprehensive income
when those assets have been disposed of or are determined to be impaired.
ii. Share-based payment reserve
The share-based payment reserve relates to rights granted by the Group to its employees under its
share-based payment arrangement. Items included in the share-based payment reserve will not
be reclassified subsequently to profit or loss. Further information about share-based payments to
employees is set out in Note 27.
21. Retained earnings
Balance at the beginning of year
Profit for the year
Dividends
Balance at the end of year
2014
$
669,072
2,542,526
(1,278,938)
1,932,660
2013
$
367,349
1,063,037
(761,314)
669,072
90
Australian Ethical Investment Limited and its Controlled Entity – ABN: 47 003 188 930Consolidated Financial Report Notes to the Consolidated Financial Statements
22. Assets classified as held for sale
Land and buildings1
2014
$
2,237,500
2013
$
2,519,599
1 As at 30 June 2014 a valuation of the Property asset (land and buildings) classified as held for sale was conducted in accordance with
the Group's policy by Jones Lang LaSalle and Knight Frank, independent valuers not related to the Group, to determine the fair value.
Based on advice received from independent valuers the directors determined that the value of the property was below the carrying
value and have noted an impairment of $282,099. Valuers Jones Lang LaSalle and Knight Frank are both members of the Institute of
Valuers of Australia. The valuation was determined by reference to recent market transactions on arm's length terms. Estimated selling
costs of $75,000 including agent’s commission and associated legal costs were deducted from the independent valuation to determine
the carrying value. As at the balance sheet date, the Consolidated Entity intends to dispose of the property and an active sales
campaign is underway. Details on the properties valuation and estimated selling costs for the year ended 30 June 2013 are disclosed in
note 13.
23. Commitments and contingencies
a) Leasing arrangements
Operating leases relate to leases of office premises for a term of 5 years. The Group does not have an
option to purchase the premises at the expiry of the lease period.
Payments recognised as an expense
Minimum lease payments
Non-cancellable operating lease commitments
Not later than 1 year
Later than 1 year and not later than 5 years
Liabilities recognised in respect of non-cancellable operating
leases
Lease incentives
Current
Non-current
2014
$
2013
$
207,591
186,474
222,890
662,670
885,560
296,196
937,056
1,233,252
60,668
202,382
263,050
80,155
253,632
333,787
During 2013, the Group entered into a five year lease for office premises in Sydney CBD. The lease terms
allow for annual rent increases of 4.25% together with a market review in year three of the lease.
The lease of premises at Bligh Street was cancelled during the year.
b) Guarantees
The Group has provided a guarantee for $221,733 over the rental of building premises at 130 Pitt Street.
c) Other commitments
The Group has no other commitments.
1800 021 227 | australianethical.com.au 91
australianethical Australian Ethical Investment Limited and its Controlled Entity – ABN: 47 003 188 930Consolidated Financial Report Notes to the Consolidated Financial Statements
24. Cash flow information
a) Reconciliation of cash
Cash at the end of the financial year as shown in the
consolidated statement of cash flows is reconciled to the related
items in the statement of consolidated financial position as
follows:
Cash on hand
Cash at bank
Deposits at call
b) Reconciliation of cash flows from operations with net profit
from ordinary activities after income tax expense
Net profit from ordinary activities after income tax expense
Non-cash flows in operating profit:
Depreciation and amortisation
Loss on disposal of property, plant & equipment
Adjustment to Fixed assets upon transition
Loss on sale of investment
Tax effect on sale of investments recognised in financing
activities
Share rights expensed
Impairment loss
Recognition of unearned income
Changes in assets and liabilities:
Increase in trade and other receivables
Increase in other current assets
(Increase)/decrease in deferred tax assets
Increase in trade and other payables
Decrease in provisions
Increase in current tax liability
Decrease in deferred tax liability
2014
$
2013
$
300
3,994
7,940,375
7,944,669
300
1,310,004
2,584,362
3,894,666
2,542,526
1,063,037
271,402
15,214
350
-
392,436
12,322
50,985
(1,110)
(52,060)
930,557
282,099
(70,737)
165,705
552,811
(28,017)
(271,295)
(141,932)
(47,691)
1,554,594
(25,384)
348,365
(29,786)
(758,110)
(46,441)
48,520
359,680
(6,347)
428,250
(4,191)
Net cash provided by operating activities
5,357,172
2,178,580
92
Australian Ethical Investment Limited and its Controlled Entity – ABN: 47 003 188 930Consolidated Financial Report Notes to the Consolidated Financial Statements 25. Related party transactions
Australian Ethical Investment Limited is the ultimate parent entity and owns 100% of Australian Ethical
Superannuation Pty Limited.
Australian Ethical Investment Limited acts as the responsible entity for the Australian Ethical Trusts
(Australian Ethical Balanced Trust, Australian Ethical Smaller Companies Trust, Australian Ethical Cash
Trust, Australian Ethical Larger Companies Trust, Australian Ethical International Equities Trust, Australian
Ethical Property Trust, Australian Ethical Fixed Interest Trust and the Advocacy Fund).
Australian Ethical Superannuation Pty Limited acts as trustee for the Australian Ethical Retail
Superannuation Fund.
Transactions between related parties are on commercial terms and conditions no more favourable than
those available to other parties unless otherwise stated.
a) Australian Ethical Trusts
Transactions between Australian Ethical Investment Limited, as
responsible entity, and the Australian Ethical Trusts during the
financial year consisted of:
(i) Transactions whereby Australian Ethical Investment Limited
provides investment services to and seeks expense
reimbursement from the Australian Ethical Trusts in accordance
with the trust deed.
(ii) Transactions whereby Australian Ethical Investment Limited
provides accounting services to the Australian Ethical Trusts.
(iii) Transactions whereby Australian Ethical Investment Limited
seeks expense reimbursement from the Australian Ethical Trusts
in accordance with the trust deed.
(iv) Outstanding balances at balance date:
(a) Amounts receivable from the Australian Ethical Trusts
b) Australian Ethical Retail Superannuation Fund
(i) Transactions whereby Australian Ethical Superannuation Pty
Limited provides investment services/ (rebate of investment
services) to the Australian Ethical Retail Superannuation Fund.
(ii) Transactions whereby Australian Ethical Superannuation Pty
Limited provides Administration/Trustee services to the
Australian Ethical Retail Superannuation Fund.
(iii) Transactions whereby Australian Ethical Superannuation Pty
Limited provides Member Administration services to the
Australian Ethical Retail Superannuation Fund.
(iv) Transactions whereby Australian Ethical Superannuation Pty
Limited seeks reimbursement of expenses from the Australian
Ethical Retail Superannuation Fund.
(v) Amounts receivable from the Australian Ethical Retail
Superannuation Fund.
2014
$
2013
$
15,978,015
11,174,132
-
587,184
-
886,829
1,689,795
1,170,980
2014
$
2013
$
(8,549,666)
(6,717,098)
10,652,828
6,929,928
1,442,946
1,348,303
-
1,945,517
888,253
1,303,228
1800 021 227 | australianethical.com.au 93
australianethical Australian Ethical Investment Limited and its Controlled Entity – ABN: 47 003 188 930Consolidated Financial Report Notes to the Consolidated Financial Statements Terms and conditions
No provision for doubtful debts has been raised in relation to any outstanding balances and no expense
has been recognised in respect of bad or doubtful debts due from related parties.
Outstanding balances are unsecured and are repayable in cash.
26. Key management personnel compensation
a) Key management personnel
Names and positions of key management personnel (directors and named executives) at any time during
the financial year:
Parent entity directors
Name
Stephen Gibbs
Mara Bun
Tony Cole
Kate Greenhill
Phil Vernon
Position
Chairperson, non-executive
Director, non-executive
Director, non-executive
Director, non-executive
Managing Director & Chief Executive Officer, executive
Departed Parent entity directors
Name
André Morony
Position
Director, non-executive
Stephen Newnham
Director, Business Development, executive
Other key management personnel
David Barton
Adam Kirk
David Macri
Tom May
Stuart Palmer
Paul Smith
Chief Financial Officer
General Manager, Business Development
Chief Investment Officer
General Counsel & Company Secretary
Head of Ethics & Corporate Advocacy
General Manager, Strategy & Communications
b) Key management personnel compensation
Short term employment benefits
Post-employment benefits
Other long-term benefits
Termination benefits
Share-based payments
Total compensation
2014
$
1,830,107
156,522
37,269
-
83,309
2,107,207
2013
$
1,391,480
121,613
21,313
-
150,310
1,684,716
Further key management personnel remuneration details are included in the Remuneration Report section
of the Directors' Report.
94
Australian Ethical Investment Limited and its Controlled Entity – ABN: 47 003 188 930Consolidated Financial Report Notes to the Consolidated Financial Statements 27. Share based payments
The following share-based payment arrangements existed at 30 June 2014:
During this reporting period, Australian Ethical Investment Limited issued 8,061 (2013: 12,051) ordinary
shares on conversion of 8,061 (2013: 12,051) AEFAD performance rights for nil consideration granted
under its employee share incentive scheme in December 2012. This conversion of performance rights
resulted in an increase in ordinary shares of 8,061 (2013: 12,051).
• During the 2012 reporting period 33,837 performance rights in two classes (identifiers: AEFAA
and AEFAB) were granted.
• During the 2013 reporting period 30,926 performance rights in two classes (identifiers: AEFAC
and AEFAD) were granted.
• During the 2014 reporting period 28,648 performance rights in two classes (identifiers: AEFAE
and AEFAF) were granted.
Under the Australian Ethical Investment Limited employee share incentive scheme (ESIS) participants are
granted performance rights to ordinary shares, subject to meeting specified performance criteria over the
performance period. The number of shares that the participant will ultimately receive will depend on the
extent to which the performance criteria are met by the Group and the individual employee. These rights
were issued for nil consideration. These rights hold no voting or dividend rights. Subject to the terms and
conditions of the ESIS rules, the performance rights have the following attributes determining whether
shares will be issued in respect of the rights.
ASX
Code
Number
Granted
Attributes
AEFAE
17,955
i. employment must continue until 30 June 2016
ii. the average return on equity over the performance period ("AROE")
must exceed 15%pa or no shares shall be awarded at the end of the
performance period;
–
–
if the AROE exceeds 15%pa but less than 20%pa, half the maximum
number of shares shall be awarded;
if the AROE is equal to or greater than 20%pa the maximum number of
shares shall be awarded.
AROE is determined as the average of return on equity over six month periods
calculated using audited half-year financial statements.
AEFAF
10,693
i) employment must continue until 1 July 2014.
ii) the number of shares that will be issued to each employee in respect of
their performance rights under this category will be adjusted up or down by a
maximum 20%, dependent on the absolute performance of one of the Group's
managed investment schemes, for which the employee has responsibility or
provides significant input; a managed investment scheme has been agreed
between the Group and the employee. Performance will be measured over a
period of 1 July 2013 to 30 June 2014.
a) Performance rights reconciliation
1800 021 227 | australianethical.com.au 95
australianethical Australian Ethical Investment Limited and its Controlled Entity – ABN: 47 003 188 930Consolidated Financial Report Notes to the Consolidated Financial Statements
b) Performance rights summary
Rights
Class
Performance
Year
Grant
date
Vesting
date
No.
Granted
No.
Forfeited
No.
Vested
No.
Expired
Balance
AEFAY
FY11-FY13
AEFAA FY12-FY14
AEFAC FY13-15
AEFAD FY12
AEFAE
FY14-16
AEFAF
FY13
c) Fair value - Rights
2011
2012
2013
2013
2014
2014
30/06/2013 20,582
(12,189)
30/06/2014 19,195
(11,606)
30/06/2015 23,357
(5,538)
-
-
-
30/06/2013 8,535
(474)
(8,061)
30/06/2016 17,955
30/06/2014 10,693
-
-
-
-
(8,393)
-
-
-
-
-
-
7,589
17,819
-
17,955
10,693
All rights were calculated at grant date based on
the underlying share prices minus estimated net
present value of future dividends that the holders
of rights are not entitled to.
Included under employee benefits expense in
the consolidated statement of profit or loss and
other comprehensive income is $930,557 (2013:
$165,705) relating to rights issued under the
employee share ownership plan.
28. Financial risk management
The Group has exposure to the following risks
arising from financial instruments:
– Market Risk
– Credit risk
– Liquidity risk
This note presents information about the Group's
exposure to each of the above risks, the Group's
objectives, policies and processes for measuring
and managing risk.
a) Risk management framework
The Group recognises that risk is part of doing
business and that the ongoing management of
risk is critical to its success. The approach to
managing risk is articulated in the Risk Appetite
Statement. The Risk & Compliance Manager is
responsible for the design and maintenance of the
risk and compliance framework, establishing and
maintaining group wide risk management policies,
and providing regular risk reporting to the Board,
the Audit, Compliance & Risk Committee (ACRC).
The Board regularly monitors the overall risk
profile of the group and sets the risk appetite for
the group, usually in conjunction with the annual
planning process.
The Board is responsible for ensuring that
management have appropriate processes in
place for managing all types of risk, ranging
from financial risk to operational risk. To assist
in providing ongoing assurance and comfort to
the Board, responsibility for risk management
oversight has been delegated to the ACR. The
main functions of this Committee are to oversee
the consolidated entity’s accounting policies and
practices, the integrity of financial statements
and reports, the scope, quality and independence
of external audit arrangements, the monitoring
of the internal audit function, the effectiveness
of risk management policies and the adequacy
of insurance programs. This Committee is also
responsible for monitoring overall legal and
regulatory compliance.
The activities of the consolidated entity expose
it to the following financial risks: credit risk,
liquidity risk and market risk. These are distinct
from the financial risks borne by customers
which arise from financial assets managed by the
consolidated entity in its role as fund manager,
trustee and responsible entity.
The following discussion relates to financial
risks exposure of the consolidated entity in its
own right.
b) Market risk
Market risk is the risk that changes in market
prices, such as foreign exchange rates,
interest rates and equity prices will affect the
Group's income or the value of its holdings in
financial instruments. The objective of market
risk management is to manage and control
market exposure. The Group is only exposed
to interest rate and price risk through its cash
and cash equivalents, loans and available-for-
sale investments.
96
Australian Ethical Investment Limited and its Controlled Entity – ABN: 47 003 188 930Consolidated Financial Report Notes to the Consolidated Financial Statements iii. Market risks arising from Funds
Under Management
The Group’s revenue is significantly dependent
on Funds Under Management (‘FUM’) which
is influenced by equity market movements.
Management calculates the expected impact
on revenue for each 1 per cent movement in
the S&P/ASX All Ordinaries Index. Based on
the level of the S&P/ASX All Ordinaries Index
at the end of 30 June 2014, a 1% movement
in the market changes annualised revenue by
approximately $82,500 (2013: $70,000). It is
worth noting this movement is not linear to the
overall value of the market. This means that as
the market reaches higher or lower levels, a 1%
movement may have a larger or smaller effect
on revenue as FUM and FUA are comprised
of both equity market and non-equity market-
sensitive asset classes.
iv. Equity price risk
The Group is exposed to equity price risk
through its investments held in listed securities
and investments in unlisted unit trusts. Market
securities are held to support its advocacy
activities. In order to manage the risk of
adverse price movement’s securities are
only held for the period in which the Group is
engaging with the target company.
i. Currency risk
The exposure to currency risk, as defined in
AASB 7 Financial Instruments: Disclosures,
arises when financial instruments are
denominated in a currency that is not the
functional currency of the entity and are of a
monetary nature. Hence the gains/(losses)
arising from the translation of the controlled
entities’ financial statements into Australian
dollars are not considered in this note.
All of the monetary financial instruments
held by the consolidated entity, being liquid
assets, receivables, interest-bearing liabilities
and payables are denominated in Australian
dollars. Hence fluctuations in exchange rates
do not impact the profit/(loss) for the year or
shareholders’ equity.
ii.
Interest rate risk
Interest rate risk is the risk that the fair value or
future cash flows of a financial instrument will
fluctuate because of changes in market interest
rates. The consolidated entity’s exposure to
interest rate risk arises predominantly on cash
balances held with banks. In order to manage
the interest rate risk relating to bank deposits
the CFO reviews the interest rates on those
deposits on a regular basis.
At the end of the reporting period, the Group
had the following exposure to interest rate risk:
An increase of 1% in interest rates at the end
of the period would have increased equity and
profit for the year by $79,447 (2013: $38,947).
A decrease of 1% would have an equal and
opposite effect.
At the end of the reporting period, the Group had the following exposure to market securities price risk:
Listed securities
Total
2014
$
11,576
11,576
2013
$
107,150
107,150
An increase of 10% of market prices at the end of the year would have increased equity by $1,158 (2013:
$10,715). A decrease of 10% would have an equal and opposite effect. The impact on the profit or loss of
the Group would be immaterial.
1800 021 227 | australianethical.com.au 97
australianethical Australian Ethical Investment Limited and its Controlled Entity – ABN: 47 003 188 930Consolidated Financial Report Notes to the Consolidated Financial Statements c) Credit Risk
Credit risk is the risk of financial loss from a
counterparty failing to meet its contractual
commitments. The Group is predominantly
exposed to credit risk on its deposits with banks
and financial institutions, outstanding receivables
and committed transactions. The maximum
exposure of the Group to credit risk on financial
assets which have been recognised on the
balance sheet is the carrying amount, net of any
provision for doubtful debts.
The Group manages this risk by settling the
receivables from the managed investment
schemes and superannuation funds on a monthly
basis and holding cash and cash equivalents at
financial institutions with a Standard & Poor’s
rating of ‘A’ or higher.
The table below outlines the Group’s maximum
exposure to credit risk as at reporting date.
Cash and cash equivalents
Trades and other receivables
Total
2014
$
7,944,669
2,745,404
10,690,073
2013
$
3,894,666
2,474,109
6,368,775
There is currently no past due receivables as at 30 June 2014 (2013: nil).
d) Liquidity risk
Liquidity risk is the risk that the financial
obligations of the Group cannot be met as and
when they fall due without incurring significant
costs. The Group’s approach to managing liquidity
is to maintain a level of cash or liquid investments
sufficient to meet its ongoing financial obligations.
The Group manages liquidity risk by continually
monitoring forecast and actual cash flows, and
by matching the maturity profiles of financial
assets and liabilities. Surplus funds are generally
only invested in instruments that are tradeable in
highly liquid markets. In addition, a twelve month
forecast of liquid assets, cash flows and balance
sheet is reviewed by the Board annually as part
of the budget process to ensure there is sufficient
liquidity within the Group.
Trade and other payables have the following
remaining contractual maturities at the end of the
reporting period of financial liabilities:
e) Capital management
i. Capital requirements
The Group manages its capital to ensure
that the level of financial conservatism is
appropriate for the Company’s businesses
including acting as custodian and manager of
clients’ assets. Capital is managed to provide
business stability and accommodate the
growth needs of the Group.
Part of the capital management of the
Company is to determine the dividend policy.
Dividends paid to shareholders are typically
in the range of 80–100 per cent of the Group’s
net profit after tax attributable to members of
the Company, which is in line with the historical
dividend range paid to shareholders. In certain
circumstances, the Board may declare a
dividend outside that range.
As at year end the Company had no long term
debt arrangements.
ii. External requirements
In connection with operating a funds
management business in Australia the Group
is required to hold an Australian Financial
Services Licence (AFSL). As a holder of an
AFSL, the Australian Securities & Investment
Commission (ASIC) requires the Group to:
– prepare 12-month cash-flow projections
which must be approved at least quarterly
by directors, and reviewed annually
by auditors;
– hold at all times minimum Net Tangible
Assets (NTA) the greater of:
– $150,000
– 0.5% of the average value of scheme
property (capped at %=$5 million); or
– 10% of the average responsible Entity
revenue (uncapped).
The Group must hold at least 50% of its minimum
NTA requirement as cash or cash equivalents
and hold at least $50,000 in Surplus Liquid
Funds (SLF).
The Group has complied with these requirements
at all times during the year.
98
Australian Ethical Investment Limited and its Controlled Entity – ABN: 47 003 188 930Consolidated Financial Report Notes to the Consolidated Financial Statements 29. Fair value measurements
The following table provides an analysis
of financial instruments that are measured
subsequent to initial recognition at fair value,
grouped into Levels 1 to 3 based on the degree
to which the fair value is observable.
• Level 1 fair value measurements are those
derived from quoted prices (unadjusted) in
active markets for identical assets or liabilities.
• Level 2 fair value measurements are those
derived from inputs other than quoted prices
included within Level 1 that are observable
for the asset or liability, either directly (i.e. as
prices) or indirectly (i.e. derived from prices).
• Level 3 fair value measurements are those
derived from valuation techniques that
include inputs for the asset or liability that
are not based on observable market data
(unobservable inputs).
Available-for-sale financial assets
- Listed securities at fair value
Available-for-sale financial assets
- Listed securities at fair value
2014
Level 1
$
11,576
11,576
Level 2
$
Level 3
$
-
-
-
-
Total
$
11,576
11,576
2013
Level 1
$
107,150
107,150
Level 2
$
Level 3
$
-
-
-
-
Total
$
107,150
107,150
There were no transfers between Level 1 and 2 in the year.
30. Parent entity information
The accounting policies of the parent entity, which have been applied in determining the financial
information shown below, are the same as those applied in the consolidated financial statements.
Refer to note 2 for a summary of the significant accounting policies relating to the Group.
Assets
Current assets
Non-current assets
Total assets
Liabilities
Current liabilities
Non-current liabilities
Total liabilities
Equity
Issued capital
Retained earnings
Reserves
Total equity
Profit/(loss) for the year
Other comprehensive income/(loss)
Total comprehensive income/(loss)
Parent entity
2014
$
2013
$
7,527,495
2,936,448
10,463,944
4,092,743
3,898,448
7,991,191
2,924,003
327,085
3,251,088
1,982,870
122,957
2,105,827
6,432,479
(343,796)
1,124,173
7,212,856
6,278,225
(742,189)
349,328
5,885,364
1,685,451
(8,122)
1,677,329
(223,509)
121,476
(102,033)
1800 021 227 | australianethical.com.au 99
australianethical Australian Ethical Investment Limited and its Controlled Entity – ABN: 47 003 188 930Consolidated Financial Report Notes to the Consolidated Financial Statements 31. Subsidiaries
Details of the Group's subsidiaries at the end of the reporting period are as follows.
Name of the
subsidiary
Principal activity
Australian Ethical
Superannuation
Pty Limited
Trustee of the
Australian Ethical Retail
Superannuation Fund
Place of
incorporation
and operation
Proportion of ownership
interest and voting power
held by the Group
30 June 2014
30 June 2013
Australia
100%
100%
or liabilities to which they are or may become
subject to by virtue of the Deed of Cross
Guarantee between the Company and those
group entities pursuant to ASIC Class Order
98/1418.
3. The directors have been given the declarations
required by section 295A of the Corporations
Act 2001 from the chief executive office and
chief financial officer for the financial year
ended 30 June 2014.
4. The Directors draw attention to note 2(a) to
the consolidated financial statements, which
includes a statement of compliance with
International Financial Reporting Standards.
Signed in accordance with a resolution of
the directors:
Phil Vernon
Managing Director & Chief Executive Officer
Dated at Sydney this 29th day of August 2014.
32. Events subsequent to
reporting date
The Company’s fees are primarily based on
its funds under management which in turn is
impacted by changes in equity markets. Between
30 June 2014 and the date of signing this report
the Company’s Funds Under Management has
increased by 6.1% which is estimated would
impact the net profit after tax by $700,500 on a full
year basis.
Other than as outlined in this report, no matters
or circumstances have arisen since the end of
the financial year which have or may significantly
affect the operations of the Company and its
controlled entity, the results of those operations
or the state of affairs of the Company in financial
years subsequent to the financial year ended
30 June 2014.
Directors’ Declaration
1. In the opinion of the directors of Australian
Ethical Investment Limited (the “Company”):
a. The consolidated financial statements and
notes that are set on pages 36 to 71 and
the remuneration report on page 15 to 33
in the Directors’ report, are in accordance
with the Corporations Act 2001, Including:
i. Giving a true and fair view of the
Group’s financial position as at 30 June
2014 and of its performance for the
financial year ended on that date; and
ii. Complying with Australian Accounting
Standards and the Corporations
Regulations 2001; and
b. There are reasonable grounds to believe
that the company will be able to pay its
debts as and when they become due
and payable.
2. There are reasonable grounds to believe that
the company and the group entities identified
in Note 31 will be able to meet any obligations
100
Australian Ethical Investment Limited and its Controlled Entity – ABN: 47 003 188 930Consolidated Financial Report Notes to the Consolidated Financial Statements Corporate Governance
Statement 2014
Australian Ethical
Investment Limited
This statement has been prepared under the
ASX Corporate Governance Principles and
Recommendations with 2010 Amendments (2nd
edition) (“Principles and Recommendations”) and
discloses the extent to which Australian Ethical
Investment Ltd (“Company”) has followed the
Principles and Recommendations during the
reporting period.
This statement will be posted to the ‘About Us’
section of the Company’s website.
Principle 1 - Lay solid foundations
for management and oversight
The Company has formalised the functions
reserved to the Board and those delegated
to management.
• Approval of the issue of shares and options;
• Approval of significant changes to managed
investment scheme fees, including
discount programs;
• Approval of significant changes to products or
product offerings;
• Approval of bonuses and community
grant amounts;
• Approval of the terms and conditions for any
employee share ownership scheme, or if
shareholder approval is required, approval of
recommendations to shareholders;
• Approval of employee performance based
remuneration programs;
• Approval of dividend payments and any DRP;
• Authorisation of the issue of managed
investment scheme PDSs;
• Approval of risk management and
compliance programs;
Board responsibilities
• Approval of significant Group policies;
The Board is directly responsible for the
following activities.
• Approval of indemnity, crime, director and
officer and similar insurance programs;
• Setting the strategic direction of
Australian Ethical;
• Annual appraisal of the Board;
• Approval of Board committee fees;
• Recommendation to shareholders on the
aggregate level of directors’ fees;
• Approval of individual director fees;
• Appointment and removal of the CEO;
• Annual appraisal of the CEO;
• Approval of the annual operational and capital
expenditure budget and any material revisions;
• Approval of major contracts, acquisitions or
disposals which have not been approved in
the budget;
• Authorisation of Board project expenditure;
• Sign-off of the annual audited accounts
and directors’ report for the Australian
Ethical group;
G4-34, G4-38, G4-42
• Protection and promotion of the Australian
Ethical Charter.
The following general delegations are also
in place.
The Chair of the Board is delegated with
all necessary authority to carry out the
following functions.
Inside the boardroom
• Acting as the link between the Board and the
Company when the CEO is unable to perform
this role.
• Establishing and maintaining an effective
working relationship with the CEO.
• Setting the tone for the Board, including the
establishment of a common purpose.
• Chairing Board meetings efficiently and
shaping the agenda in relation to goals,
strategy, budget and executive performance.
1800 021 227 | australianethical.com.au 101
australianethical • Work with the Company Secretary and CEO
to ensure that appropriate information is
presented to the Board.
• Ensuring contributions by all Board
members and reaching consensus when
making decisions.
• Motivating Board members and where
appropriate dealing with underperformance.
• Overseeing the process for appraising Board
members individually and the Board as
a whole.
• Overseeing conducting and finalising
negotiations for the CEO’s employment and
evaluating the CEO’s performance.
• Assisting with the selection of Board
committee members.
Outside the boardroom
• Communicating with shareholders on matters
of corporate governance.
• Chairing general meetings of shareholders.
• Ensuring compliance with ASX Listing Rules
and continuous disclosure requirements.
• Speaking with large investors.
•
In conjunction with the CEO, communicating
Board views to staff.
Board Committees – are delegated with all
necessary authority to carry out their functions as
set out in Board committee charters.
The CEO – is delegated with all necessary
authority to run Australian Ethical on an ongoing,
day to day basis other than those responsibilities
reserved to the Board and delegations (general
or specific) made by the Board to the Chair,
Board committees, Directors or other senior
executives. Specifically the CEO is delegated with
responsibility and authority for the following:
•
•
Implementing the strategic direction set by
the Board;
Implementing the risk management and
compliance programs approved by the Board;
• Approval and maintenance of Expenditure and
Payment Guidelines;
• Approval and maintenance of
Employee Authorisations;
• Employment, termination and suspension
of staff;
• Employee remuneration;
• Employee policies and procedures.
G4-38, G4-39, G4-44
The above responsibilities and delegations are
made public through the publication of this
statement and its inclusion in the corporate
governance section of the Company’s website.
Evaluating the performance of senior executives
Executive performance is evaluated in
accordance with the Company’s performance
review guidelines. The Chair conducts the CEO’s
performance review. The CEO conducts the
performance reviews of other senior executives.
In relation to senior executives the CEO completes
a draft performance review and discusses it with
the relevant executive. The discussion also covers:
• objectives for the coming year, aspirations and
areas for improvement;
•
the executive’s competencies and
qualifications to ensure they remain applicable.
If not, a training program is developed to bring
the executive to the appropriate level; and
• where remuneration is subject to performance
hurdles, the achievement of those hurdles is
reviewed and the amount of any performance
based remuneration is determined.
In relation to the CEO, the process is for the Chair
to conduct the review and present the results of
the review to the Board. The Board then has an
opportunity to provide feedback to the CEO and to
consider recommendations from the Chair on the
CEO’s remuneration package.
An evaluation of the CEO and senior executives
was undertaken in the financial year in accordance
with the processes described above.
Principle 2 - Structure the board
to add value
Independent directors
A director is an independent director if they are a
non executive director and:
• not a substantial shareholder (as defined in the
Corporations Act) or an officer of, or otherwise
associated directly with, a substantial
shareholder of the Company;
• have not within the last three years been
employed in an executive capacity by the
Company or another group member, or
been a director after ceasing to hold any
such employment;
102
• within the last three years have not been
a principal or employee of a material
professional adviser or a material consultant
to the Company or another group member, or
an employee materially associated with the
service provided;
• are not a material supplier or customer of the
Company or other group member, or an officer
of or otherwise associated directly or indirectly
with a material supplier or customer;
• have no material contractual relationship with
the Company or another group member other
than as a director of the Company;
• have not served on the Board for more than
9 years;
• are free from any interest and any business
or other relationship which could, or could
reasonably be perceived to, materially interfere
with the director’s ability to act in the best
interests of the Company.
The list reflects the relationships set out in the
Principles and Recommendations.
Unless there are specific qualitative factors
relevant to the relationship, the Board is generally
of the view that a quantitative materiality threshold
arises at 10% of the relevant amount – considered
from both the Company’s perspective and that of
the other party.
The classification of directors who held office during or since the end of the financial year is set out below.
Director
Status
Stephen Gibbs (Chair) Non independent Non
André Morony
Mara Bun
Tony Cole, AO
Kate Greenhill
Phillip Vernon
Stephen Newnham
Executive Director
Independent Non
Executive Director
Independent Non
Executive Director
Independent Non
Executive Director
Independent Non
Executive Director
Non independent
Executive director
Non independent
Executive Director
Appointed 25 July 2012; elected on 20 November
2012; appointed Chair on 1 March 2013
André’s term expired at the end of the 2013 AGM; he
chose not to stand for re-election.
Mara was appointed by the Board on 4 February 2013
and was elected to a three year term at the 2013 AGM
with 77.8% of the vote cast for her election.
Tony was appointed by the Board on 4 February 2013
and was elected to a three year term at the 2013 AGM
with 85.7% of the vote cast for his election.
Kate was appointed by the Board on 22 February
2013 and was elected to a three year term at the 2013
AGM with 79.1% of the vote cast for her election.
Phillip is the Managing Director and CEO.
Steve resigned on 24 July 2013 after accepting a
position with another financial services organisation.
On 30 June 2013 the Board was comprised of
three independent non-executive directors, one
non independent non-executive director and one
executive director.
Stephen Gibbs was appointed as a director by the
Board on 25 July 2012 and was voted into office at
the 2012 AGM with 99.8% of the vote cast for his
election. Stephen was the Chair of CAER Pty Ltd,
a major supplier of ethical research services to
the Company. Consequently, Stephen, as a former
officer of a material supplier, is classified as a non-
independent non-executive director until 24 July
2015. Stephen has been the Chair of the Board
since 1 March 2013.
There have been no changes to board
membership over the course of the reporting
year. The Board is dominated by independent
directors. This is consistent with the Principles and
Recommendations and the Board’s intention is to
keep this balance as it represents best corporate
governance and alignment with the Australian
Ethical Charter.
Independent legal and other
professional advice
Subject to the qualifications below director’s
have a right to seek independent legal and other
professional advice at the Company’s expense
on any aspect of the Company's operations or
undertakings in order to fulfil their duties and
responsibilities as directors. The right of directors
to seek independent legal and other professional
advice at the Company’s expense is subject to
them complying with the following requirements.
G4-38
1800 021 227 | australianethical.com.au 103
australianethical • They must have the prior approval of the Chair
to seek the specific independent legal and
other professional advice.
• ensure the directors have the appropriate
mix of competencies to enable the Board to
discharge its responsibilities effectively;
• They must ensure that the costs
• develop Board succession plans to ensure
are reasonable.
• Any advice received must be made available to
the rest of the Board unless either the Chair or
the Board agree that the rest of the Board does
not need to see the advice.
Chair of the Board
As noted above Stephen Gibbs, the Chair
during the reporting period, is considered to
be a non independent director. However, it is
the Board’s view that this classification is the
result of a strict application of the Principles and
Recommendations rather than being indicative of
any actual conflict.
Nomination Committee
The Board has a People, Remuneration and
Nominations Committee comprising Steve Gibbs,
Kate Greenhill and Tony Cole.
Attendance at meetings is detailed in the directors’
report. A summary of the Committee’s Charter is
available from the corporate governance section
of the Company’s website.
Board and director evaluation
A Board assessment was commenced but not
completed in the relevant period. The Board was
formed in February 2013 and since that time has
worked on establishing effective work routines and
cohesion. It is the Board’s intention to conduct
annual board assessments and to periodically
work with an external facilitator.
an appropriate balance of skills, diversity,
experience and expertise is maintained;
• make recommendations to the Board relating
to the appointment and retirement of directors.
The People, Remuneration and Nominations
Committee considers the above responsibilities,
the current Board composition, any nominations
or suggestions for directorship and the
assessment of incumbent directors when making
recommendations to the Board on composition on
an annual basis.
Principle 3 – Promote ethical and
responsible decision making
The Company is an ethical investment company
that manages money in accordance with the
Australian Ethical Charter. The Charter is in the
Company’s constitution and informs all aspects
of the Company’s operations. The Charter is
available on the Company’s website.
Code of conduct
The Company has a code of conduct that applies
to directors and staff. It is available on the
Company’s website.
Share trading
The Company has a share trading policy that
applies to directors and staff.
Diversity
Director skills and experience
The time in office, skills, experience and expertise
of each director in office during the year is
included in the directors’ report.
The Company has a diversity policy that includes
measurable objectives for achieving gender
diversity and requires annual assessment against
the objectives and progress in achieving them.
The Diversity Policy States:
Selection and appointment of directors and
re-appointment of incumbents
The People, Remuneration and Nominations
Committee has the following responsibilities:
• assess the necessary and desirable
competencies of directors;
“ AEI’s Board of Directors will establish measurable
objectives for achieving gender diversity in the
workplace and will undertake a review of progress
against these objectives annually.”
G4-40
104
The following Gender Diversity Targets have been adopted:
Target Date
30 June 2013
31 December 2016
Target
• 25% of the AEI Board will be female
• 25% of Management at AEI will be female
• 40% of the AEI Board will be female
• 40% of Management at AEI will be female
While this policy is aimed at increasing female
representation at no time will AEI have more than:
A summary of the Audit Committee’s Charter is on
the Company’s website.
• 75% of either gender up to 31 December 2016;
or
• 60% of either gender after 31 December 2016.
As at 30 June 2014 40% of the Board were
female reflecting the importance the Company
places on achieving gender diversity. In relation
to management 13% were female compared to
22% the previous year. As a small organisation
turnover of small numbers of employees can have
a significant impact on gender diversity and our
size also makes achieving a desired gender mix
more challenging. We are taking positives steps
to improve the level of female representation at
management level including:
• ensuring that our recruitment and selection
practices include formal consideration of the
desired diversity profile;
• ensuring where possible that candidates
are interviewed by a diverse selection of
employees in the workplace;
• developing a pool of skilled and experienced
employees, in particular women, through
initiatives focused on skills development,
such as leadership development/executive
mentoring programs or more targeted
initiatives relating to career advancement
including those that develop skills that prepare
employees for management roles.
Principle 4 - Safeguard integrity
in financial reporting
Audit Committee
Throughout the period, the Board had an Audit
Committee consisting of four members being
two external members, an independent non-
executive director and a non-independent non-
executive director.
The qualifications of those appointed to the Audit
Committee are provided in the directors’ report, as
are the number of meetings of the committee and
attendance at meetings.
As two members of the Audit Committee are not
directors of the Company, it does not comply
with recommendation 4.2 “consists solely of non
executive directors”. However, the Board is of the
view that notwithstanding this the structure of the
Audit Committee is consistent with the spirit of
the recommendations and the Committee is able
to perform its functions with independence and
diligence. In particular it is noted that:
•
•
the Audit Committee is comprised only of non
executives, is chaired by an independent chair
who is not the Chair of the Board and currently
has three other members;
the Audit Committee speaks directly to the
external auditor in the absence of executive
management at meetings and as required at
other times.
The Audit Committee considers the performance
and independence of the external auditor over
the course of a reporting period. In selecting an
external auditor the Board seeks competence,
industry experience, integrity and independence.
In normal circumstances, appointment of the
external auditor will typically continue for a
significant number of years. Rotation of external
audit engagement partners occurs in accordance
with the rotation requirements of the Corporations
Act 2001.
A significant change for the Company was the
appointment by the AGM in November 2013 of
KPMG as auditors of the Company, its subsidiary,
the registered managed investment schemes and
the Superannuation Fund.
Principle 5–Make timely and
balanced disclosure
The Company has written policies and
procedures designed to ensure compliance with
the ASX Listing Rule disclosure requirements
and accountability at senior executive level
for compliance. The disclosure policy appears
in the corporate governance section on the
Company’s website.
1800 021 227 | australianethical.com.au 105
australianethical Principle 6 - Respect the rights
of shareholders
The Company does not have a separately
documented policy for shareholder
communication. However:
The Board requires management to implement
the risk management system and to report to
it on whether material business risks are being
appropriately managed. During the relevant
period, management has reported to the Board’s
Audit, Compliance and Risk Committee.
•
•
the website includes comprehensive sections
that provide shareholders (and other
stakeholders) with information about corporate
activities (including Company announcements);
the website also provides shareholders with
guidance on a range of issues concerning the
management of their shareholdings;
CEO and CFO sign-off of financial reports
The Company requires the CEO and the CFO
to state in writing to the Board that the financial
reports present a true and fair view, in all material
respects, of the Company’s financial condition
and operating results and are in accordance with
relevant accounting standards.
The CEO and CFO certify to the Board that the
integrity of the financial statements is founded
on a sound system of risk management and
internal control, and that the system is operating
effectively in all material respects in relation to
financial reporting risks.
Principle 8 - Remunerate fairly
and responsibly
People, Remuneration and
Nominations Committee
The Board has a People, Remuneration and
Nominations Committee. Details of attendance
at meetings of the committee are provided in the
directors’ report. A summary of the Committee’s
Charter is available in the corporate governance
section of the Company’s website.
Details of remuneration
Details of remuneration paid to directors and
key management personnel during the reporting
period are set out in the directors’ report. The
report distinguishes the structure of non executive
director remuneration and that of executive
directors. Non executive directors receive fees for
serving as a director in the form of cash payments,
plus superannuation contributions. They do not
participate in bonus or equity schemes designed
for the remuneration of executives.
• a facility is available to shareholders to be
advised via e-mail when announcements
are made;
•
•
the Company has a very active social media
presence that keeps shareholders and
other stakeholders continually updated
on issues relevant to the Company and
responsible investments;
the Company has a regular sequence of
communication points with investors and
members including a newsletter, Good Money,
for trust and superannuation investors;
• since listing the Company has also produced a
shareholder newsletter;
•
•
the Board recently resolved to hold AGM’s
in various locations to promote participation
and dissemination of information to
all shareholders;
the Company also produces a sustainability
report using Global Reporting Initiative
guidelines. The sustainability report is available
on the Company’s website; and
•
the Company complies with the corporate
governance guidelines for notices of meeting.
Principle 7–Recognise and
manage risk
Policies for the oversight and management
of material business risks and
internal controls
The Company has established policies for the
oversight and management of material business
risks. The Company’s risk management guide is
available from the corporate governance section
of its website.
G4-46
106
Shareholder Information
Top 20 Holdings as at 25-09-2014
Holder Name
SELECT MANAGED FUNDS PTY LTD
CITICORP NOMINEES PTY LIMITED
JAMES ANDREW THIER
MS CAROLINE LE COUTEUR
MR HOWARD PENDER
MR ERIC YIN WANG TSE & MRS PATTY BIK YUK TSE
MR TREVOR ROLAND LEE
MRS JUDITH MARGARET BOAG
MR BRUCE ALLAN MCGREGOR & MRS ANN MARION MCGREGOR
HB SARJEANT & ASSOC PTY LTD
Continue reading text version or see original annual report in PDF format above