About
this report
Welcome to Australian Ethical Investment Limited’s
(AEI) Annual and Sustainability Report 2017. This year
we again combine the reporting of our financial and
sustainability disclosures. To help tell our story, we also
provide a range of digital insights on our website.
We have developed this report in accordance with the
‘Comprehensive’ requirements of the Global Reporting
Initiative’s (GRI) G4 sustainability reporting framework
and utilised the Financial Services Sector Disclosures.
We have included the performance for AEI and its
wholly owned subsidiaries — Australian Ethical
Superannuation Pty Ltd (Australia Ethical Super) and
Australian Ethical Foundation Limited
(The Foundation) — for the period 1 July 2016 to 30
June 2017 (FY17).
However, purely for GRI reporting purposes, we have
excluded the Australian Ethical owned building in
Canberra, as it is fully let to third parties.
This year we introduce you to our newly evolved brand.
We also focus on our key stakeholders: our employees,
our clients, our shareholders and the community in which
we live and work in. We have used their perspectives to
identify the most important things our business can and
should influence.
KPMG have audited the financial statements and have
also provided limited assurance on certain sustainability
disclosures in this report.
We welcome your feedback on this report. Please contact
Tom May, General Counsel and Company Secretary,
Australian Ethical Investment Limited on 02 8276 6294 or
at tmay@australianethical.com.au.
Our Corporate Governance Statement is available at
australianethical.com.au/shareholders/corporate-
governance
Contents
About this report
Managing Director and Chairman’s Review
Financial performance
Year in review
Our Ethical Charter
Our approach to ethical investing
Investment without compromise
Investment performance
Towards net zero
Reporting what matters most
Our people
Our clients
Shareholders
Our community
Our Board
Our senior leadership team
Directors’ Report
Remuneration Report
Lead Auditor's Independence Declaration
Annual Financial Statements
Shareholder Information
Company Directory
2
4
8
11
12
14
16
20
30
31
36
37
39
40
42
45
50
66
67
109
112
1
Annual & Sustainability Report 2017
Managing Director and
Chairman’s review
Australian Ethical has been the quiet achiever
in its field for over 30 years. Not anymore.
Never has it been so important for the power of
money to be a force for good. Now is the time
for our message to be loud and clear. Our track
record and credentials prove we are authentic,
professional leaders in our industry and now in
2017, our continued growth trajectory means
we have become substantial.
To signal this evolution to the market we have
evolved our brand. Our name is our marque,
and is now intrinsically linked to our logo. The
new logo, rich brand colours and impactful
imagery you see featured throughout this report
helps us celebrate the beauty and potential of
the planet we are fighting hard to preserve.
RISE OF THE
CONSCIOUS CONSUMER
Extraordinary events in the past year, including the outcome
of the ‘Brexit’ vote, the new administration in the US and
the announcement of its intention to withdraw from the
Paris agreement, show an unhealthy trend at a macro
level towards nationalism and away from global accords
designed for the greater good. Rather than these world
events being an impediment to the growth of our business,
we have seen the continued rise of the conscious consumer.
People frustrated and disillusioned with the global political
environment are choosing to take more direct action with
their consumption and investment choices. This can only be
good for the planet.
This trend is reflected in the continued growth of the
core responsible investment segment in Australia (26% in
calendar year 2016)1 and of our own business. A recent
report by KPMG identified Australian Ethical Super as the
fastest growing super fund in Australia in 2016, by both
membership and assets under management2. Though
industry comparisons are not yet available for FY17, our
growth rates have continued unabated, with a 42% increase
in net flows for this period.
This growth opportunity has seen the entry of niche players
into the responsible investing space. In our view, there is
room for all. As long as these new players are truly living up
to the label of the responsible investing they promote, and
providing their clients with value for money investment and
retirement products, then the more money that is directed
towards doing good for the planet, the better for all of us.
2
Phil Vernon
Managing Director & CEO
ETHICAL LEADERS
We are living proof that financial services organisations can
give equal weight to social and environmental factors, along
with financial returns, to deliver equally well on all dimensions.
We continue to be the leader in ethical investment in Australia
with the highest ethical conviction in our investment selection,
coupled with our advocacy for more ethical behaviour in the
corporate and broader community.
Our leadership is globally recognised. In September 2017,
we were again named in the top 10% of all Certified B Corps
on the Global B Impact Assessment list, and in October 2016
the French Government recognised us for our leadership on
portfolio decarbonisation.
In 2017, we continued to encourage the big banks and
large corporates to better disclose their exposure to carbon
emissions. We asked oil and gas producer Santos to explain how
they are responding to climate risk and were pleased when
Westpac publicly stated that they would not lend money to the
proposed Adani Carmichael mine.
We also sought to influence the way companies identify and
manage human rights risks in their business and supply chain.
In 2017 we made a submission to the public hearing on modern
slavery legislation. We believe the presence of forced labour in
the operations and supply chains of any business or industry
should not be tolerated.
Australian Ethical is proud to be fossil fuel free. We also track
the exposure to carbon emissions of our investment portfolio.
In 2017 we reduced our own exposure to carbon by 46% to 90
tonnes/$m. This is 66% less than the benchmark3. Our target is
to fully decarbonise all our portfolios by 2050. This aligns at a
portfolio level with the outcomes of the Paris Agreement.
Through our Community Grants program we donated $280,000
in 2017 to not for profit organisations – a total of more than
$2.2 million since 2000. This goes to the heart of our ethos of
creating a more empathetic model for the financial system.
chosen as “the clear leaders in this area, with a strong team and
performance record.”
The market continues to take great interest in our progress. Our
share price started the year at $81.11 and finished at $94.60 on
30 June 2017, an increase of 17%. This strong performance adds
to our solid track record of growth over the last decade. What’s
more, we’ve been able to achieve these results for shareholders
while rigorously applying our ethical charter to everything we do.
SUSTAINABLE GROWTH
THE CHALLENGES
In 2017 we achieved, and in many cases surpassed, every
milestone we set for ourselves. We are tracking well towards
our target of $5 billion in funds under management (FUM) by
2020, passing the milestone of $2 billion in FUM in April 2017
and finishing the year at $2.145 billion in FUM. This is the result
of strong net inflows of $454 million, a 42% increase on 2016.
We continued to deliver our strong investment performance
track record in 2017. Our flagship Australian Shares fund
continued to outperform its benchmark over the short,
medium, long and very long term. The default MySuper option
for our super fund members, the Balanced Accumulation
Option, also continued to outperform its benchmark.
As at 30 June 2017, our super fund membership had grown to
35,352, a substantial 34% increase on the previous year. Our super
fund member engagement is incredible, with more than 110,000
followers on social media and a Net Promoter Score for our super
fund members of +554.
We have seen growing interest from institutions as their members
demand ethical investment choices. In July 2017 we saw our
first $100 million+ institutional investment from Australian
Catholic Super who cited member demand as the reason for their
decision. CEO Greg Cantor explained that Australian Ethical was
Steve Gibbs
Chairman
It is critical to all our stakeholders that we manage the
exponential growth of our business in a sustainable way. We
did have our share of challenges in 2017.
Our net profit for the period was down 8% on 2016 to $2.924
million. This decrease was primarily due to the costs of
remediating the unit pricing error discovered by management
in 2016. Our response to this error was to communicate to
the market, identify the root cause, tell our affected members
and remediate their accounts. We made certain our members
were put back in the position they would have been in, had the
error not occurred. These tasks have all been completed.
Our employee expenses also increased in FY17 by 24%. We
have increased our bench strength in the operations and risk
areas with a number of significant hires. We have also made
additional investments in our marketing and sales capability
to enhance our support of not only our direct members and
investors, but also the adviser, employer and institutional
channels. These investments are already delivering tangible
results with an uplift in adviser numbers, platform listings and
new institutional business.
This is a step-change strengthening of our support
infrastructure to ensure that we continue to effectively
manage our vigorous growth in the
years ahead.
In 2017 our management effort was also
directed to incorporate a raft of regulatory
changes affecting superannuation, including
the new contributions caps, the transfer of
super amounts to the pension phase, new
disclosure requirements for investment fees
and the new attribution managed investment
trust regime which applies to managed funds
investors and which we hope will provide then
with more flexibility.
We also took the opportunity to review our
managed funds fees and better align them
with the underlying costs of managing
the funds.
3
Annual & Sustainability Report 2017Annual & Sustainability Report 2017
Financial
performance
FUNDS UNDER MANAGEMENT
We are tracking well towards our ambitious goal of $5 billion in FUM by 2020. In FY17 our
super fund FUM grew by a substantial 43% to $1.491 billion and managed funds by 27% to
$654 million. Our overall FUM increased by 38% to $2.145 billion.
We believe this sustained growth is attributed to our leadership in this rapidly growing
segment of the market. Our long-term investment track record, high ethical conviction and
fully-featured products covering all asset classes offer a unique combination in the market.
Our ongoing strategy to progressively reduce our fees has also contributed to our success.
Funds under
management
in $m
1,491.3
Annual flows
in $m
654.1
Managed
Funds
Superannuation
Managed Funds
Superannuation
Net Flows
700
600
500
400
300
200
100
0
(100)
(200)
4
I
n
fl
o
w
s
O
u
t
fl
o
w
s
2013
2014
2015
2016
2017
OUR PRODUCTS
Super Investment Options
Defensive
Balanced
Growth
Smaller Companies
International Shares
Conservative
Advocacy
Pension Investment Options
Defensive
Balanced
Growth
Smaller Companies
International Shares
Conservative
Total
Managed Funds
Advocacy Fund - Retail
Advocacy Fund - Wholesale
Australian Shares Fund - Retail
Australian Shares Fund - Wholesale
Balanced Fund - Retail
Income Fund - Retail
Income Fund - Wholesale
Diversified Shares Fund - Retail
Diversified Shares Fund - Wholesale
Emerging Companies Fund - Retail
Emerging Companies Fund - Wholesale
Fixed Interest Fund - Retail
Fixed Interest Fund - Wholesale
International Shares Fund - Retail
International Shares Fund - Wholesale
Other Direct Equities
Total
$m
50.0
629.0
237.8
314.3
40.8
51.4
74.5
4.3
44.8
7.2
21.3
2.6
13.3
1,491.3
$m
2.8
25.4
134.9
159.5
114.4
1.5
6.6
43.8
84.3
3.2
23.8
0.5
15.7
2.6
33.5
1.6
654.1
5
Annual & Sustainability Report 2017Annual & Sustainability Report 2017 REVENUE
In FY17, our revenue was up 23% from $23.0 million recorded for the previous year to
$28.3 million. This was largely driven by record levels of net inflows and asset management
performance. At the same time we have reduced our revenue margins in line with our fee
reduction strategy.
Product
FUM based revenue margins %
Managed Funds
Superannuation
All Products
FY15
2.09
1.74
1.86
FY16
1.71
1.40
1.50
FY17
1.60
1.25
1.36
Annual flows
FUM ($M)
2,500
2,000
1,500
1,000
500
0
FUM
Average revenue margin (ARM)
ARM (%)
2.50
2.00
1.50
1.00
0.50
0.00
2013
2014
2015
2016
2017
Average revenue margin (ARM) is FUM-based revenue as a proportion of average FUM
over the year. Our aim is to be at the 75th percentile and of our MySuper peer group by
2020. We are working to achieve this through a measured reduction strategy. FUM-
based revenue is one component of total revenue. Other revenue includes member
and withdrawal fees, interest and rent. Details can be found in Note 5 of the Financial
Statements in this report.
FINAL DIVIDEND
A fully franked dividend of $2.10 per share was declared for the full year ended 30 June
2017, bringing the total dividend for the year to $2.60 per share. The record date for the
dividend is 8 September 2017.
FINANCIAL POSITION
We retain a strong balance sheet position with no debt. Net assets increased by 5% to
$13.9 million. The majority of assets are held in cash to meet our Australian Financial
Services Licence (AFSL) requirements. The only significant non-cash asset is a property
held in Canberra, which is discussed in detail in Note 15 of the Consolidated Financial
Report. The assets held in excess of the licence requirements provide a buffer in the event
of a sustained market downturn and allows the company to capitalise on future growth
opportunities.
1. Responsible Investment Benchmark Report 2017, Responsible Investment Association Australasia (RIAA)
2. Super Insights Report 2017, KPMG. Published 6 June 2017
3. Blended benchmark of the S&P ASX 200 Index (for Australian shareholdings) and MSCI World ex Australia Index
(for international shareholdings).
4. Pollinate Research February 2017
TRUE TO LABEL
We were there at the inception of the
responsible investment sector in Australia
and remain the leading provider.
We have nurtured the sector by our
involvement in Responsible Investment
Association Australasia (RIAA), B Corps,
the Investor Group on Climate Change
and Sustainable Business Australia to
name a few.
Being a responsible investor means
having a holistic view. We have more
than 30 years’ experience applying the
principles of our broad-based ethical
charter to ensure our investments align
with a sustainable future. The way we
recruit, the way we invest, the way we
treat our employees and suppliers, the
decisions made by our Trustee are all
governed by our Ethical Charter. We are
not a ‘single slogan’ offering, but are true
to our ethical label, through and through.
For over 30 years we have been true
to our Ethical Charter. Our employees,
our clients and, our shareholders choose
us because:
• We are fossil-fuel free*
• We are tobacco free
• We are nuclear weapons free
• We do not invest in businesses
involved in cruelty to animals
• We do invest in sustainable,
future-building businesses
• We pride ourselves on our ethical
business practices
• We actively engage with businesses
to advocate for positive change
• We donate 10% of our profits**
to not-for-profit organisations
6
*Since 1 July 2016 we have been free from all companies whose main business is fossil fuels, as well as diversified companies that earn some fossil
fuel revenue and aren’t creating positive impact with their other activities. We may invest in a diversified company which is having a positive impact
in other ways such as producing renewable energy, provided its fossil fuel revenue is sufficiently low (a maximum of 5% to 33% depending on the
fuel). Assured by KPMG.
**Before deducting bonus and grant expense
7
Annual & Sustainability Report 2017Annual & Sustainability Report 2017
Year in review
Fastest
growing
SUPER FUND IN AUSTRALIA
IN 2016 BY ASSETS
UNDER MANAGEMENT+
R
E
B
M
U
N
$2.1
billion
IN FUNDS UNDER
MANAGEMENT
By AUM
Australian Ethical Super
Netwealth Investments
Care Super
Prime Super
Sunsuper
Unisuper
QSuper
HostPlus
BUSSQ
Guild Super
Fastest
growing
SUPER FUND IN
AUSTRALIA BY NUMBER
OF MEMBERS+
R
E
B
M
U
N
0%
10%
20%
30%
Australian Ethical Super
By members
NILINVESTMENT IN
FOSSIL FUELS ^
SMSF
Macquarie
Netwealth Investments
Guild Super
Catholic Super
Zurich
Legal Super
State Super
HostPlus
0%
10%
20%
INVESTMENTS PRODUCED
CO2
66% Less
than benchmark
emissions intensity **
NILINVESTMENT
IN NUCLEAR @
$ 320,000
PROVISIONED FOR
COMMUNITY IMPACT
IN FY18
$28.3
million
REVENUE
$2.9
million
PROFIT AFTER TAX
270 cents
BASIC EARNINGS PER SHARE
22.2%
RETURN ON EQUITY
110,000
Followers
ON SOCIAL MEDIA
+55
NET PROMOTER
SCORE FOR
OUR SUPER FUND #
SUPER MEMBERS
35,000+
34%
INCREASE
SINCE FY16
Best for
the World
STATUS BY B CORP >
+ KPMG Super Insights Report 2017. Published 6 June 2017.
** Emissions of Australia Ethical share investments
compared to benchmark of S&P ASX 200 Index (for
Australian shareholdings) and MSCI World ex Australia
Index (for international shareholdings). Calculated as at 31
December 2016.
@ A report by PAX and the International Campaign to
Abolish Nuclear Weapons (ICAN) noted Australian Ethical
as the only Australian firm to make it on the ‘Hall of Fame’
list. (Do not invest in any nuclear associated companies
and applied no revenue threshold for companies for
manufacture of weapons, uranium mining, and nuclear
generation.)
# +55 (Pollinate Research February 2017).
> B Corp certification by B Lab: AEI recognised as one of the
2016 Best for the World companies.
^ Assured by KPMG.
8
9
Annual & Sustainability Report 2017Annual & Sustainability Report 2017 Our Ethical Charter
unchanged since 1986
©
AUSTRALIAN ETHICAL SHALL SEEK OUT
INVESTMENTS WHICH PROVIDE FOR AND SUPPORT:
the development of workers’ participation in the ownership and control of
their work organisations and places
the production of high quality and properly presented products and services
the development of locally based ventures
the development of appropriate technological systems
the amelioration of wasteful or polluting practices
the development of sustainable land use and food production
the preservation of endangered eco-systems
activities which contribute to human happiness, dignity and education
the dignity and wellbeing of non-human animals
the efficient use of human waste
the alleviation of poverty in all its forms
the development and preservation of appropriate human buildings and landscape
AUSTRALIAN ETHICAL SHALL AVOID ANY
INVESTMENT WHICH IS CONSIDERED TO
UNNECESSARILY:
pollute land, air or water
destroy or waste non-recurring resources
extract, create, produce, manufacture, or market materials, products, goods
or services which have a harmful effect on humans, non-human animals or
the environment
market, promote or advertise, products or services in a misleading or deceitful manner
create markets by the promotion or advertising of unwanted products or services
acquire land or commodities primarily for the purpose of speculative gain
create, encourage or perpetuate militarism or engage in the manufacture of armaments
entice people into financial over-commitment
exploit people through the payment of low wages or the provision of poor
working conditions
discriminate by way of race, religion or sex in employment, marketing, or
advertising practices
contribute to the inhibition of human rights generally
© 1989: Australian Ethical Investment Ltd (ABN 47 003 188 930; AFSL 229949). Except as expressly permitted by the Copyright Act 1968 (Cth)
no part of this Charter may be reproduced in any form or by any process without the written permission of Australian Ethical Investment Ltd.
Our mission
For over 30 years we have been guided
by our Ethical Charter and focused on the
most critical global imperative of our era,
the transition to net zero emissions. We
are unashamedly a profit-driven business,
but we believe and have proven that you
can deliver great financial outcomes for
customers and shareholders, while making
thoughtful decisions that are protective of
the planet, people and animals.
10
11
Annual & Sustainability Report 2017Annual & Sustainability Report 2017 Our approach
to ethical
investing
Our long-term investment track record,
high ethical conviction and fully featured
products covering all asset classes are unique
in the market.
Follow the diagram to see how we apply our
Ethical Charter to determine companies that
help create a better world. All the investments
in our portfolio have been subject to this
process. (Assured by KPMG)
STEP 1:
INVESTMENT
IDEA
STEP 2:
ETHICAL
SCREENING
Investment ideas can come
from lots of sources such as our
investment analysts scouring the
markets for good investment
opportunities, Portfolio Managers
filtering potential investments
that match the portfolio criteria or
from our ethics research analysts
screening the global equity
market for stocks that meet our
ethical criteria.
Research from decision frameworks and data & analysis help answer the ethical charter questions:
COMPANIES
THAT DO NOT
ALIGN WITH
OUR ETHICAL
CHARTER
Does the investment create positive impact?
YES
Eg: education, clean energy, healthcare, energy efficiency
Does it avoid causing unnecessary harm?
YES
Eg: no systematic worker exploitation
Do the positives outweigh the negatives?
YES
Eg: positives of renewable energy outweigh well-managed,
local community impacts
NO
NO
NO
COMPANIES
THAT CREATE
A BETTER WORLD
START
RISK / RETURN ASSESSMENT PROCESS
STEP 3:
ANALYSIS FOR
PORTFOLIO
INCLUSION
The Investment Analyst or
Portfolio Manager makes the
case for portfolio inclusion
taking into account such things
as expected risk and return
and the impact on the overall
portfolio.
STEP 4:
APPROVAL
OR
REJECTION
Our Chief Investment Officer
has ultimate responsibility
on whether an investment is
approved and assigns a limit
which is the maximum amount
the relevant portfolio can invest.
STEP 5:
CONTINUAL
MONITORING
We continually monitor all our
portfolios to ensure that they
will deliver on what we expect
from them. Should an individual
investment not meet our
stringent ethical and investment
criteria we will divest.
WE BELIEVE INCORPORATING ETHICS
INTO OUR INVESTMENT PROCESS
HELPS US TO IDENTIFY RISK AND
OPPORTUNITIES EARLIER THAN
MOST OTHER FUNDS.
12
13
Annual & Sustainability Report 2017Annual & Sustainability Report 2017
Investment without
compromise
INVESTING IN COMPANIES THAT DO GOOD
PROFESSIONAL, ETHICAL INVESTING
The unique combination of ethical screening and investment know-how delivers investment
portfolios that create strong positive impact for the planet, people and animals. Our Ethical Charter
has both positive and negative screens, which means we don’t simply avoid companies with a negative
impact, but we proactively seek companies that do good. Companies are selected for the benefits
provided by their products and services, and for their responsible management of their social and
environmental impacts.
Example: The positive impact of two Ethical Charter principles
Charter
principles
Investment
implications
Outputs from
investment
Impact of our
investment
Contribution to Sustainable
Development Goals (SDGs)
The
development
of appropriate
technological
systems
Included:
Solar, wind,
geothermal,
other renewable
energy
The
amelioration
of wasteful
or polluting
practices
Technologies
which increase
efficiency
Recycling
Excluded:
Fossil Fuels
Clean energy
generated
Helps limit
global warming
Energy saved
Waste recycled
Off-grid energy
supplied
Sustainable
energy system
to alleviate
poverty and
for human
flourishing
Scarce resources
preserved
for future
generations
The 17 ‘SDGs’ are goals
adopted by world leaders in
2015 ‘to end poverty, protect
the planet, and ensure
prosperity for all’.
We have managed our clients’ money with the utmost care and responsibility for over 30 years.
We offer a suite of ethical investment options designed to cater to multiple risk profiles.
All our investments are governed by the same rigorous ethical investment process.
We have demonstrated that you do not need to compromise on investment performance if you
choose to invest ethically. In fact, we believe that incorporating ethics into our investment process
actually helps us identify investment risks and opportunities earlier than most other funds.
For example, we have been assessing companies’ exposure to climate change risk for decades,
not years. And we have been investigating which companies will thrive in a world where an ageing
demographic is a significantly dominant force.
Due to the growth of the ethical investing segment, there have been a number of new competitors
entering this space. In many cases, they use a ‘single-topic’ label as a marketing hook, and apply
a limited form of screening. None however, can boast the authenticity of our business model, our
Ethical Charter, our product offerings and our sustained track record of investment performance.
We will continue to construct well diversified portfolios and continue to actively look for ‘future-
building’ investments that will drive a sustainable society and economy, and generate returns for our
investors.
14
15
Annual & Sustainability Report 2017Annual & Sustainability Report 2017 Investment
performance
MANAGED FUNDS RETURNS TO 30 JUNE 2017
Our flagship fund, the Australian Shares Fund, again managed to deliver significant outperformance versus its benchmark
(S&P/ASX Small Industrials Accumulation index) over the 12 months ending 30 June 2017. It has a long and successful track
record with the Fund outperforming over all time periods shown below.
Fund^
Income
Income (wholesale)
Benchmark: 90 Day Bank Bill Swap Rate
Fixed Interest
Fixed Interest (wholesale)
Benchmark: Bloomberg Composite Bond Index
Balanced
Benchmark*
Diversified Shares
Diversified Shares (wholesale)
Benchmark: 75% S&P / ASX 200 Industrials
Accum Index and 25% MSCI World ex Aus Index
Advocacy
Advocacy (wholesale)
Benchmark: 75% S&P / ASX 200 Industrials
Accum Index and 25% MSCI World ex Aus Index
Australian Shares
Australian Shares (wholesale)
1Y
(%)
1.7
2.2
1.8
(1.4)
(0.5)
0.2
6.6
9.7
8.6
10.0
13.2
8.6
10.0
13.2
11.5
13.2
Benchmark: S&P / ASX Small Industrials Accum Index
7.9
International Share
International Share (wholesale)
Benchmark: MSCI World ex Aus Index
Emerging Companies
Emerging Companies (wholesale)
13.8
14.8
14.7
12.0
12.9
Benchmark: S&P / ASX Small Industrials Accum Index
7.9
*Indices of underlying asset classes weighted by the Fund’s Strategic Asset Allocation
Note: Where benchmarks have changed over time, we have melded them together
16
2Y
(% p.a.)
3Y
(% p.a.)
5Y
(% p.a.)
7Y
(% p.a.)
10Y
(% p.a.)
15Y
(% p.a.)
20Y
(% p.a.)
1.8
2.6
3.3
3.6
4.1
2.2
2.7
3.6
4.3
6.9
7.8
9.2
10.6
9.1
9.1
10.5
3.1
3.8
4.4
7.4
9.2
9.5
3.9
5.5
3.7
6.2
6.8
7.6
6.6
6.5
2.5
3.6
4.3
9.6
11.2
15.0
16.5
16.1
12.7
5.2
7.6
10.3
14.3
15.6
9.1
13.9
10.4
13.7
15.6
9.2
9.0
16.0
17.7
11.4
16.6
12.1
7.0
10.4
9.9
9.9
7.6
0.6
1.7
7.2
5.6
9.5
18.6
13.3
5.3
1.6
2.1
2.0
2.0
2.9
3.6
6.1
7.0
7.8
9.1
7.6
7.7
9.1
7.6
12.1
13.9
10.3
7.0
7.9
7.2
14.1
15.0
10.3
SUPER FUNDS RETURNS TO 30 JUNE 2017
Our super fund’s default MySuper Option, the Balanced Accumulation Option, has delivered excellent performance,
outperforming its benchmark over all time periods shown below.
Accumulation option
Defensive
Benchmark: 90 Day Bank Bill Swap Rate*
Conservative
Benchmark: Morningstar Multisector
Moderate - Superannuation
Balanced
Benchmark: Morningstar Multisector
Growth - Superannuation
Growth
Benchmark: Morningstar Multisector
Aggressive - Superannuation
1Y
(%)
1.4
1.2
3.4
3.4
9.6
8.6
11.2
11.4
2Y
(% p.a.)
3Y
(% p.a.)
5Y
(% p.a.)
7Y
(% p.a.)
10Y
(% p.a.)
15Y
(% p.a.)
1.1
1.3
3.4
2.9
6.2
4.7
6.2
5.5
1.2
1.5
3.9
3.5
7.5
5.3
8.0
6.5
1.6
2.1
4.2
5.0
9.0
7.4
10.9
9.3
2.3
2.8
4.1
4.8
6.8
6.3
7.2
7.5
2.7
3.6
3.6
3.6
2.5
3.7
6.9
3.3
4.3
5.7
5.1
6.4
5.7
9.9
Advocacy
13.6
11.0
13.9
15.9
11.7
Benchmark: 75% S&P / ASX 200 Inds and 25%
MSCI World ex Australia*
Smaller Companies
Benchmark: S&P / ASX Small Industrials*
International Shares
Benchmark: MSCI World ex Aus Index*
6.8
18.4
12.0
11.6
11.6
8.9
5.7
5.6
7.0
6.5
5.1
8.6
8.0
9.0
8.1
(1.3)
(0.5)
(4.2)
14.9
6.8
17.6
12.7
13.3
9.4
13.4
10.3
PENSION RETURNS TO 30 JUNE 2017
The Conservative option is the default for pension members who do not make an investment choice. The Conservative
option has outperformed its benchmark over the last three years.
Pension option
Defensive
Benchmark: Australian 90 day bank bill
swap rate+
Conservative
Benchmark: Morningstar Multisector
Moderate - Pension
Balanced
Benchmark: Morningstar Multisector
Balanced - Pension
Growth
Benchmark: Morningstar Multisector
Aggressive - Pension
Smaller Companies
Benchmark: S&P/ASX Small Industrials +
International Shares
Benchmark: MSCI World ex Australia+
1Y
(%)
1.6
1.4
3.9
3.6
8.6
10.1
12.6
11.9
14.8
7.4
20.2
14.3
2Y
(% p.a.)
3Y
(% p.a.)
5Y
(% p.a.)
7Y
(% p.a.)
10Y
(% p.a.)
15Y
(% p.a.)
1.3
1.5
3.7
3.1
6.3
4.1
6.5
5.8
1.4
1.7
4.2
3.7
7.5
5.3
9.1
6.9
2.0
2.2
4.9
5.4
9.4
7.6
11.7
9.9
2.7
2.9
4.4
5.2
7.3
6.6
8.5
8.1
10.8
14.5
16.8
13.1
9.7
6.2
6.6
5.8
8.2
9.0
(0.7)
15.3
0.0
6.3
18.2
13.1
3.9
4.3
6.3
5.5
7.2
6.1
10.9
3.2
3.7
3.8
3.8
3.1
3.9
7.6
(3.6)
^ After fees performance
* Net of tax and admin fees: effective tax rate of the option is used to estimate tax
+ Net of administration fees
Note: Where benchmarks have changed over time, we have melded them together.
17
Annual & Sustainability Report 2017Annual & Sustainability Report 2017 OUR INVESTMENTS BY TYPE OF ASSET
OUR INVESTMENTS BY SECTOR
OUR INVESTMENTS BY COUNTRY
OUR SECTOR ALLOCATION
18
19
Annual & Sustainability Report 2017Annual & Sustainability Report 2017 Towards net zero
The transition to a lower-carbon economy has
begun, and we’re driving change in three ways:
our investment choices; our advocacy on climate
action and policy; and reducing and offsetting
our own operational emissions. We recognise
that climate change presents a specific series
of risks for investors, super fund members and
shareholders. The economy’s reliance on energy
from fossil fuels can’t continue. Reductions in
carbon emissions require a fundamental change
in the energy mix that underpins business and
investment activity and we all have a responsibility
to act.
CLIMATE RISK
Climate change tops the list of current threats
facing people, animals and the environment. It
is already causing harm through more extreme
weather, sea level rise and species extinction.
Most tragically, governments, business and
individuals have the power to reduce warming,
but many are not exercising that power.
Global warming affects our investments in
many ways.
Physical impacts like sea level rise and extreme
weather are already changing where and how
buildings and infrastructure can be safely built.
Changes in temperature and rainfall affect the
productivity and viability of different types of
agriculture.
Government climate policy can radically alter the
prospects of different technologies. A price on
carbon and higher clean air standards will favour
renewables over fossil fuels. Tougher emissions
restrictions on new vehicles will help hybrid and
electric over conventional vehicles.
Beyond technology-specific impacts, there are
flow-on effects across the economy from potential
broader changes like the growing availability of
cheap and portable clean energy, if we commit to
strong climate action. But if we are slow to act,
growing inequality and the displacement of people
from areas hardest hit by climate change will cause
widespread social and economic disruption.
Climate change is ever-present in the way we
apply our Ethical Charter, including in the work
of our Ethical Advisory Group (EAG) and Board
in overseeing the way our investment process
takes account of impacts on the planet, people
and animals. The EAG consists of our CEO, Chief
Investment Officer and Head of Ethics Research, and
its work is reported quarterly to the Board for input
from directors.
The following pages show how climate change
effects our investing in many ways, including
exclusion of fossil fuel companies, investment
in companies supporting renewable energy and
energy efficiency, management of climate risk by
the companies we invest in, and our advocacy for
climate action by companies and governments.
OUR CARBON FOOTPRINT
We’ve set a zero-emissions target for our
investment portfolio by 2050. This target has
been set in line with the recommendations of the
Australian Climate Change Authority, but we are
working hard to move more quickly.
The carbon footprint of our investments is one
way to track our progress towards zero emissions.
We have again used Trucost to assess the carbon
footprint of our share investments. In 2016 our
share investments were assessed as having a third
(34%) of the carbon footprint of the Benchmark*.
Our carbon footprint is less intensive than the
Benchmark because we: exclude companies for
their exposure to coal, oil and gas; actively select
low carbon companies; have lower exposure to
carbon intensive sectors such as resources; and
finally have higher investment in low-carbon
sectors such as healthcare and IT.
This significant reduction in carbon over 2016 can
primarily be attributed to our lower investment
in utilities and industrial companies and more
investment in the lower emissions financial
services sector.
Contact, Covanta and Spark Infrastructure are
the heaviest contributors to our carbon footprint.
Despite their significant operational emissions,
the activities of these companies are aligned with
the transition to zero emissions, including their
generation and transmission of renewable energy.
*Benchmark is a blended benchmark of S&P ASX 200 Index (for Australian share holdings) and MSCI World ex Australia Index (for international share
holdings). Assured by KPMG.
Data has been provided by Trucost, an independent company that provides analysis of carbon and other environmental impacts of companies and
portfolios. The footprint includes direct company emissions and some indirect emissions. See trucost.com/glossary-of-terms/ for more information.
Current carbon footprinting methods don’t do a good job of including emissions produced, or emissions saved, from use of a company’s products by
customers. This means that the carbon footprint of a company can misrepresent the company’s positive and negative climate impacts. For example,
the footprint of a coal mining company generally doesn’t include the emissions from the burning of its coal by its customers. And the footprint of a
company manufacturing wind turbines doesn’t generally include the emissions savings enjoyed by its customers and the planet from generation of
zero emissions electricity. We take these limitations of foot-printing into account when we interpret footprint data for individual investments and our
broader portfolio.
20
21
Annual & Sustainability Report 2017Annual & Sustainability Report 2017
Making it happen
OUR INVESTMENT IN RENEWABLES IS HELPING TO MAKE
THE SHIFT
The European 2° Investing Initiative (‘2ii’) analysed our investment in power generation to assess whether it is
aligned with the massive shift to renewables that is needed to limit warming to 2°Celsius (2°C). The following
graph shows how our investment in renewables is streets ahead of what is required.
WE OFFSET 100% OF OUR EMISSIONS
In FY17 we had 41.5 tonnes of scope 1 & 2 emissions (direct emissions from our operations and the generation of
electricity used in those operations). Our scope 3 emissions from travel were 36.5 tonnes. We offset 100% of all
these emissions. This year we purchased premium offsets from the Kariba REDD+ project which teaches farmers
to sustainably increase their productivity, which in turn prevents further land clearing.
Photo credit: Trent Blackmore from AR2
EMISSIONS FROM
DIRECT OPERATIONS AND
GENERATION OF ELECTRICITY
USED IN THOSE OPERATIONS
41.5
tonnes
EMISSIONS
FROM TRAVEL
36.5
tonnes
On a daily level in our own company, all of our kitchen rubbish is segmented into green waste, recyclables and
paper products. Even our coffee pods are collected by the relevant provider for recycling. We also have employee
initiatives where old clothes are collected for organisations like Dressed for Success, which helps vulnerable
women get back into the workforce.
When renovating our office space we paid particular attention to how the previous furniture and materials could
be reused. We took solid timber legs from our old boardroom tables and made them into new tables with a
durable top. We chose to keep the existing light fittings and ceiling tiles from the old office because there were no
re-use options available for these items. Lastly, furniture we could not find any room for, we donated to the not
for profit organisation, Fighting Chance.
Source: 2ii, based on Global Data and IEA
22
23
Annual & Sustainability Report 2017Annual & Sustainability Report 2017 Our Ethical
Charter in action
Making change is not easy. Our Ethical Charter encourages us to
grapple with complex problems and far-reaching consequences and
to examine issues on their merits from many angles. Our Charter is
the compass we use to navigate through the ethical complexities of
our investment and business decisions.
Our assessment of a possible investment against the Ethical Charter
is neither one-dimensional nor static. If on balance, we believe
a business is beneficial for the long-term benefit of the planet,
people or animals, and it passes our analysis for portfolio inclusion,
then we will make the investment and apply our influence to help
achieve that goal. On the other hand, if an investment is initially
assessed as aligned with our Ethical Charter, but over time makes
a change that moves them out of alignment, we will attempt to
influence them back to the right path, or divest.
SALMON FARMING
We have for many years believed that sustainably
farmed fish as a form of protein is lower impact
than many other options. Fish farming has the
potential to reduce over-fishing of wild fish stocks,
and we invested in salmon farming businesses
Tassal and New Zealand King Salmon. But while
the wild fish component of salmon feed (typically
anchovies) has reduced substantially with the
introduction of plant and other feed components,
this trend has slowed and in some cases reversed.
The sustainability of wild anchovy fisheries is a
concern, with growing demand for fishmeal feed
and fish oil diverting anchovies from their use
as a direct source of protein. Salmon farming
also has the potential to cause significant local
environmental harm if not managed sustainably.
These considerations led us to divest from salmon
farming in 2017.
THE BANKS
Australian Ethical invests in both small and
large banks, provided they are assessed to be
aligned with our Ethical Charter. We believe
responsible and well-regulated banks actually
do provide positive benefits. They make loans to
individuals to help them pursue their goals, and
fund commercial activity which meets individual
and societal needs. They help individuals and
organisations save, invest and manage risk; all
important needs when building a sustainable
future.
Of the big four, we currently invest in Westpac
and National Australia Bank (NAB). We believe
they are aligning their lending activities with the
economic transition needed to limit warming
to 2oC. Assessing this alignment is complicated
because of the scale and diversity of lending by
such large institutions. We use a climate scorecard
which assesses:
• bank lending to the fossil fuel sector, including
lending restrictions and the type of fuel and
its emissions intensity
• bank lending to renewable energy and
energy storage
• bank lending to technologies and activities
which reduce energy usage or store carbon
(e.g. green buildings, low-emissions transport
and reforestation).
We also look at the way banks facilitate financing by
others, for example by arranging the issue of green
bonds. For each of these categories we look at the
bank’s current lending, historical trends and lending
targets. There are also ‘no go projects’. We won’t invest
in any bank which lends to an Adani Carmichael coal
mine. Internationally we won’t invest in any bank which
lends to a Keystone XL pipeline transporting oil from the
tar sands of Canada.
We also consider the banks’ support for
government climate policy aligned with the 2oC
transition – both directly and indirectly through
participation in industry associations.
INVEST AND PROTEST FOR A
BETTER FUTURE
As we invest selectively in banks, we also pressure
them to do better. At Westpac’s last AGM in 2017,
Australian Ethical asked the Chairman to rule out
support for the proposed Adani Carmichael mine
in order to clearly and publicly demonstrate the
integrity of the bank’s climate commitments.
Pleasingly, Westpac’s latest climate action plan
does now rule out lending to Carmichael. In
the plan Westpac also imposed other fossil fuel
lending restrictions and set significant targets for
lending to climate change solutions ($10 billion by
2020 and $25 billion by 2030).
STANDING UP FOR WHAT WE
BELIEVE IN
We view active shareholder ownership and
advocacy as the responsibility of ethical investors
and key to creating positive, sustainable change.
The growing collaboration between like-minded
groups on key issues will have a dramatic impact
on future corporate behaviour and performance in
Australia and around the world.
Through our advocacy work we want to influence
how climate change risks and opportunities are
managed. This is why we are constantly engaging
with the government and private sector.
24
Photo credit: Trent Blackmore from AR2
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Annual & Sustainability Report 2017Annual & Sustainability Report 2017
THE FOOD CHAIN
In 2017 our advocacy efforts included two related
food issues: the need to diversify human protein
sources away from animal-based to more plant-
based protein, and the reduction of antibiotic
usage in agriculture.
The intensive farming of animals for protein often
involves serious mistreatment of the animals.
Animal protein production is much more emissions
(and water) intensive, as well as having wide
ranging other negative environmental and animal
impacts. Animals that are bred in close proximity
are given more antibiotics as bacteria flourish in a
‘sweatshop’ environment. Overuse of antibiotics
in the food chain leads to antibiotic resistant bugs
which have significant health implications for both
humans and animals.
FINANCIAL WELL-BEING
We believe in the need for greater financial
inclusion. In 2017 we joined the Financial Inclusion
Action Plan (FIAP) program to help the enabling
power of money advance well-being and resilience
across the whole of society. A cross-functional
working group with Australia Ethical employee
representatives from investments, finance,
customer services, marketing, product operations,
ethics research and human resources collaborated
to design our own Financial Inclusion Action Plan.
The plan will kick off in FY18 and is wide-reaching,
with beneficial impacts for customers, employees,
suppliers and the community.
OTHER 2017 ADVOCACY INI-
TIATIVES
• We made a submission to the international
Task Force on Climate-related Financial
Disclosures (TCFD). We think the TCFD’s
recommendations will provide a powerful
incentive for companies to better manage and
disclose their climate action.
• We were signatories to a joint investor letter
calling on the G20 governments to end
fossil fuel subsidies by 2020. It’s crazy that
these subsidies exist at all, so we need firm
commitments from governments to eliminate
them as soon as possible.
• We made a submission to the Senate
Committee Inquiry into Carbon Risk Disclosure.
The submission highlighted the shortfall
between the amount of capital being invested
in renewables and the amount needed to limit
global warming.
• As part of the Investor Group on Climate
Change (IGCC) we helped develop a new guide
to support the way investors manage and
disclose climate impacts.
• We made a submission to the public hearing on
potential modern slavery legislation. We
believe there are clear ethical imperatives
to eliminate slavery, but also strong economic
and investment reasons. Innovation flourishes
and societies and economies prosper when
individuals are free to choose their work and
to enjoy the benefits. The presence of forced
labour in the operations and supply chains
or any business or industry is unsustainable.
It risks disruption of production, prosecutions,
financial penalties, regulatory action by local
and foreign governments, and severe damage
to brand and relationships with customers and
other stakeholders.
ADVOCACY HOLDINGS
All our investments are assessed for alignment
with our Ethical Charter. But we can acquire
nominal holdings in non-aligned companies for the
purpose of advocating for change. So, for example,
we acquired five shares in Shell (worth about
A$100) so that we could support a shareholder
resolution for climate action by that company. Our
company constitution allows us to hold shares in
any company in order to further the aims of our
Ethical Charter.
Though Australian Ethical doesn’t invest in fossil
fuel companies, we still look for opportunities
to influence them. In May 2017, we supported a
shareholder resolution asking oil and gas producer
Santos to explain how they are addressing climate
risk in their business. We did this by holding a
small number of Santos shares in our Advocacy
Fund which allowed us to vote at the company’s
annual general meeting (AGM). We are concerned
that Santos has said on one hand that it will “align
business strategy with the Paris Climate Change
Agreement”, but their Chairman has said they
“adopt a 4oC pathway” when making investment
decisions (Santos Chairman speaking at the AGM).
Investors need clarity.
We currently have fewer than 10 of these nominal
‘advocacy holdings’, representing less than
0.0001% of our overall investments.
Our sustainable impact
more than double
One measure of the impact of companies is the annual
revenue they earn from products and services which
are helping to meet the Sustainable Development
Goals (SDGs). The SDGs identify seventeen things
which governments, business and civil society need
to deliver to build a just and sustainable future, things
like climate action, reducing inequality and responsible
consumption and production.
In the table below we estimate the value of selected
‘sustainable impact’ products and services produced
annually by Australian and international companies that
we invest in. This estimates our total sustainable impact
to be 2.2 times the sustainable impact of an equivalent
investment in the overall sharemarket1.
Australian Ethical investments in sustainable impact
Social impact solutions including
Environmental impact solutions including
Major
disease
treatment
Sanitation
Education
Alternative
energy
Energy
efficiency
Green
building
Sustainable
water
Pollution
prevention
Sustainable impact
revenue / value per
$1 million invested
$4,031
$2,905
$2,260
$12,683
$14,208
$12,021
$2,984
$1,787
Resmed Inc
Investment
examples
CSL Limited
Essity
Pearson Plc
Qiagen N.V.
Toto Ltd
Seek Limited
Contact
Energy
East Japan
Railway
Mercury NZ
Intel Corp
Mirvac
Meridian
Energy
Fujitsu
Limited
Vestas Wind
Tesla
Lend Lease
Xylem Inc.
United Utilities
Group Plc
LKQ
Corporation
Veolia
Environment
NGK
Insulators
Positive product
and service
examples
Antibiotics
Vaccines
Treatments of
hepatitis and
breathing
disorders
Baby care,
feminine
care, wound
care and
other
hygiene
products
Digital
learning tools
for teachers,
learners and
researchers
Wind,
geothermal,
solar and
hydro
electricity
Low
emissions
transport
Technologies
for more
efficient
power use
Certified
green
buildings
Water
supply,
treatment
and
recycling
Waste
treatment
and
recycling
Purification
of auto
exhaust gas
Contributing
to Sustainable
Development
Goals
1 The revenue estimates in the table are for selected positive products and services which are produced by Australian and international companies whose shares we invest in and that have been analysed by
global research firm MSCI ESG Research LLC for their ‘sustainable impact’. MSCI ESG Research have done this analysis for 58% of our share investments (by value). We assume that the $1 million is invested
in listed shares of these companies only. We do not take account of our other investments such as fixed income, unlisted investments or our investments in companies which are not analysed by MSCI ESG
Research for sustainable impact (such our investments in private equity and smaller IT and healthcare companies, many of which will also have sustainable impact). Since they only look at selected products
and services, MSCI ESG Research’s analysis of revenue from sustainable impact does not take account of all positive contributions that companies make to the SDGs. They also do not take account of the
negative impacts of the way companies deliver their product and services – for example, if a company overcharges, advertises in a misleading way or mistreats its workers. However, our negative screening
aims to eliminate such investments from our portfolio. The MSCI ESG Research calculation methodology makes many assumptions, further information is available here: msci.com/esg-sustainable-impact-
metrics.
Using the MSCI ESG Research analysis we estimate our total sustainable impact to be 2.2 times the sustainable impact of investment of the same amount in the overall sharemarket. This estimate is based
only on investment in shares in companies which MSCI ESG Research analyse for sustainable impact. The overall sharemarket is a blend of the S&P ASX 200 Index (for Australian share holdings) and the MSCI
World ex Australia Index (for international share holdings).
The above analysis is based on our share investments as at 31 December 2016. Although we have used company research data provided by MSCI ESG Research, MSCI ESG Research is not responsible for the
way in which we have used that data to calculate the above amounts. MSCI ESG Research accept no liability for any errors in their data or for our reporting and use of their data.
26
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Annual & Sustainability Report 2017Annual & Sustainability Report 2017
Leading
the change
As well as influencing change by choosing who
we will or won’t invest in, we take a keen interest in educating
others and collaborating with like-minded groups.
We were foundation members of B Corp in Australia.
We maintain our ranking as ‘Best in the World’ and we’re the
first Australian Securities Exchange-listed B Corp and the first
super and investments B Corp in Australia. We are founding
members of Responsible Investment Association Australasia
(RIAA) and represent at both the board and committee level.
We also take active roles in the Future Business Council,
Investor Group on Climate Change, United Nations Principles
for Responsible Investment, Sustainable Business
Australia and the Financial Services Council.
In all of these forums we focus on the imperative
for investors to consider environmental and
social impacts of their investments and
to disclose these in a transparent and
consistent manner. Getting this right
is a complex and critical task for all
investors, and one that we are
determined to champion.
Awards, ratings and certifications
Category
Award
What it means
Ethical
Business
B Corp certification
by B Lab
AEI recognised as one of the
2017 Best for the World
companies by B Lab.
Ethical
Investment
Responsible Investment
Association of Australasia:
Certified Ethical Investment
Transparency,
accountability
and advocacy
United Nations Principles for
Responsible Investment:
Responsible Investment Scores
A+ & A
Morningstar: 5 Globes (top
Sustainability Rating) for
Australian Shares Fund.
2° Invest award on
Investor Climate Related
Disclosures (for our
disclosure about our
alignment with our
climate goals including
in our 2016 Annual &
Sustainability Report)
RI (Responsible-Investor)
2016 Reporting Award
for Best RI Report by an
Asset Manager (for 2015
Sustainability Report).
B Corps are a diverse community
with one unifying goal: to
redefine success in business.
B Corp certification is to
sustainable business what Fair
Trade certification is to the food
and drink industry.
Certification shows that
across our business we meet
rigorous standards of social and
environmental performance,
accountability, employee
engagement and transparency.
Certifications and high ratings
for our ethical funds and
investment approach show our
leadership in advancing growth
and best practice in responsible
investment.
Recognition of our reporting
shows that:
• our transparency helps to
enable conscious investment
choices by investors
• we are accountable for our
ethical investment performance
• we exercise a strong public
voice advocating for ethical
business and investment.
*The Responsible Investment Certification Program does not constitute financial product advice. Neither the Certification Symbol
nor RIAA recommends to any person that any financial product is a suitable investment or that returns are guaranteed. Appropriate
professional advice should be sought prior to making an investment decision. RIAA does not hold an Australian Financial Services
Licence.
Disclaimer: Although our information providers, including without limitation, MSCI ESG Research LLC and its affiliates (the “ESG Parties”),
obtain information from sources they consider reliable, none of the ESG Parties warrants or guarantees the originality, accuracy and/or
completeness of any data herein. None of the ESG Parties makes any express or implied warranties of any kind, and the ESG Parties hereby
expressly disclaim all warranties of merchantability and fitness for a particular purpose, with respect to any data herein. None of the ESG
Parties shall have any liability for any errors or omissions in connection with any data herein. Further, without limiting any of the foregoing,
in no event shall any of the ESG Parties have any liability for any direct, indirect, special, punitive, consequential or any other damages
(including lost profits) even if notified of the possibility of such damages.
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Annual & Sustainability Report 2017Annual & Sustainability Report 2017
Reporting what
matters most
BEING TRUE TO OURSELVES, OUR
CLIENTS, OUR SHAREHOLDERS
In 2017, we again asked our customers, our employees, our shareholders,
and other key stakeholders what was of most importance to them and
to our financial, economic, environmental and social performance. From
this we sourced a wide variety of sustainability topics.
We also conducted a formal materiality assessment with our senior
management team at our annual business strategy day, asking for their
views on sustainability within the business and sustainability within
a broader world view. Sustainability topics were brainstormed and
ranked, the outcomes of which are shown in the materiality matrix.
The corresponding GRI ‘Aspects’ (or topics) were mapped against
the assessment outcomes, leading to the sustainability story we are
sharing with you in this report. The topics below were those in the
highest quartile when mapped against ‘Importance to stakeholders‘ and
‘Importance to Australian Ethical’s financial, economic, environmental
and social performance’. The full materiality matrix and topics
identified can be found at www.australianethical.com.au/wp-content/
uploads/2017/09/GRI-Content-Index-FINAL.pdf
Our people
Our people truly are our most valuable assets and
our culture is of great importance to us. Through
our people we serve our clients, generate long term
value for our shareholders and put good money
to work.
On the back of our unprecedented year-on-
year growth, we saw the need to review our
organisational structure. We made it a priority
to build our internal capability and capacity to
deliver our strategy of $5 billion in FUM by 2020 in
a sustainable way. In FY17 we saw a lot of change
in our organisation, with the team growing from
35 to 49 employees. This was a deliberate strategy
to build our bench-strength and talent pool in
key areas, particularly in the areas of finance and
operations, risk, marketing and client services. We
also strengthened and scaled our senior leadership
capabilities with the addition of a Chief Operating
Officer, Chief Risk Officer, Chief Customer Officer,
and Head of Strategy & Execution. Other new
senior roles include a Head of Finance, Head of
Product Finance & Administration, and Head of
Client Relationships. For the remainder of 2017,
one of our strategic initiatives will be to embed the
necessary cultural change needed as a result of our
growth, encompassing a risk accountability focus
and a refresh of our values to incorporate values-
based behaviour measures.
To accommodate our growth plans, we doubled our
office space taking over the whole floor of our Pitt
Street, Sydney premises. We used this opportunity
to redesign our working environment so it more
closely reflects our social and environmental
values, building a highly collaborative, inspiring and
productive place to work.
The new environment is very welcoming, full of
light and features innovative repurposed furniture,
recycled materials and 100% of the bamboo desks
are sit-to-stand for greater employee wellbeing
benefits. There are more than 220 plants featured
in overhead planters and the stunning centre-piece
is a living green wall. We take great pleasure in
showcasing our new office to visitors as it is an
embodiment of what we proudly stand for.
Sustainability was the leading driver in the new
office fit-out.
We take the approach that every single employee
has an impact on our company culture, and that to
truly do well by our clients, our culture has to be
great inside and out.
There are 4 main stakeholder
groups we need to keep happy
for continued success:
Customers
Shareholders
Employees
Intermediaries (employers,
advisers, ratings agencies,
asset consultants)
Numbers are in order of priority.
For example, number 1 priority
for customers is ‘ethical business
practices’.
SUCCESS MATRIX
Long term growth
& sustainability
1
Alignment to purpose/
ethical leadership
Investment team
credibility
1
1
High
l
s
r
e
d
o
h
e
k
a
t
s
o
t
e
c
n
a
t
r
o
p
m
I
Low
Environmental, social
impact of portfolios
3
Investment
returns
2
Values &
culture
3
Commitment
to investment
process
3
Ethical business
practices (authenticity
& integrity)
Performance
appraisal &
ongoing feedback
1
2
Value Proposition
Fees & Performance
2
Ethical depth
Advocacy &
Investment
2
Advocacy/
thought
leadership
6
Long term
incentive
program
5
Risk
management
culture
5
Company
financial
performance
4
Investment performance
3
Company financial
performance
4
Importance to Australian Ethical’s financial, economic, environmental or social performance
High
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Annual & Sustainability Report 2017Annual & Sustainability Report 2017
OUR ETHOS
It is core to Australian Ethical’s ethos to
promote human happiness and dignity
and avoid discrimination in all its forms.
We believe that a culturally diversified
workplace that reflects society as a whole
brings a broad perspective to better
service our clients. Diversity of ideas and
perspectives leads to better outcomes and
we encourage an environment where all
perspectives are welcomed and can be
robustly debated.
Our approach goes beyond the mere
avoidance of discrimination but a proactive
approach to inclusiveness and addressing
structural inequities in the marketplace
that prevent our workforce from reflecting
society as a whole. We strive to ensure:
i) No discriminatory practices exist in the
organisation regarding compensation
and opportunity
ii) A shift in the makeup of the workforce
through our recruitment practices
iii) That parenting is not an impediment
to career through our support for carers
and flexible work practices
iv) Behaviour change is encouraged in
the companies in which we invest
v) Debate and solutions are
encouraged through our involvement
in industry forums
To ensure we truly reflect the community
we work in, and benefit from the full range
ideas, thinking styles and approaches to
work, we strive to achieve diversity with
our employees on a number of dimensions.
As we hired people throughout 2017 we
were able to address a number of diversity
areas including gender, age and ethnicity in
our employee population.
Our progress against our gender target is
Category
Board
Senior Management Team
Employees
FY17 (Actual)
FY18 (Target)
40%
37%
48%
40%
40%
50%
Total number of employees by employment contract and gender
Permanent
Perm P/T
Fixed term
Employees by employment type
Professional
Management
Support
M
24
1
1
M
19
6
1
F
17
5
1
F
19
3
1
Ratio of basic salary and remuneration of women to men
by employee category
Management
Professional
Support
Management
Professional
Support
Total
2014-15
2015-16
2016-17
N/A
0.78:1
1.34:1
N/A
0.76:1
2.23:1
0.60:1
0.69:1
1.26:1
2014-15
2015-16
2016-17
N/A
78%
134%
59%
N/A
76%
223%
69%
N/A
69%
126%
75%
Female-male average salary ratio
F
M
F:M Ratio
Pay Gap Ratio
Avg Salary - Total
113,381
155,377
73%
27%
32
Volunteering at the Wayside Chapel May 2017
33
Annual & Sustainability Report 2017Annual & Sustainability Report 2017 DIVERSITY OF ETHNICITY
We have recently included an ethnicity dimension
to our diversity policy. Though only recently
codified, new recruits in 2017 hail from a variety
of cultural backgrounds including Sri Lanka, South
Africa, Vietnam, Taiwan, Scotland and Columbia
resulting in a total workforce where 51% of
employees were born outside of Australia. Our
employees possess conversation competencies
in a number of languages including English,
French, Spanish, Afrikaans, Sinhalese, Swedish,
Vietnamese, Punjabi, Hindi, Telugu, Italian,
Mandarin and Croatian.
49%
51%
Employees born in Australia
Other
(Sri Lanka, New Zealand,
Sweden, South Africa, Vietnam,
India, Columbia, England,
Scotland, Wales, Ireland,
Canada, Taiwan, Croatia)
VALUES ALIGNMENT
Our employees will tell you it feels good to live
your purpose and values every day through your
work. At Australian Ethical, every dollar invested,
every customer touch-point, every business
decision and every team interaction is designed
to grow and communicate the power of good
money. This alignment means our employees
are motivated by an alignment of their personal
beliefs to be empowered and productive.
91%* of our employees agree that they value
working for a socially and environmentally
responsible organisation.
Every employee has two paid volunteering days
a year. This year we helped out at the Wayside
Chapel, Animal Welfare League and OzHarvest.
The whole AEI team had a fantastic day at the
Big Kitchen in Bondi where we had a chance to
team-build with a purpose: get to know each other
better while helping to prepare food for some of
the most marginalised people in our community.
Our employees participate in the Community
Grants program where they have the opportunity
to vote for the winners. In 2017 we held a clothes
drive for Dressed for Success and Dress for Work
where we donated 15kg of clothes to provide
professional attire for interviews as well as a
network of support and the career development
tools to help women thrive in work. We ran a
Cancer Council Morning Tea raising funds for
research, support services and prevention programs
that will one day eliminate the devastation that
a cancer diagnosis can bring. To connect with the
vulnerable in our society, we donated 10 care packs
to a charity which provides support for those who
are disadvantaged and cannot afford the basics.
We also ran an employee incentive trip in 2016,
where one of our employees travelled to Borneo to
see the impact of our Community Grants program
funding on the Orangutan project. A photo of an
orangutan encountered on this trip is featured on
page 37.
LONG-TERM SUSTAINABILITY
Our employees share in the success of our
business as each is a shareholder. Each is entitled
to a Short Term Incentive (STI) payment based on
their individual performance, and after passing
a three-year retention hurdle, and the requisite
earnings per share hurdle has been achieved, a
Long Term Incentive is paid. During the three years
the shares are held in an Employee Share Trust,
employees receive dividends and are entitled to
vote on company resolutions.
PERFORMANCE MANAGEMENT
Each year, we translate our business strategy
into critical success factors that are cascaded
to our employees. Informal feedback on
their performance and action towards these
goals is provided throughout the year. This
is supplemented by a more formal biannual
performance and career development discussion
which encourages learning and development.
HEALTH AND WELLBEING
ENGAGING OUR EMPLOYEES
Our annual employee survey* is one of our key
indicators of employee engagement. In FY17,
the business experienced a very high volume of
growth with 27 new starters including fixed-
term contractors during the year. The employee
participation rate in the survey was 80% and our
engagement score was 55%, which is just below
the Australia and New Zealand Average of 58%.
This is a decline from our top quartile placement
for the previous three years which proved
difficult to sustain during such high volumes of
change and growth.
Management is focused on stabilising the change
and addressing the concerns raised in the
survey. We know from the survey results that our
focus areas for the next year will be in the areas
of improving leadership, communication, career
opportunities, change management and work/
life balance.
We want to help our employees balance their
professional and personal life. We facilitate
flexible working arrangements; provide $2,000 per
employee for training opportunities, 18 weeks paid
parental leave for primary carers, two week’s paid
parental leave for secondary carers and we pay
superannuation contributions while an employee
is on parental leave for up to 12 months.
Health and wellness can be many things to
many people, and individuals will always have
a preference over what works for them. For us,
wellness is an everyday focus and as part of our
vibrant office environment we aim to provide a
range of benefits including healthy, organic food in
our kitchen, we hold meditation, yoga and Pilates
classes in the office, and have a table tennis table
which lifts the heart-rate and encourages much
inter-team friendly rivalry.
This year we ran a ‘Happy Bodies at Work
Program’ to encourage people to embrace the new
workspaces, think about their wellbeing, move
more and sit less and hopefully stress less and
sleep better. One hundred per cent of participants
thought the strategies they learnt were beneficial:
89% felt the program showed we care about the
challenges faced by employees at work and at
home; 95% were sitting less and moving more.
We encourage our workplace parents to bring
their kids to work a number of times a year. These
days are fun-filled for the kids and allows them
to see what their parents do, get to know their
teams, understand where they go every day, why
they spend time at work and the benefits of their
contribution to the workplace.
*AEI Employee Engagement Survey 2017, AON Hewitt Best Employers, Australia and New Zealand
34
35
Annual & Sustainability Report 2017Annual & Sustainability Report 2017
Our clients
We love our clients. Like us, they really want to
use the power of good money to make the world
a better place. They tell us “I choose Australian
Ethical because they have a conscience and so do
I”; “Good performance and good for the heart!;
I think this is a powerful way to put your money
where your mouth is”; “Australian Ethical offers
peace of mind and financial gain! They are doing
very well financially and rest assured your money is
doing good.”1
We measure our clients’ satisfaction through
phone-based and Net Promoter Score (NPS)
surveys. Our NPS at +552 is a remarkable
achievement for a financial services organisation.
WOW THE CUSTOMER
In 2017 we spent a lot of time speaking to our
super fund members to understand in detail their
experience with us. What they like, their pain
points and opportunities for us to do better. We
did this through one-on-one phone interviews and
online satisfactions surveys. We captured all of this
feedback and used it develop a new programme
called ‘Wow the customer’. We will be rolling this
out over the next 12 months and will also extend
this work to our managed fund clients in 2018.
As part of the program we will move to a new
super fund administrator Mercer Outsourcing
Australia (Mercer) in December 2017. Mercer
offers an integrated digital environment which will
further enable our member engagement strategy.
BRAND EVOLUTION
This report is one of the first artefacts to feature our
new evolved brand. Over the next several months
we will roll out this new identity and positioning
across our website and all other collateral.
DIGITAL SAVVY
We have a passionate online social community.
Unlike other super funds and managed funds
providers, our customers and even the community
around us is engaged and passionate about what we
do. They tell us when we get things right and are also
quick to challenge us if they don’t agree.
We have almost 110,000 followers on social media,
around double that of the next highest competitor.
Our followers are vocal and also active, encouraging
us and also challenging us on our positions across
a multitude of ethical issues. They share our social
media posts and even our advertising (one of our
online ads was shared over 2,000 times).
In FY17 we gave our active Facebook community an
opportunity to contribute to shaping our climate
change policy submission to the government. The
online poll reached 1,600 people on Facebook with a
remarkable 440 people signing the petition.
We also launched the Orangutan Odyssey
Expedition competition inviting our community to
win a trip to Borneo to visit the orangutans.
We were overwhelmed by the response from
our community.
GROWTH
We believe our thriving digital community coupled
with our unique proven, ethical investment product
suite is the secret to our unprecedented year-on-
year growth. In an industry where funds are fighting
to retain member numbers, this trajectory is really
significant.
Super members 2013-2017
40,000
30,000
20,000
14,868
17,663
As highlighted earlier in this report, KPMG’s Super
Insights Report cited Australian Ethical Super as the
fastest growing Superfund in Australia in 2016.
10,000
-
35,352
26,342
21,196
2013
2014
2015
2016
2017
Photo taken by AEI employee Jacqueline Lapensee, Borneo 2016
RELATIONSHIP
BUILDING
In 2017 we also scaled our service
offering to manage our growth
trajectory. We have built out our client
relationship team to better support
our growing adviser and employer
community and to develop important
industry relationships with platforms,
rating agencies and institutions.
Shareholders
Our shareholders continue to enjoy sustained
performance with our share price increasing from $81.11 at
the end of FY16 to $94.60 on 30 June 2017. In FY17 our total
shareholder return was 19%. This was achieved despite the
significant costs of the unit pricing error.
1 Source: Prodcut Review
2 Pollinate Research February 2017
“I love supporting
ethical companies
who give support to
such great causes...
Whoever wins the
competition I really
hope they also
promote awareness
for these beautiful
creatures.”
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37
Annual & Sustainability Report 2017Annual & Sustainability Report 2017
Our
community
THE AUSTRALIAN ETHICAL
FOUNDATION
For the last 17 years Australian Ethical has donated 10%
of its prior year’s profits* for charitable, benevolent or
conservation purposes. Since 2000, we have paid more than
$2.2m in grants to not for profit organisations who do good
for the planet, people and animals.
In FY17 the Foundation distributed $280,000 in community
grants to 18 organisations. Over 450 applications were
received and the winners were voted on by the Australian
Ethical community including members, employees and the
general public (through our active social media community).
We also expanded the reach of this program by creating
a media kit for all finalists to share with their own social
media communities.
*before deducting bonus and grant expense
THE 2017 WINNERS ARE LISTED
BELOW AND ALSO SHOWCASED ON
OUR WEBSITE
ANIMALS
Free The Bears Fund Inc.
Rescues and protects orphaned Moon and Sun bears from
the cruel bear bile trade throughout Laos
Australian Wildlife Assistance,
Rescue & Education (A.W.A.R.E.)
Australian Wildlife Assistance, Rescue and Education
(A.W.A.R.E) provides bush fire rescue and ongoing care for
thousands of injured and orphaned native wildlife.
Wildlife Asia
The Community Grant will help fund a Rhino Protection Unit
to ensure the safety of the critically endangered Sumatran
Rhino.
Wildlife Victoria
Fund the training of new volunteers to safely and successfully
rescue Australian native wildlife
Friends of the Koala Inc
Friends of the Koala is committed to saving koalas and their
habitat in the Northern Rivers region of New South Wales to
make a key contribution to Australia’s biodiversity.
BioR
The Community Grant will help fund the reconstruction
of habitats and bio-diversity breeding sites for native
Australian wildlife
PEOPLE
Enterprise Learning Projects
Support Enterprise Learning Projects fund, grow and develop
Minyerri’s ‘Gulbarn Bush Tea’ business.
Free To Feed
Free To Feed provides real jobs to refugee chefs/cooks through
its hands-on cooking classes, spice trade and events, as well as an
opportunity for local Australians to hear their stories and learn to
cook authentic and exotic food.
One Girl Australia
The Community Grant will help fund business and health education
programs to empower vulnerable women across Uganda.
Asylum Seeker Resource Centre (ASRC)
The ASRC works to ensure those seeking asylum in Australia
have their human rights upheld and receive the support and
opportunities they need to live independently.
Orange Sky Laundry
Orange Sky’s mission is to positively connect communities and
transition people out of homelessness. It starts by restoring
dignity with clean clothes and conversation and it continues with
providing people with employment opportunities.
Earbus Foundation
The Earbus Foundation is working to see current and future
generations of Indigenous children succeed at school unhindered
by the debilitating effects of middle ear diseases such as Otitis
media and its impacts upon their ability to learn and achieve their
full potential.
PLANET
Food Ladder
Food Ladder is an award winning not-for-profit organisation that
creates social enterprises to address food security in remote
communities in Australia.
The Wilderness Society (South Australia)
The Wilderness Society works to protect, promote and restore
wilderness and natural processes across Australia for the survival of
life on Earth. This grant will fund a campaign to stop big oil companies
turning the seas of the Great Australian Bight into oil fields
Australian Conservation Foundation
The Community Grant will support a campaign to stop the Adani
Coal Mine from operating and help save the Great Barrier Reef
Lock the Gate Alliance Ltd
This project will help fill a critical void in publicly available data on
the chemical composition of air and water emissions from CSG
mining, and thus providing the basis for better information in the
future on the range of health impacts it causes.
Pollinate Energy
Pollinate Energy brings life-changing products to those in India
who need them most. The Community Grant from Australian
Ethical will help expand Pollinate’s product offering and network
of pollinators into a new city in India.
39
38
Photo credit: Bio R
Annual & Sustainability Report 2017Annual & Sustainability Report 2017
Our Board
Non-Executive Director since
2012 and Chair since 2013
BEcon, MBA
Steve chairs the People, Remuneration
and Nominations Committee, is a
member of the AEI and AES Audit,
Compliance and Risk Committees
and is Chair of the Australian Ethical
Superannuation Pty Limited (AES) and
the Australian Ethical Foundation Ltd.
Steve has a long history of involvement
in the investment and superannuation
industries, particularly focused on ethical
and responsible investing.
Steve Gibbs
Kate Greenhill
Non-Executive Director since 2013
BEc, FCA, GAICD
Kate is chair of the Audit, Compliance and
Risk Committee and a member of the People,
Remuneration and Nominations Committee.
Kate is a Director of Australian Ethical
Superannuation Pty Limited and Australian
Ethical Foundation Ltd.
Kate is a Fellow of the Institute of Chartered
Accountants in Australia and a Graduate of
the Australian Institute of Company Directors.
Kate has over 20 years’ experience in the
financial services industry with extensive
knowledge of finance and risk. As a former
Partner with PwC, Kate has worked in both
Australia and the UK providing assurance and
advisory services to clients.
Kate is also a Director and chair of the Audit,
Finance and Risk committee of a not-for-profit
organisation in the education sector.
Non-Executive Director
since 2013
BA
Mara is a member of the People,
Remuneration and Nominations Committee
and the Audit, Compliance and Risk
Committee and is a Director of Australian
Ethical Superannuation Pty Limited and the
Australian Ethical Foundation Ltd.
Mara brings executive experience from Green
Cross Australia, Choice, CSIRO, Macquarie
Bank and Canstar to Australian Ethical. She
also is Chair of the board of the Gold Coast
Mara Bûn
Waterways Authority and a Non-Executive Director of Enova Community Energy, a Byron Bay based social enterprise.
Mara consults to research, business and government agencies; currently she leads Strategy and Development pathways for
Food Agility CRC, a ten-year research program enabling digital solutions across Australian food value chains; is a member of
Seqwater’s statutory ‘Water Security Program - Independent Review Panel’; and supports technology road-mapping and big
data integration for Simba Global, Australia’s largest commercial textile business.
CEO since 2009 and Managing
Director since 2010
BEc, MCom, MBA, FCPA, FAICD
Phil is a director of Australian Ethical
Superannuation Pty Limited and Australian
Ethical Foundation Pty Limited. He has
over 30 years’ experience in financial
services covering funds management,
superannuation, corporate governance
and industry regulation.
He is a director of two industry
associations; the Responsible Investment
Association, and the Investor Group for
Phil Vernon
Climate Change. He is also a director of the not-for-profit environmental group, the Planet Ark Foundation and is
Chair of Beyond Zero Emissions, a climate change research organisation.
Phil is a Fellow of the Australian Institute of Company Directors and the Australian Society of Certified
Practising Accountants.
Non-Executive Director
from 2013 to 30 June 2017
AO, BEc
Tony was a director of Australian
Ethical Superannuation Pty Limited
and Australian Ethical Foundation
Ltd. Tony was also a member of the
People, Remuneration and Nominations
Committee and the AEI and AES Audit,
Compliance and Risk Committees.
Tony has an extensive background in
investment and public service.
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41
Tony Cole
Annual & Sustainability Report 2017Annual & Sustainability Report 2017
Managing Director
BEc, MCom, MBA, FCPA, FAICD
Phil provides overall leadership and
strategic direction to the company
including acting as a direct liaison
between the Board and the senior
management team. He was a previous
member of Perpetual’s Executive
Committee. Phil is the chairman of
Beyond Zero Emissions and a board
member of the Responsible Investment
Association, the Investor Group for
Climate Change, and Planet Ark.
Our senior
leadership team
Phil Vernon
CFO and COO
FCA, GAICD
Mark oversees a range of corporate
services including finance, fund accounting
and administration, product operations
and information technology infrastructure.
Mark was formerly the CFO of Macquarie
Group’s Banking and Financial Services
division.
Allyson Lowbridge
Chief Risk Officer
BSc (Hons), ACA (ICAEW), GAICD
Karen is responsible for the Risk
Management Framework at Australian
Ethical. Karen has over 25 years’
experience in risk and compliance with
previous roles at StatePlus, Tyndall,
Jardine Fleming and PriceWaterhouse.
Mark Shanahan
Karen Hughes
Chief Investment Officer
BSc, CFA
David is responsible for ensuring the
effective management of all investment
aspects of the company. David has 19
years’ experience in the investment
industry with previous roles at
Macquarie Securities, Credit Suisse Asset
Management, Mellon and Mercer.
David Macri
Tom May
Chief Customer Officer
BA, GAICD
Allyson oversees a range of
customer-focused activities in the
company, including client services,
sales, marketing, brand management
and communications. She has
previously held roles with NAB Wealth
(MLC), InvestSmart, Bell Direct, Zurich
Financial Services, St. George Wealth
and BT Financial Group.
General Counsel
and Company Secretary
BA, LLB, MBA, FGIA, MAICD
Tom oversees the company’s governance
including company secretarial and legal
functions to ensure that the Group
meets its regulatory obligations. Tom
has over 25 years legal experience in
Australia, Asia and Europe.
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Annual & Sustainability Report 2017Annual & Sustainability Report 2017 Head of Ethics Research
BA, LLB, MLitt, PhD
Stuart evaluates the impacts which
companies’ products, services and
operations have on people, animals
and the environment. He also
contributes to our voice for more
sustainable business and investment
models and practices. Stuart has
previously worked with St James Ethics
Centre and as a banker and lawyer.
Head of Strategy & Execution
BA (Hons), FCA (ICAEW), GAICD
Rob is responsible for the formulation
and implementation of the strategic
initiatives in the company. Rob has
over 25 years’ experience in financial
services with KPMG, MLC, NAB and
UBank in Australia, Asia and Europe.
Dr Stuart Palmer
Head of People and Culture
MBus (HRM)
Fiona ensures effective delivery of People
& Culture initiatives to build an engaging
and inspiring workplace aligned with our
purpose and values. She has previously
held roles with State Street Australia,
Commonwealth Bank, and Pioneer
Investments in Australia and Europe.
Fiona Horan
Rob Plow
Directors’ Report
The Directors present their report, together with
the financial statements, on the consolidated Group
(referred to hereafter as ‘the Group’) consisting of
Australian Ethical Investment Limited (referred to
hereafter as the ‘Company’ or ‘Parent entity’) and
the entities it controlled at the end of, or during,
the year ended 30 June 2017.
DIRECTORS
The Directors of the Company at any time during
or since the end of the financial year are detailed
on page 40 of this report.
COMPANY SECRETARY
Tom May BA, LLB, MBA, FGIA, MAICD has
experience in superannuation, managed fund 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.
PRINCIPAL ACTIVITIES
The Group’s principal activities during the financial
year were to act as the responsible entity for a
range of public offer ethically managed investment
schemes and act as the Trustee of the Australian
Ethical Retail Superannuation Fund (Super Fund).
Other than what is described in this report, there
were no significant changes in the nature of the
Company’s activities during the year.
REVIEW OF OPERATIONS
The profit for the consolidated group after
providing for income tax amounted to $2,924,000
(30 June 2016: $3,186,000).
Underlying profit after tax attributable to
shareholders was $4.235m, up 11% compared
with the prior corresponding period and
revenue increased 23% to $28.3m, up from
$23.0m. Funds under management (FUM) for
the full year increased by 38% to $2.15 billion,
up from $1.55 billion reported for the previous
corresponding period. The increase was driven
by significant member growth, net inflows and
positive investment performance. Membership
of Australian Ethical Super grew 34% from the
previous corresponding period to 35,352.
The year’s results were impacted by remediation
and project costs associated with a unit pricing
error in our Super Fund as well as employment
restructure expenses. In order to minimise the
chances of such an error reoccurring we have
increased our resources in key operational, risk
and compliance roles.
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45
Annual & Sustainability Report 2017Annual & Sustainability Report 2017 MANAGEMENT ANALYSIS - FINANCIAL PERFORMANCE
Net profit after tax (NPAT)
2017
2016
$’000
Restated
$’000
% Increase/
(Decrease)
2,924
3,186
(8%)
Less: Net profit after tax attribution to The Foundation
(4)
(176)
Net profit after tax attributable to shareholders
2,920
3,010
(3%)
Adjustments:
• Impairment on investment property
(228)
181
• Add back employment restructure expenses
• Add back provision for remediation
• Add back unit pricing project costs
• Tax on adjustments
250
795
1,160
-
900
-
(662)
(270)
SHARES ISSUED DURING THE YEAR AND PRIOR TO THE ISSUE OF
THE REPORT
During the year and prior to the release of this report the following shares were issued:
Grant date
Reason
Number of shares issued
Balance as at 30 June 2016
1 September 2016
Issue of deferred shares to the Employee
Share Trust as long term incentives
1,094,209
6,240
8 September 2016
Vesting of LTI performance rights (AEFAE)
14,812
14 October 2016
Vesting of deferred shares in the
Employee Share Trust
Balance as at 30 June 2017
No amounts are unpaid on any of the shares.
593
1,115,854
SIGNIFICANT CHANGES IN THE STATE OF AFFAIRS
Underlying profit after tax (UPAT)
4,235
3,821
11%
There were no significant changes in the state of affairs of the consolidated group during the financial year.
Basic EPS on NPAT (cents per share)
269.98
298.50
Basic EPS on NPAT attributable to shareholders (cents per share)
269.62
281.97
Basic EPS on UPAT (cents per share)
391.07
357.92
DIVIDENDS
Dividends paid during the financial year were as follows:
Final dividend for the year ended 30 June 2016 of 180 cents
(2015: 120 cents) per ordinary share
Interim dividend for the year ended 30 June 2017 of 50 cents
(2016: 120 cents) per ordinary share
2017
$’000
2016
$’000
2,009
1,313
558
1,313
2,567
2,626
Since year end the Directors have declared a final dividend of 210 cents per fully paid ordinary share (2016:
180 cents), fully franked based on tax paid at 30%. The aggregate amount of the declared dividend expected
to be paid on 22 September 2017 out of profits for the year ended at 30 June 2017, but not recognised as a
liability at year end, is $2,350,013 (2016: $2,009,000).
The financial effects of the dividends declared after end of year have not been brought to account in the
consolidated financial statements for the year ended 30 June 2017 and will be recognised in subsequent
financial reports.
MATTERS SUBSEQUENT TO THE END OF THE FINANCIAL YEAR
3,200 shares will be issued on 7 September 2017 to the Employee Share Trust for employee long term
incentives. This amount comprises 12,416 shares for financial year 2017-2018 less 9,216 shares forfeited
from prior years.
Other than the dividend declared subsequent to year end and the above matter, no other matter or
circumstance has arisen since 30 June 2017 that has significantly affected, or may significantly affect the
consolidated group’s operations, the results of those operations, or the consolidated group’s state of affairs
in future financial years.
LIKELY DEVELOPMENTS AND EXPECTED RESULTS OF OPERATIONS
Additional information about the Group’s business is available to shareholders on our website.
ENVIRONMENTAL REGULATION
The Company acts as a responsible entity for the Australian Ethical Balanced Fund which holds a direct
investment in one commercial property. The Company also holds one direct investment in a commercial
property in Canberra. The Directors have ensured that both properties have fulfilled the environmental
regulations under both Commonwealth and State legislation.
46
47
Annual & Sustainability Report 2017Annual & Sustainability Report 2017 MEETINGS OF DIRECTORS
The number of meetings of the Company’s Board of Directors (‘the Board’) and of each Board committee held
during the year ended 30 June 2017, and the number of meetings attended by each Director were:
Full Board
People, Remuneration and
Nominations Committee
Audit, Compliance and
Risk Committee
Eligible
Attended
Eligible
Attended
Eligible
Attended
Steve Gibbs
Kate Greenhill
Mara Bun
Phil Vernon
Tony Cole
15
15
14
15
15
15
15
14
15
15
5
5
4
5
5
5
5
4
5
5
9
9
8
9
9
9
9
8
9
9
The Directors are of the opinion that the services as disclosed in note 31 to the financial statements do not
compromise the external auditor’s independence requirements of the Corporations Act 2001 for the
following reasons:
• All non-audit services have been reviewed and approved to ensure that they do not impact the
integrity and objectivity of the auditor; and
• None of the services undermine the general principles relating to auditor independence as set
out in APES 110 Code of Ethics for Professional Accountants issued by the Accounting Professional
and Ethical Standards Board, including reviewing or auditing the auditor’s own work, acting in a
management or decision-making capacity for the Company, acting as advocate for the Company
or jointly sharing economic risks and rewards.
OFFICERS OF THE COMPANY WHO ARE FORMER PARTNERS OF KPMG
INDEMNITY AND INSURANCE OF OFFICERS
There are no officers of the Company who are former partners of KPMG.
The Company has indemnified the Directors and officers of the Company for costs incurred, in their capacity
as a Director or officer, for which they may be held personally liable, except where there is a lack of good faith.
ROUNDING OF AMOUNTS
During the financial year, the Company paid a premium in respect of a contract to insure the Directors and
officers of the Company against a liability 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.
The Company is of a kind referred to in Corporations Instrument 2016/191, issued by the Australian Securities
and Investments Commission, relating to ‘rounding-off’. Amounts in this report have been rounded off
in accordance with that Corporations Instrument to the nearest thousand dollars, or in certain cases, the
nearest dollar.
INDEMNITY AND INSURANCE OF AUDITOR
AUDITOR’S INDEPENDENCE DECLARATION
The Company has not, during or since the end of the financial year, indemnified or agreed to indemnify the
auditor of the Company or any related entity against a liability incurred by the auditor.
A copy of the auditor’s independence declaration as required under section 307C of the Corporations Act 2001
is set out immediately after this Directors’ report.
During the financial year, the Company has not paid a premium in respect of a contract to insure the auditor of
the Company or any related entity.
AUDITOR
PROCEEDINGS ON BEHALF OF THE COMPANY
No person has applied to the Court under section 237 of the Corporations Act 2001 for leave to bring
proceedings on behalf of the Company, or to intervene in any proceedings to which the Company is a party for
the purpose of taking responsibility on behalf of the Company for all or part of those proceedings.
KPMG continues in office in accordance with section 327 of the Corporations Act 2001.
This report is made in accordance with a resolution of Directors, pursuant to section 298(2)(a) of the
Corporations Act 2001.
NON-AUDIT SERVICES
On behalf of the Directors
Details of the amounts paid or payable to the auditor for non-audit services provided during the financial year
by the auditor are outlined in note 31 to the financial statements.
The Directors are satisfied that the provision of non-audit services during the financial year, by the auditor (or
by another person or firm on the auditor’s behalf), is compatible with the general standard of independence
for auditors imposed by the Corporations Act 2001.
Phil Vernon
Managing Director and Chief Executive Officer
30 August 2017
48
49
Annual & Sustainability Report 2017Annual & Sustainability Report 2017
Remuneration
Report 2017
Dear Shareholder,
On behalf of the Board, I am pleased to present our Remuneration Report for 2017.
The 2017 financial year has been another extraordinary one in terms of growth for the Company. Our funds under
management grew 38% and our superannuation fund was the fastest growing superannuation fund in 2016
according to the KPMG Super Insights Report 1. The foundations that we have laid over the past few years including
making our fees more competitive, broadening our marketing capacity and capabilities and strengthening our
risk and operations have taken our funds under management beyond $2.0bn and delivered a strong increase in
underlying profit after tax and increasing share price for shareholders.
We believe that the introduction of our new remuneration system in 2014 has been a key contributor to that
success as it has provided a more direct link between contribution and reward and better alignment with the long
term performance of the Company. It is also aligned to the philosophy of the Company that sees our people as key
stakeholders in the Company’s success.
We will continue to review our remuneration arrangements to ensure they remain effective in attracting and
retaining the best talent to drive Australian Ethical forward.
Stephen Gibbs
Chair
People, Remuneration & Nominations Committee (PRNC)
30 August 2017
1 KPMG Super Insights Report - June 2017 issue
About this report
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. The report has been audited as required by section 308(3C) of the Corporations Act 2001.
Our Remuneration
Policy and Structure
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
• attract and retain talented people
• build long term ownership in the Company
• align reward with contribution to the Company’s performance
• align shareholder interests and the Company’s capacity to pay
• promote the values of the Charter and be aligned with the purpose of the Company
• be motivating for employees
• 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)
• it is designed so as to not “discriminate by way of race, religion or sex in employment, marketing,
or advertising practices” - Charter element (x)
• the incentive structure meets the requirements of Rule 15.1(c) of the Constitution which provides that prior
to recommending or declaring any dividend to be paid out of the profits of any one year, 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.
50
51
Annual & Sustainability Report 2017Annual & Sustainability Report 2017 REMUNERATION FRAMEWORK SUMMARY
SHORT TERM INCENTIVE SCHEME
Element
Key Driver
Quantum
How Paid
Criteria
Fixed
remuneration
(FR)
Pay people fairly.
Continued
employment.
Paid fornightly.
Note, the
payment cycle
changes to
monthly from July
2017 onwards.
Assessed
against market
data based on
position and skills
and experience
brought to the
role. Target
remuneration is
based around
the Median of
the relevant
comparator group
for each job role.
Short Term
Incentive (STI)
Incentivises
and rewards for
achieving annual
objectives.
Percentage
of Fixed
Remuneration
based on market
assessment.
Paid annually
in September.
Timing allows for
the inclusion of
financial results
in performance
assessments.
Objectives include
(depending on
role):
• Profit
• Growth
• Customer focus
• Investment
performance
• Individual
performance
• Culture
• Continued
employment
Long Term
Incentive (LTI)
Retention and
fostering an
interest in the
Company’s
long term
performance.
Percentage
of Fixed
Remuneration
based on market
assessment.
Shares held in
trust and vest
after 3 years.
Shares subject to
3 year vesting as
follows:
• 50% based
on remaining
employed with
the Company
• 50% based on
compound
annual growth
in Diluted
Earnings per
Share (EPS)
The aim of the Short Term Incentive Scheme is to incentivise and reward employees for performance against
annual objectives.
The maximum incentive paid each year is based on a percentage of each employee’s Fixed Remuneration and
their role and responsibility and benchmarked against market data.
It is paid in cash in September of each year following the finalisation of annual results and performance reviews.
Outcomes are assessed based on performance against a “balanced scorecard” of objectives. The actual
objectives and percentage vary depending on the role and cover the following:
Measure
Description
Profit
Growth
A portion of the incentive is based on meeting annual profit targets
determined by the Board
Focussed on building long term growth. Measures include growth in client
numbers and net inflows
Customer focus
Focussed on improving customer satisfaction and improving the
customer’s experience
Investment
performance
Individual
objectives
Culture
Assessed according to performance against investment benchmarks
Each employee will have certain individual objectives to achieve for
the year
Employees have an obligation to adhere to certain cultural standards. These
include abiding by the Company’s values and risk management requirements
LONG TERM INCENTIVE SCHEME
The aim of the Long Term Incentive Scheme is to foster an interest in the long term performance of the
Company, to encourage participation in the affairs of the Company and to encourage the retention of
employees.
The maximum incentive paid each year is based on a percentage of each employee’s Fixed Remuneration
and role, benchmarked against market data.
Shares are issued each financial year and held in trust for 3 years. They vest in the name of the employee after
3 years, provided that the employee remains employed and that long term financial performance hurdles are
met. Whilst the shares remain unvested, employees participate in dividends and have voting rights.
52
53
Annual & Sustainability Report 2017Annual & Sustainability Report 2017
The Deferred Share Scheme operates as follows:
Deferred Share Scheme
Description
Shares are issued or bought on market at the commencement of the
3 year performance period and held on trust. At the end of the period,
subject to performance hurdles being met, shares transfer into the name
of the employee.
Performance
hurdles
50% will vest if the employee remains with the Company continuously from
grant date.
50% will vest upon meeting the following performance hurdle:
• If EPS growth1 is less than 5% pa, zero will vest.
• If EPS growth is between 5% and 10% pa, a pro rata amount will vest.
• If EPS growth is greater than 10% pa, 100% will vest.
Dividends
Dividends are paid on unvested shares, which:
• provides real value that employees lose if they leave the Company.
• provides a direct real interest in the six monthly dividend performance
of the Company and hence alignment with shareholders’ interests.
Voting
Employees can vote on the unvested shares beneficially held for them.
Expense to
Company
The cost of shares allocated to employees is fixed at the time of issue
and expensed over a three year period.
Tax impact on
Company
Fully deductible in the year of issue.
Tax impact on
employees
Tax crystallises on vesting or release of shares from the employee share
trust and therefore the payment of tax is the responsibility of the employee.
1 Growth in EPS is defined as compound annual growth in the Company’s earnings per share comprising diluted earnings
per share (after tax). The compound annual growth is measured over a 3-year period and is based on audited financial
information. The Board may adjust EPS for items that do not reflect management and employee performance and day-to-
day business operations and activities.
Actual
Remuneration
TOTAL REMUNERATION PAID AND ALIGNMENT WITH
COMPANY PERFORMANCE
Short term incentive (STI) rewards for KMPs are based on a range of key performance measures. Depending on
the role, these include a portion linked to current year profit. For the investment team a portion is linked to the
performance of the investment funds for which they are responsible, and for the sales and marketing team a
portion is linked to net flows. STI rewards are provided for in the year they relate to and paid in the following year
following the performance review process.
Other elements of remuneration are aimed at building longer term value. A portion of the long term incentives
(LTI) are subject to Earnings per Share Growth ('EPS') performance hurdles2 over the three year vesting period and
continued employment over the period. If the conditions are not met the unvested shares remain in the Employee
Share Plan Trust.
In considering the Company’s performance and benefits, the remuneration committee have regard to the following
indices in respect of the current financial year and the previous four financial years.
30 June
2013
30 June
2014
30 June
2015
30 June
2016
30 June
2017
Net Profit After Tax attributable to
shareholders ($’000) 3
1,063
2,543
1,970
3,010
2,920
Underlying Profit After Tax ($’000)3
1,675
3,111
2,454
3,821
4,235
Earnings per share – diluted
($ per share)
Earnings per share growth – diluted
(diluted 3 years)
1.02 2.41 1.80
2.88 2.62
66.1%
38.5%
2.8%
Share price at end of period ($)
19.50
35.45 58.80 81.11 94.60
Dividends (c per share)
85
200
200
300
260
Total shareholder return (TSR)
16%
92%
72%
42%
19%
Over the 3 year period ending 2017, the minimum compound annual EPS growth hurdle was not met. As a result,
in 2017, there has been a reduction in LTI reflecting 50% of the 2015 LTI share issuance.
2 Growth in EPS is defined as compound annual growth in the Company’s earnings per share comprising diluted earnings
per share (after tax). The compound annual growth is measured over a 3 year period and is based on audited financial
information. The Board may adjust EPS for items that do not reflect management and employee performance and day-to-
day business operations and activities.
3 Refer to Directors' Report on page 46 for reconciling table.
54
55
Annual & Sustainability Report 2017Annual & Sustainability Report 2017 NON-FINANCIAL OUTCOMES
CONTRACT TERMS
As described earlier, in addition to profit targets a number of non-financial objectives are used to determine
incentive outcomes. Many of these develop the long term sustainability of the business and so are not
necessarily correlated to short term financial performance. These objectives are applied in varying degrees
depending on the role. Performance against some of these objectives in the past financial year have been:
Measure
Growth
Investment
performance
Culture
2017 Performance
Total net flows of $454m, a 42% increase on the previous year.
Superannuation members increased by 34% over the year.
Regular top quartile investment performance in a number of funds.
Employees comply with the Company’s values and risk management
requirements.
MANAGEMENT TEAM REMUNERATION
The following table shows the remuneration mix for the management team in the current year. The short-term
incentive is estimated and subject to finalisation of the performance appraisal process, and the long-term
incentive is calculated using the value of shares granted in the current year. Actual amounts received are shown
below in the Statutory Reporting section of this report.
Fixed
Remuneration
(%)
Short-Term
Incentive
(%)
Long-Term
Incentive
(%)
Total
($)
Managing Director & CEO
61%
23%
16%
100%
Managing Director & CEO
P Vernon
Current Management
K Hughes
(app 1 May 2017)*
Head of Risk &
Compliance
100%
0%
0%
100%
A Lowbridge
(app 10 Oct 2016)**
D Macri
T May
S Palmer
M Shanahan
(app 1 Jan 2017)**
Chief Customer Officer
71%
15%
14%
100%
CIO
General Counsel &
Company Secretary
Head of Ethics
CFO / COO
55%
83%
83%
61%
27%
9%
10%
21%
18%
8%
7%
18%
100%
100%
100%
100%
Departed Management
D Barton
(resigned 2 Sep 2016)
CFO
A Kirk
(resigned 14 Oct 2016)
Head of Business
Development & Client
Relations
77%
15%
8%
100%
71%
21%
8%
100%
* Remuneration entirely fixed as the management team member was not yet eligible for STI and LTI.
** These percentages reflect the impact of being appointed part way through the year.
56
All KMP’s have formal contracts of employment and are permanent employees of the Company.
Term
Notice Period
Managing
Director
3 years
concluding on
31 March 2019
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.
Management
Team
No fixed term
12 weeks
NON-EXECUTIVE DIRECTORS REMUNERATION
In addition to fixed remuneration, Non-Executive Directors (NEDs) are entitled to be paid reasonable expenses,
remuneration for additional services and superannuation contributions. Non-executive Directors are not eligible
to participate in employee incentive plans.
The total paid to non-executive directors of the Company is approved by shareholders at the Annual General
Meeting. The current pool of $360,000 was approved at the AGM in October 2014. A review of Non-executive
Directors’ remuneration is undertaken annually by the Company Board, taking into account recommendations
from the People, Remuneration and Nominations committee.
All Directors are Directors of Australian Ethical Investment Limited, Australian Ethical Superannuation Pty Ltd and
members of each Board’s Audit, Compliance and Risk Committee.
The following table sets out the agreed remuneration for Non-Executive Directors by position for a full year. For
actual remuneration received, refer to tables under the Statutory Reporting section of this report.
Non-Executive Director
Chair
$
NED
$
ACRC Chair
$
ACRC Member
$
Total
$
Stephen Gibbs
AEI
AES
Total
Tony Cole (resigned 30 Jun 17)
AEI
AES
Total
Kate Greenhill
AEI
AES
Total
Mara Bun
AEI
AES
Total
70,000
23,500
93,500
-
-
-
-
-
-
-
-
-
-
-
-
40,000
23,500
63,500
-
-
-
-
-
-
8,000
8,000
78,000
31,500
16,000
109,500
8,000
8,000
48,000
31,500
16,000
79,500
40,000
23,500
14,000
14,000
63,500
28,000
-
-
-
54,000
37,500
91,500
40,000
23,500
63,500
-
-
-
8,000
8,000
48,000
31,500
16,000
79,500
Group Total
93,500
190,500
28,000
48,000
360,000
Non-executive directors do not receive performance-related compensation and are not provided with retirement
benefits apart from statutory superannuation.
57
Annual & Sustainability Report 2017Annual & Sustainability Report 2017 Senior management team
remuneration reporting
We set out senior management team remuneration in the following two tables:
• the table ‘Senior Management Team Remuneration – Statutory Reporting’ is aligned to the way the company
expenses the remuneration of the senior team under the accounting standards and the Corporations Act
• the table ‘Senior Management Team Remuneration – Cash & Vesting basis’ shows amounts received by the
senior management team in cash and shares.
The difference between the two tables is explained in the footnotes.
SENIOR MANAGEMENT TEAM REMUNERATION - STATUTORY
REPORTING
The table on page 59 outlines senior management team remuneration as calculated in accordance with accounting
standards and the Corporations Act 2001 requirements. The amounts shown are equal to the amount expensed in
the Company’s financial statements for the particular year.
Notes in relation to reporting of Senior Management Team Remuneration – Statutory Reporting:
1. The Short Term Incentive (STI) expense is the amount accrued for performance during the respective
financial year using agreed KPI’s plus or minus any prior year over or under accrual. The 2017 amounts
will be finalised at an individual level in September 2017 after performance reviews are completed and
amounts are approved by the People, Remuneration and Nominations Committee.
2. The Long term incentive (LTI) expense for 2017 includes the relevant 2017 expense impact of each of
the 2015, 2016 and 2017 grants under the Deferred Employee Share Plan (new scheme). This includes
a reduction in LTI expense reflecting 50% of the 2015 LTI share issuance not vesting due to the minimum
compound annual EPS growth hurdle not having been met. The vesting of the remaining 50% time based
portion of the 2015 grant will be finalised at an individual level in September 2017. Under the new
scheme, the cost of shares is fixed at time of issue and expensed over a three year period using an annual
probability assessment of the hurdles being met.
3. The LTI expense for 2016 includes the relevant 2016 expense impact of each of the 2015 and 2016
grants under the Deferred Employee Share Plan (new scheme) plus the 2016 cost of the Performance
Rights scheme (AEFAE / old scheme). Under the old scheme, rights were amortised over 3 years based
on an annual assessment of the share price at the end of the 3 year period - a rising share price led to a
greater expense.
For details on the performance criteria for each tranche of performance rights and deferred shares refer
to Note 38 of the Notes to the Consolidated Financial Statements.
Short Term Benefits
Post-Employment
Benefits
Long Term
Benefits
Equity
Name
Salary
Short Term
Incentives
$
(1)
Super-
annuation
$
Termination
Benefits
$
Long Service
Leave
$
Long Term
Incentives
$
(2)
Total
$
2017
Managing Director
P Vernon
Management Team
K Hughes
(appointed 1 May 2017)
A Lowbridge
(appointed 10 Oct 2016)
D Macri
T May
S Palmer
M Shanahan
(appointed 3 Jan 2017)
Departed Management
D Barton (resigned 2 Sep 2016)
A Kirk (redundant 14 Oct 2016)
Total
2016
394,432
199,006
19,616
41,096
-
3,904
188,541
45,395
16,267
314,898
212,002
227,780
181,707
127,650
29,149
43,594
68,274
19,616
19,616
19,616
17,218
-
-
-
-
-
-
-
19,703
41,502
674,259
867
-
45,867
4,384
7,000
261,587
11,243
6,980
8,659
3,956
39,798
8,629
7,730
9,333
513,205
276,376
307,379
280,488
58,482
157,648
-
34,458
4,445
21,842
-
90,990
-
21,940
(19,918)
10,366
43,009
337,244
1,776,586
547,526
142,140
90,990
77,732
104,440
2,739,414
Managing Director & CEO
P Vernon
355,753
69,435
19,307
Management Team
D Barton
A Kirk
D Macri
T May
S Palmer
247,193
232,324
298,144
201,678
178,449
(3,261)
38,612
119,479
20,327
23,221
19,252
19,233
19,307
19,308
19,465
Total
1,513,541
267,813
115,872
( 3 )
11,871
293,998
750,364
5,732
5,719
10,084
6,952
3,970
12,740
62,882
242,883
53,938
8,533
281,656
358,770
689,897
302,203
233,638
44,328
674,974
2,616,528
-
-
-
-
-
-
-
58
59
Annual & Sustainability Report 2017Annual & Sustainability Report 2017
SENIOR MANAGEMENT TEAM REMUNERATION
– CASH & VESTING BASIS
The table below outlines senior management team remuneration received individually during the year including
prior year bonus paid in cash in the reporting year and the vesting of shares granted under the relevant scheme
three years previously.
NON-EXECUTIVE DIRECTORS REMUNERATION
The table below outlines Non-Executive reward as calculated in accordance with accounting standards and the
Corporations Act 2001 requirements. The amounts shown are equal to the amount expensed in the Company’s
financial statements.
Short Term Benefits
Post-Employment
Benefits
Long Term
Benefits
Equity
Short Term Benefits
Post-Employment
Benefits
Long Term
Benefits
Equity
Name
Salary
Cash
Bonus
Super-
annuation
Termination
Benefits
Long Service
Leave
2017
S Gibbs
T Cole
(resigned 30 Jun 2017)
K Greenhill
M Bun
Total
2016
S Gibbs
T Cole
K Greenhill
M Bun
R Medd (resigned 25 Dec 2015)**
L Coleman
(resigned 7 Aug 2015)**
99,201
71,804
82,763
71,804
325,572
93,413
63,444
78,253
62,198
21,084
10,854
Total
329,246
$
-
-
-
-
-
-
-
-
-
-
-
-
$
9,424
6,821
7,862
6,821
30,928
8,874
6,027
7,434
5,909
2,003
1,031
31,278
$
-
-
-
-
-
-
-
-
-
-
-
-
$
-
-
-
-
-
-
-
-
-
-
-
-
Settled
Share-based
payments
$
Total
$
-
-
-
-
-
-
-
-
-
-
-
-
108,625
78,625
90,625
78,625
356,500
102,288
69,471
85,687
68,107
23,087
11,885
360,525
** R Medd and L Coleman were Directors of AES Pty Limited and members of AEI’s Audit, Compliance and Risk Committee
and retired in 2016.
Non-executive Directors remuneration includes Directors of the subsidiary Company which are not included in
the Directors’ pool approved at the AGM in October 2014.
Name
Salary
Cash
Bonus
$
(1)
Super-
annuation
$
Termination
Benefits
$
Long Service
Leave
$
Settled
Share-based
payments
$
(2)
Total
$
2017
Managing Director & CEO
P Vernon
Management Team
K Hughes
(appointed 1 May 2017)
A Lowbridge
(appointed 10 Oct 2016)
D Macri
T May
S Palmer
M Shanahan
(appointed 3 Jan 2017)
Departed Management
D Barton (resigned 2 Sep 2016)
A Kirk (redundant 14 Oct 2016)
Total
2016
394,432
117,036
19,616
41,096
188,541
314,898
212,002
227,780
181,707
-
-
118,453
25,764
32,606
-
3,904
16,267
19,616
19,616
19,616
17,218
-
-
-
-
-
-
-
19,703
327,441
878,228
867
4,384
11,243
6,980
8,659
3,956
-
-
261,418
58,399
-
-
45,867
209,192
725,628
322,761
288,661
202,881
58,482
157,648
-
34,458
4,445
21,842
-
90,990
-
21,940
-
97,532
62,927
424,410
1,776,586
328,317
142,140
90,990
77,732
744,790
3,160,555
Managing Director & CEO
P Vernon
355,753
139,342
19,307
Management Team
D Barton
A Kirk
D Macri
T May
S Palmer
247,193
232,324
298,144
201,678
178,449
37,183
55,247
132,033
29,679
26,451
19,252
19,233
19,307
19,308
19,465
Total
1,513,541
419,935
115,872
-
-
-
-
-
-
-
11,871
258,661
784,934
5,732
5,719
10,084
6,952
3,970
33,281
114,836
186,043
82,849
8,761
342,641
427,359
645,611
340,466
237,096
44,328
684,431
2,778,107
Notes in relation to reporting of Senior Management Team Remuneration – Cash & Vesting basis:
1. The Cash Bonus amount is what was paid in the financial year for performance during the prior
financial year using agreed KPI’s.
2. The Settled Share Based Payment amounts for 2017 and 2016 relate only to the old scheme and
represent the market value of the shares on the day that the relevant performance rights were converted
into ordinary shares. For 2017 this reflects a price at vesting of AEFAE of $81.11 per share (price at grant
was $35.45).
60
61
Annual & Sustainability Report 2017Annual & Sustainability Report 2017 PERFORMANCE RIGHTS, DEFERRED AND ORDINARY SHARES
The movement during the reporting period in the number of rights over ordinary shares and ordinary shares in the
Company, held directly, indirectly or beneficially, by each key management person, including their related parties is
as follows:
Name
Grant
Date
Vesting/
Conversion
Date
Share Price
at Grant
Date
Balance
at 1 July
2016
No. of
Rights/
Shares
Granted
No.
Forfeited/
Expired
No.
Sold
No.
Vested &
Exercised
Balance
at 30 June
2017
Name
Grant
Date
Vesting/
Conversion
Date
Share Price
at Grant
Date
Balance
at 1 July
2016
No. of
Rights/
Shares
Granted
No.
Forfeited/
Expired
No.
Sold
No.
Vested &
Exercised
Balance
at 30 June
2017
Managing Director & CEO
Management who have departed during the year
P Vernon
Deferred Shares - 2013/14
Deferred Shares - 2014/15
Deferred Shares - 2015/16
AEFAE
AEF Ordinary Shares
Total
Current Management
A Lowbridge
Deferred Shares - 2015/16
2017 Total
D Macri
Deferred Shares - 2013/14
Deferred Shares - 2014/15
Deferred Shares - 2015/16
AEFAE
AEF Ordinary Shares
Total
T May
Deferred Shares - 2013/14
Deferred Shares - 2014/15
Deferred Shares - 2015/16
AEFAE
AEF Ordinary Shares
Total
S Palmer
Deferred Shares - 2013/14
Deferred Shares - 2014/15
Deferred Shares - 2015/16
AEF Ordinary Shares
Total
M Shanahan
Deferred Shares - 2015/16
Total
-
-
-
-
-
-
-
-
-
-
-
(4,037)
4,037
-
-
-
13-Mar-15
31-Aug-15
31-Aug-16
30-Jun-14
31-Aug-17
31-Aug-18
31-Aug-19
31-Aug-16
42.80
53.97
68.34
35.45
2,412
1,913
-
4,037
9,412
-
-
1,556
-
-
(1,206)
-
-
-
-
17,774
1,556
(1,206)
3-Jan-17 31-Aug-19
68.34
13-Mar-15
31-Aug-15
31-Aug-16
30-Jun-14
31-Aug-17
31-Aug-18
31-Aug-19
31-Aug-16
42.80
53.97
68.34
35.45
-
-
2,313
1,834
-
3,223
901
465
465
-
-
1,492
-
-
-
-
(1,156)
-
-
-
-
-
-
-
-
(2,148)
-
-
-
(3,223)
3,223
13-Mar-15
31-Aug-15
31-Aug-16
30-Jun-14
31-Aug-17
31-Aug-18
31-Aug-19
31-Aug-16
42.80
53.97
68.34
35.45
13-Mar-15
31-Aug-15
31-Aug-16
31-Aug-17
31-Aug-18
31-Aug-19
42.80
53.97
68.34
3-Jan-17 31-Aug-19
68.34
8,271
1,492
(1,156)
(2,148)
-
501
398
-
720
-
1,619
382
341
-
149
872
-
-
-
-
324
-
-
324
-
-
294
-
294
856
856
(250)
-
-
-
-
-
-
-
-
(720)
(250)
(720)
(191)
-
-
-
(191)
-
-
-
-
-
-
-
-
-
-
-
-
(720)
720
-
-
-
-
-
-
-
-
D Barton
Deferred Shares - 2013/14
Deferred Shares - 2014/15
Deferred Shares - 2015/16
AEF Ordinary Shares
Total
A Kirk
Deferred Shares - 2013/14
Deferred Shares - 2014/15
Deferred Shares - 2015/16
AEFAE
AEF Ordinary Shares
Total
13-Mar-15
31-Aug-15
31-Aug-16
31-Aug-17
31-Aug-18
31-Aug-19
42.80
53.97
68.34
13-Mar-15
31-Aug-15
31-Aug-16
30-Jun-14
31-Aug-17
31-Aug-18
31-Aug-19
31-Aug-16
42.80
53.97
68.34
35.45
604
479
-
566
1,649
537
426
-
856
81
1,900
-
-
390
-
390
-
-
347
-
-
347
(604)
(479)
(390)
-
(1,473)
(149)
(253)
(316)
-
-
-
-
-
(566)
(566)
-
-
-
-
(1,509)
-
-
-
-
-
(388)
(173)
(31)
(856)
1,448
(718)
(1,509)
-
-
-
-
-
-
-
-
-
-
20
20
1,206
1,913
1,556
-
13,449
18,124
465
465
1,157
1,834
1,492
-
1,976
6,459
251
398
324
-
-
973
191
341
294
149
975
856
856
62
63
Annual & Sustainability Report 2017Annual & Sustainability Report 2017
Governance
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 include oversight of remuneration as well as executive development, talent management
and succession planning.
The PRNC members for the 2016/17 financial year were:
• Stephen Gibbs (Chair);
• Mara Bun;
• Kate Greenhill; and
• Anthony Cole.
The PRNC met five times during the year.
Attendance at these meetings is set out in the Directors’ Report. At the PRNC’s invitation, the Managing Director
and Head of the People and Culture 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.
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 measurement of performance against agreed KPI’s and
Company performance.
The bonus received by the Managing Director during 2016/17 is shown in Statutory Reporting table and relates to
the previous financial year of 2015/16. 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.
Annually an assessment is made on the eligibility for vesting of deferred shares issued under the Long Term
Incentive scheme.
HEDGING POLICY
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.
TRADING RESTRICTIONS AND WINDOWS
All Directors and employees are constrained from trading the Company during “blackout periods”. These periods
occur between the end of the half year and full year and two days after the release of the half year and full
year results.
OUTCOMES OF VOTES AT ANNUAL GENERAL MEETINGS
At the 2016 AGM, the Company’s remuneration report received a ‘no’ vote of more than 28.5% cast on a resolution
that the remuneration report be adopted (out of 54.6% of shareholders that voted on the report). This constituted
a ‘second strike’ and a spill resolution was put to shareholders. The spill motion failed. Directors are of the view
that the reasons for the no vote are not related to the Company’s remuneration model as (a) engagements
with shareholders in relation to remuneration issues has not yielded any substantive objections and (b) the
remuneration model is in line with market expectations for companies in our industry of similar size and complexity.
In setting the remuneration structure we have carefully considered comments made by shareholders, sought
advice from remuneration consultants and reviewed practises of our peers. We believe that the structure we have
adopted is the most appropriate for our people, shareholders and the business providing the right balance between
motivation, retention and alignment of interests between employees and shareholders.
The Directors report, incorporating the Remuneration report, is signed is accordance with a resolution of the Board
of Directors.
Stephen Gibbs
Chair
People, Remuneration & Nominations Committee (PRNC)
30 August 2016
64
65
Annual & Sustainability Report 2017Annual & Sustainability Report 2017
AUSTRALIAN ETHICAL INVESTMENT LIMITED
AND ITS CONTROLLED ENTITIES
ABN 47 003 188 930
Annual Financial Statements
CONTENTS
Statements of comprehensive income
Statements of financial position
Statements of changes in equity
Statements of cash flows
Notes to the financial statements
Directors’ declaration
Independent auditor’s report to the members of Australian Ethical Investment Limited
68
69
70
72
73
103
104
66
67
Annual & Sustainability Report 2017Annual & Sustainability Report 2017 AUSTRALIAN ETHICAL INVESTMENT LIMITED
STATEMENTS OF COMPREHENSIVE INCOME
FOR THE YEAR ENDED 30 JUNE 2017
Revenue
Total Revenue
Expenses
Operating Expenses
Employee Benefits
Fund Related
External Services
Marketing
Occupancy
Depreciation and Amortisation
Community Grants
Other Expenses
Total Operating Expenses
Non-Operating Expenses
Remediation Expense
Consolidated #
Parent
Note
2017
2016
2017
2016
5
6
7
8
10
9
$’000
28,305
Restated*
$’000
23,040
$’000
22,230
$’000
19,656
28,305
23,040
22,230
19,656
(10,185)
(8,214)
(9,896)
(8,077)
(4,178)
(3,322)
(1,157)
(1,004)
(2,517)
(1,821)
(2,059)
(1,598)
(2,039)
(1,382)
(2,033)
(1,364)
(906)
(365)
(906)
(365)
(284)
(182)
(284)
(182)
(380)
(220)
(379)
(395)
(1,821)
(1,548)
(1,730)
(1,454)
(22,310)
(17,054)
(18,444)
(14,439)
21
(1,955)
(900)
(1,894)
-
Gain/(loss) on Disposal of Assets
(210)
7
(210)
7
Reversal of Impairment/(Impairment) of Investment Property
228
(181)
228
(181)
Total Non-Operating Expenses
(1,937)
(1,074)
(1,876)
(174)
Total Expenses
(24,247)
(18,128)
(20,320)
(14,613)
Profit Before Income Tax Expense
4,058
4,912
1,910
5,043
Income Tax Expense
Net Profit for the Year
Total Comprehensive Income for the Year
11
(1,134)
(1,726)
(77)
(1,011)
2,924
3,186
2,924
3,186
1,833
1,833
4,032
4,032
Basic Earnings Per Share
Diluted Earnings Per Share
Cents
269.98
Restated*
Cents
298.50
262.25
287.74
37
37
* Refer to note 4 for detailed information on Restatement of comparatives.
# Comprehensive income includes the results of The Foundation (refer to Note 40)
AUSTRALIAN ETHICAL INVESTMENT LIMITED
STATEMENTS OF FINANCIAL POSITION
FOR THE YEAR ENDED 30 JUNE 2017
Consolidated
Parent
Note
2017
2016
2017
2016
$’000
Restated*
$’000
$’000
$’000
Assets
Current Assets
Cash and Cash Equivalents
Trade and Other Receivables
Income Tax Refund Due
Other
Investment Property Held for Sale
Total Current Assets
Non-Current Assets
Term Deposit
Investments in Subsidiary
Property, Plant and Equipment
Deferred Tax
Total Non-Current Assets
Total Assets
Liabilities
Current Liabilities
Trade and Other Payables
Income Tax
Employee Benefits
Provisions
Total Current Liabilities
Non-Current Liabilities
Trade and Other Payables
Employee Benefits
Provisions
Total Non-Current Liabilities
Total Liabilities
Net Assets
Equity
Issued Capital
Reserves
Retained Profits
Total Equity
12
13
11
14
15
18
16
17
11
19
11
20
21
22
23
24
25
26
12,591
14,324
8,613
12,349
963
495
1,786
149
303
-
310
-
350
368
306
313
14,207
15,187
11,015
12,811
1,610
-
1,610
-
15,817
15,187
12,625
12,811
504
-
-
-
504
-
316
316
2,060
1,823
2,060
1,823
902
914
810
641
3,466
2,737
3,690
2,780
19,283
17,924
16,315
15,591
2,557
1,508
1,894
1,301
-
605
-
412
1,727
1,500
1,727
1,500
207
900
26
-
4,491
4,513
3,647
3,213
547
104
228
69
547
99
104
69
99
-
228
-
879
168
879
168
5,370
4,681
4,526
3,381
13,913
13,243
11,789
12,210
9,923
8,693
9,923
1,012
1,929
1,012
8,693
1,929
2,978
2,621
854
1,588
13,913
13,243
11,789
12,210
68
* Refer to note 4 for detailed information on Restatement of comparatives.
The above statements of financial position should be read in conjunction with the accompanying notes
69
The above statements of comprehensive income should be read in conjunction with the accompanying notesAnnual & Sustainability Report 2017Annual & Sustainability Report 2017 AUSTRALIAN ETHICAL INVESTMENT LIMITED
STATEMENTS OF CHANGES IN EQUITY
FOR THE YEAR ENDED 30 JUNE 2017
AUSTRALIAN ETHICAL INVESTMENT LIMITED
STATEMENTS OF CHANGES IN EQUITY
FOR THE YEAR ENDED 30 JUNE 2017
Consolidated
Balance at 1 July 2015
Impact of restatement
Balance at 1 July 2015 – restated
Net profit for the year
Other comprehensive income for the year, net of tax
Total comprehensive income for the year
Transactions with owners in their capacity as owners:
Dividends provided for or paid
Issued
Capital
Share-based
Payment
Reserves
$’000
7,004
-
$’000
2,338
-
7,004
2,338
-
-
-
-
-
-
-
-
Retained
Profits
Restated*
$’000
1,810
251
2,061
3,186
-
Total
Equity
$’000
11,152
251
11,403
3,186
-
Parent
Balance at 1 July 2015
Net profit for the year
Other comprehensive income for the year, net of tax
Total comprehensive income for the year
Transactions with owners in their capacity as owners:
Issued
Capital
$’000
7,004
-
-
-
Share-based
Payment
Reserves
$’000
2,338
-
-
-
Retained
Profits
Restated*
$’000
182
4,032
-
Total
Equity
$’000
9,524
4,032
-
4,032
4,032
3,186
3,186
Shares issued due to rights vesting during the year
1,689
(1,689)
(2,626)
(2,626)
Employee share plan – Deferred Shares
Employee share scheme – Rights
868
412
-
-
-
-
868
412
-
-
-
Shares issued due to rights vesting during the year
1,689
(1,689)
Employee share scheme – Rights
Employee share plan – Deferred Shares
Balance at 30 June 2016
-
-
8,693
868
412
1,929
-
-
-
-
868
412
2,621
13,243
* Refer to note 4 for detailed information on Restatement of comparatives.
Consolidated
Issued
Capital
Share-based
Payment
Reserves
Retained
Profits
Total
Equity
$’000
$’000
$’000
$’000
Balance at 1 July 2016 – restated
8,693
1,929
Net profit for the year
Other comprehensive income for the year, net of tax
Total comprehensive income for the year
Transactions with owners in their capacity as owners:
Dividends provided for or paid
Shares issued due to rights vesting during the year
Shares vesting during the year
Employee share scheme – Deferred Shares
-
-
-
-
-
-
-
-
1,201
28
-
(1,201)
(28)
312
2,621
2,924
-
13,243
2,924
-
2,924
2,924
(2,567)
(2,567)
-
-
-
-
-
312
Balance at 30 June 2017
9,923
1,012
2,978
13,913
Dividends provided for or paid
-
(2,626)
(2,626)
Balance at 30 June 2016
8,693
1,929
1,588
12,210
Parent
Balance at 1 July 2016
Net profit for the year
Other comprehensive income for the year, net of tax
Total comprehensive income for the year
Transactions with owners in their capacity as owners:
Dividends provided for or paid
Shares issued due to rights vesting during the year
Shares vesting during the year
Employee share scheme – Deferred shares
Balance at 30 June 2017
Issued
Capital
$’000
8,693
Share-based
Payment
Reserves
$’000
1,929
-
-
-
-
1,201
28
-
9,923
-
-
-
-
(1,201)
(28)
312
1,012
Retained
Profits
Restated*
$’000
1,588
1,833
-
Total
Equity
$’000
12,210
1,833
-
1,833
1,833
(2,567)
(2,567)
-
-
-
-
-
312
854
11,789
70
71
The above statements of changes in equity should be read in conjunction with the accompanying notesThe above statements of changes in equity should be read in conjunction with the accompanying notesAnnual & Sustainability Report 2017Annual & Sustainability Report 2017
AUSTRALIAN ETHICAL INVESTMENT LIMITED
STATEMENTS OF CASH FLOWS
FOR THE YEAR ENDED 30 JUNE 2017
Operating Activities
Receipts from customers
Consolidated
Parent
Note
2017
2016
2017
2016
$’000
Restated
$’000
$’000
$’000
27,774
23,982
19,007
18,402
Payments to suppliers and employees
(22,549)
(16,946)
(18,063)
(13,400)
Interest received
Community grants paid
Income taxes paid
257
216
210
172
(280)
(230)
(395)
(481)
(1,919)
(2,348)
(857)
(1,022)
Net cash from/(used in) operating activities
36
3,283
4,674
(98)
3,671
Investing Activities
Notes to the financial
statements
NOTE 1. ABOUT THIS REPORT
The financial report covers the consolidated group of Australian Ethical Investment Limited, the ultimate parent
entity, and its wholly owned subsidiaries (together referred to as the ‘Group’ and individually as ‘Group entities’)
and Australian Ethical Investment Limited as an individual parent entity. The financial statements are presented
in Australian dollars, which is the Group’s functional and presentation currency. Australian Ethical Investment
Limited is a listed public Company (ASX: AEF) and both the parent and wholly owned entities are incorporated and
domiciled in Australia.
The Group is a for-profit entity for the purposes of preparing financial statements.
The financial statements were authorised for issue, in accordance with a resolution of Directors, on 30 August 2017.
The Directors have the power to amend and reissue the financial statements.
Payments for property, plant and equipment
(1,921)
(58)
(1,921)
(58)
NOTE 2. SIGNIFICANT ACCOUNTING POLICIES
Payment for term deposit
Dividends received from subsidiary
(504)
-
-
-
(504)
-
1,378
2,689
Net cash from/(used in) investing activities
(2,425)
(58)
(1,047)
2,631
Financing Activities
Dividends paid
(2,591)
(2,519)
(2,591)
(2,519)
Net cash used in financing activities
(2,591)
(2,519)
(2,591)
(2,519)
Net increase/(decrease) in cash and cash equivalents
(1,733)
2,097
(3,736)
(3,783)
Cash and cash equivalents at the beginning
of the financial year
Cash and cash equivalents at the end
of the financial year
14,324
12,227
12,349
8,566
12
12,591
14,324
8,613
12,349
The principal accounting policies adopted in the preparation of the financial statements are set out either in
the respective notes or below. These policies have been consistently applied to all the years presented, unless
otherwise stated.
NEW OR AMENDED ACCOUNTING STANDARDS AND
INTERPRETATIONS ADOPTED
The consolidated group has adopted all of the new or amended Accounting Standards and Interpretations issued
by the Australian Accounting Standards Board (‘AASB’) that are mandatory for the current reporting period.
Any new or amended Accounting Standards or Interpretations that are not yet mandatory have not been early
adopted.
BASIS OF PREPARATION
These general purpose financial statements have been prepared in accordance with Australian Accounting Standards
and Interpretations issued by the Australian Accounting Standards Board (‘AASB’) and the Corporations Act 2001, as
appropriate for for-profit oriented entities. These financial statements also comply with International Financial Reporting
Standards as issued by the International Accounting Standards Board (‘IASB’).
Historical cost convention
The financial statements have been prepared under the accruals basis and are based on historical cost convention,
except for, where applicable, the revaluation of available-for-sale financial assets, financial assets and liabilities at
fair value through profit or loss, investment properties, and property, plant and equipment.
Critical accounting estimates
The preparation of the financial statements requires the use of certain critical accounting estimates. It also
requires management to exercise its judgement in the process of applying the consolidated group’s and Company’s
accounting policies. The areas involving a higher degree of judgement or complexity, or areas where assumptions
and estimates are significant to the financial statements, are disclosed in Note 3.
PARENT ENTITY INFORMATION
These financial statements include the results of both the parent entity and the consolidated group in accordance
with Class Order 10/654, issued by the Australian Securities and Investments Commission.
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The above statements of cash flows should be read in conjunction with the accompanying notesAnnual & Sustainability Report 2017Annual & Sustainability Report 2017
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements incorporate the assets and liabilities of all subsidiaries of Australian Ethical
Investment Limited (‘Company’ or ‘parent entity’) as at 30 June 2017 and the results of all subsidiaries for the year then
ended.
Subsidiaries are all those entities over which the parent entity has control. The parent entity controls an entity
when the parent entity 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 consolidated entity. They are de-consolidated from
the date that control ceases.
Intercompany transactions, balances and unrealised gains on transactions between entities in the consolidated
group are eliminated. Unrealised losses are also eliminated unless the transaction provides evidence of the
impairment of the asset transferred. Accounting policies of subsidiaries have been changed where necessary to
ensure consistency with the policies adopted by the consolidated group.
Interests in subsidiaries are accounted for at cost, less any impairment, in the parent entity. Dividends received
from subsidiaries are recognised as other income by the parent entity and its receipt may be an indicator of an
impairment of the investment.
CURRENT AND NON-CURRENT CLASSIFICATION
Assets and liabilities are presented in the statement of financial position based on current and non-current
classification.
An asset is classified as current when: it is either expected to be realised or intended to be sold or consumed in
the consolidated group’s normal operating cycle; it is held primarily for the purpose of trading; it is expected to be
realised within 12 months after the reporting period; or the asset is cash or cash equivalent unless restricted from
being exchanged or used to settle a liability for at least 12 months after the reporting period. All other assets are
classified as non-current.
Deferred tax assets and liabilities are always classified as non-current.
ROUNDING OF AMOUNTS
The Company is of a kind referred to in Corporations Instrument 2016/191, issued by the Australian Securities and
Investments Commission, relating to ‘rounding-off’. Amounts in this report have been rounded off in accordance
with that Corporations Instrument to the nearest thousand dollars, or in certain cases, the nearest dollar.
COMPARATIVES
Where necessary, comparative information has been reclassified to be consistent with current reporting period.
NEW ACCOUNTING STANDARDS AND INTERPRETATIONS NOT YET
MANDATORY OR EARLY ADOPTED
Australian Accounting Standards and Interpretations that have recently been issued or amended but are not yet
mandatory, have not been early adopted by the consolidated group for the annual reporting period ended 30 June 2017.
The consolidated group’s assessment of the impact of these new or amended Accounting Standards and Interpretations,
most relevant to the consolidated group, are set out below.
AASB 9 Financial Instruments
This standard is applicable to annual reporting periods beginning on or after 1 January 2018. The standard replaces
all previous versions of AASB 9 and completes the project to replace IAS 39 ‘Financial Instruments: Recognition and
Measurement’. AASB 9 introduces new classification and measurement models for financial assets, financial liabilities,
and hedging. Based on the preliminary analyses performed, the amendments are not expected to have a material impact
on the Group.
AASB 15 Revenue from Contracts with Customers
This standard is applicable to annual reporting periods beginning on or after 1 January 2018. The standard provides a
single standard for revenue recognition replacing both AASB 118 ‘Revenue’ and AASB 111 ‘Construction Contracts’. The
core principle of the standard is that an entity will recognise revenue to depict the transfer of promised goods or services
to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those
goods or services. The standard redefines the model for recognising revenue earned from a contract. In addition to giving
consideration to credit risk and contracts where performance obligations are satisfied over time, the new standard also
requires additional disclosures in both quantitative and qualitative forms. Based on the preliminary analyses performed,
the amendments are not expected to have a material impact on the Group.
AASB 16 Leases
This standard is applicable to annual reporting periods beginning on or after 1 January 2019. The standard replaces AASB
117 ‘Leases’ and for lessees will eliminate the classifications of operating leases and finance leases. Subject to exceptions,
a ‘right-of-use’ asset will be capitalised in the statement of financial position, measured at the present value of the
unavoidable future lease payments to be made over the lease term. A liability corresponding to the capitalised lease will
also be recognised, adjusted for lease prepayments, lease incentives received, initial direct costs incurred and an estimate
of any future restoration, removal or dismantling costs. Based on the preliminary analyses performed, the amendments
are expected to result in a change in accounting for some leased assets.
NOTE 3. CRITICAL ACCOUNTING JUDGEMENTS, ESTIMATES AND
ASSUMPTIONS
The preparation of the financial statements requires management to make judgements, estimates and assumptions
that affect the reported amounts in the financial statements. Management continually evaluates its judgements and
estimates in relation to assets, liabilities, contingent liabilities, revenue and expenses. Management bases its judgements,
estimates and assumptions on historical experience and on other various factors, including expectations of future events,
management believes to be reasonable under the circumstances.
The areas involving significant estimates or judgements are:
• Income tax & recovery of deferred tax assets – refer to Note 11
• Investment property held for sale – refer to Note 15
• Estimation of useful lives of assets – refer to Note 17
• Measurement of the provision for remediation – refer to Note 21
• Employee benefits provision – refer to Note 20 and 23
• Lease make-good provision – refer to Note 24
• Share-based payment transactions – refer to Note 38
Business segments
The Group determines and represents operating segments based on the information that is internally provided
to the Managing Director (MD), who is the Group’s chief operating decision maker. An operating segment is a
component of the Group 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 Group’s other components. The Group
comprises one main operating segment being Funds Management.
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Annual & Sustainability Report 2017Annual & Sustainability Report 2017
NOTE 4. RESTATEMENT OF COMPARATIVES
NOTE 4. RESTATEMENT OF COMPARATIVES (CONTINUED)
On 28 July 2015, the Australian Ethical Foundation was established. The purpose of the Foundation is to be vehicle for the
disbursement of profits that are subject to clause 15.1 (c)(ii) of the Parent entity’s constitution which requires a portion
of profits to be provided for charitable, benevolent or conservation purposes. The creation of the Foundation allows for
flexibility when allocating money, to manage multi-year grants and for the creation of a corpus for long term funding of
worthwhile causes and organisations.
Following a review of current industry practice, the Group determined that The Foundation should be consolidated
and form part of the Group.
In addition, the presentation of annual leave provision has been changed to be included into employee benefits
liabilities. We have reclassified the comparative balance to be consistent with the current year presentation.
As a result, prior periods have been restated as outlined below.
Refer to Note 40 for further details on the financial results of The Foundation.
Statement of comprehensive income
Revenue
Community grants expense
Profit before income tax expense
Net profit for the year
Total comprehensive income for the year
Basic earnings per share
Diluted earnings per share
Consolidated
2016
2016
$’000
Reported
$’000
Adjustment
$’000
Restated
23,039
(395)
4,736
3,010
3,010
1
175
176
176
176
23,040
(220)
4,912
3,186
3,186
Cents
Reported
Cents
Adjustment
Cents
Restated
281.97
271.80
16.53
15.94
298.50
287.74
Statement of financial position at the end of the earliest comparative period
Cash and cash equivalents
Total current assets
Total assets
Trade and other payables
Employee benefits
Total current liabilities
Total liabilities
Net assets
Retained profits
Total equity
Consolidated
2016
2016
$’000
Reported
$’000
Adjustment
$’000
Restated
14,072
14,935
17,672
2,014
1,169
4,688
4,856
12,816
2,194
12,816
252
252
252
(506)
331
(175)
(175)
427
427
427
14,324
15,187
17,924
1,508
1,500
4,513
4,681
13,243
2,621
13,243
Included in the $427,000 adjustment to Retained Earnings is an adjustment of $251,000 for Community Grants
provision as at 30 June 2015 that was intended to be directed to the Foundation on incorporation. The remainder
of the adjustment relates to the elimination of intercompany transactions during the financial year ended
30 June 2016.
NOTE 5. REVENUE
Consolidated
Parent
2017
2016
2017
2016
$’000
Restated*
$’000
$’000
$’000
Management and performance fees (net of rebates)
20,921
16,069
20,482
16,674
Adminstration fees
4,306
4,615
Member and withdrawal fees
2,662
2,018
-
-
-
-
Interest income
Rental income
Dividends
Revenue
259
247
213
202
157
91
157
91
-
-
1,378
2,689
28,305
23,040
22,230
19,656
Recognition and measurement
Revenue is recognised when it is probable that the economic benefit will flow to the consolidated group and
the revenue can be reliably measured. Revenue is measured at the fair value of the consideration received or
receivable.
Fee revenue
Fee revenue is earned from provision of services to customers outside the Group. Revenue is recognised when
services are provided.
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Annual & Sustainability Report 2017Annual & Sustainability Report 2017
NOTE 5. REVENUE (CONTINUED)
Dividends
Dividends are recognised as revenue when the right to receive payment is established.
Interest income
Interest income is recognised as interest accrues using the effective interest method. This is a method of calculating the
amortised cost of a financial asset and allocating the interest income over the relevant period using the effective interest
rate, which is the rate that exactly discounts estimated future cash receipts through the expected life of the financial asset
to the net carrying amount of the financial asset.
Rental income
Rental income is recognised using the straight line method over the term of the lease.
NOTE 6. EMPLOYEE BENEFITS EXPENSE
NOTE 9. OTHER EXPENSES
Insurance
IT
Travel
Subscriptions and listing
Other
Consolidated
Parent
2017
$’000
157
1,148
238
106
172
1,821
2016
$’000
117
1,027
205
87
112
1,548
2017
$’000
79
1,161
238
106
146
1,730
2016
$’000
49
1,014
203
87
101
1,454
Consolidated
Parent
NOTE 10. COMMUNITY GRANTS EXPENSE
The Group’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:
• 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% of what
the profit for that year would have been had the bonus or incentive payment not been deducted.
• gifted or provisioned for gifting an amount equivalent to 10% of what the profit for that year would have been
had the above mentioned bonus and amount gifted not been deducted.
Community grants amounting to $380,000 (2016 restated: $220,000) have been provided for or paid in the
current year.
Employee remuneration
Directors’ fees
Other employment costs
2017
$’000
9,785
2016
$’000
7,757
356
361
44
10,185
96
8,214
2017
$’000
9,622
230
44
9,896
NOTE 7. FUND RELATED EXPENSES
Administration and custody fees
License and levy fees
NOTE 8. EXTERNAL SERVICES
Ethical research
Audit
Consultants
Legal services
Other
Consolidated
Parent
2017
$’000
3,738
440
4,178
2016
$’000
2,901
421
3,322
2017
$’000
834
323
1,157
Consolidated
Parent
2017
$’000
71
638
442
245
1,121
2,517
2016
$’000
134
543
325
118
701
1,821
2017
$’000
71
331
318
232
1,107
2,059
2016
$’000
7,757
224
96
8,077
2016
$’000
681
323
1,004
2016
$’000
134
420
237
115
692
1,598
78
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Annual & Sustainability Report 2017Annual & Sustainability Report 2017
NOTE 11. INCOME TAX
NOTE 11. INCOME TAX (CONTINUED)
Income tax expense
Current tax
Deferred tax - origination and reversal of
temporary differences
Adjustment recognised for prior periods
Aggregate income tax expense
Consolidated
Parent
2017
2016
2017
2016
$’000
Restated
$’000
$’000
$’000
1,122
1,865
246
907
12
(142)
(169)
101
-
1,134
3
1,726
-
77
3
1,011
Deferred tax included in income tax expense comprises:
Decrease/(increase) in deferred tax assets
12
(142)
(169)
101
Reconciliation of income tax expense to prima facie tax payable
Profit before income tax expense
Tax at the statutory tax rate of 30%
4,058
1,217
4,912
1,474
1,910
573
Tax effect amounts which are not deductible/
(taxable) in calculating taxable income:
Profit in relation to The Foundation not subject to tax
(2)
(53)
-
Impairment of property, plant and equipment
(68)
Share-based payments
Non-taxable intercompany dividends from AES
-
-
54
260
(68)
-
-
(413)
Other non-taxable items
(13)
(12)
(15)
Adjustment recognised for prior periods
Income tax expense
1,134
-
1,134
1,723
3
1,726
77
-
77
5,043
1,513
-
54
260
(807)
(12)
1,008
3
1,011
The applicable weighted average effective tax rate for the consolidated Group is 28% (2016: 36%) and for the
parent entity is 4% (2016: 20%).
Amounts recognised directly in equity
Deferred tax: Employee share plan 2014/2015
Deferred tax: Employee share plan 2015/2016
Deferred tax: Employee share plan 2016/2017
Consolidated
Parent
2017
$’000
2016
$’000
2017
$’000
2016
$’000
98
83
167
348
82
150
-
232
98
83
167
348
82
150
-
232
Deferred tax asset
Deferred tax asset comprises temporary
differences attributable to:
Employee benefits
Audit fees
Community grants
Provision for remediation
Provision for employee leave
Provision for make-good
Deferred tax asset
Movements:
Opening balance
Credited/(charged) to profit or loss
Closing balance
Income tax refund due
Income tax refund due
Provision for income tax
Provision for income tax
Consolidated
Parent
2017
$’000
2016
$’000
2017
$’000
2016
$’000
298
107
114
62
252
69
902
914
(12)
902
250
45
119
270
230
-
914
772
142
914
298
69
114
8
252
69
810
641
169
810
250
42
119
-
230
-
641
742
(101)
641
Consolidated
Parent
2017
$’000
2016
$’000
2017
$’000
2016
$’000
303
-
310
-
Consolidated
Parent
2017
$’000
2016
$’000
2017
$’000
2016
$’000
-
605
-
412
Recognition and measurement
Tax expense comprises of current and deferred tax expense recognised in the profit and loss except where related to
items recognised directly in equity. Tax expense is measured at the tax rates that have been enacted or substantially
enacted based on the national tax rate for each applicable jurisdiction at the reporting date.
Current tax is the expected tax payable or receivable on taxable income or loss for the year and any adjustment in respect
of previous years.
Deferred tax is recognised in respect of temporary differences between the carrying amounts of assets and liabilities.
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Annual & Sustainability Report 2017Annual & Sustainability Report 2017 NOTE 11. INCOME TAX (CONTINUED)
NOTE 14. CURRENT ASSETS – OTHER
Deferred tax assets and liabilities arise from timing differences between the recognition of gains and losses in the
financial statements and their recognition in the tax computation. These are offset if there is a legally enforceable
right to offset. Deferred tax assets are recognised only to the extent that it is probable that future taxable profits
will be available against which they can be utilised. These are reviewed at each reporting date and are reduced to
the extent that it is no longer probable that the related tax benefits will be realised.
Australian Ethical Investment Limited and its wholly owned subsidiaries 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
pays the Australian Taxation Office for Group tax liabilities.
NOTE 12. CURRENT ASSETS - CASH AND CASH EQUIVALENTS
Cash at bank
Deposits at call
Term deposits
Consolidated
Parent
2017
2016
2017
2016
$’000
108
Restated
$’000
129
7,383
9,095
5,100
5,100
12,591
14,324
$’000
102
3,511
5,000
8,613
$’000
123
7,226
5,000
12,349
Recognition and measurement
Cash and cash equivalents includes cash on hand, deposits held at call with financial institutions, other short-term, highly
liquid investments with original maturities of three months or less that are readily convertible to known amounts of cash
and which are subject to an insignificant risk of changes in value.
NOTE 13. CURRENT ASSETS - TRADE AND OTHER RECEIVABLES
Trade receivables
Consolidated
Parent
2017
$’000
963
2016
$’000
495
2017
$’000
1,786
2016
$’000
149
Recognition and measurement
Trade and other receivables are recognised at fair value and are generally due for settlement within 30 days. Collectability
of trade receivables is reviewed on an ongoing basis. Debts which are known to be uncollectable are written off by
reducing the carrying amount directly.
There are currently no past due receivables as at 30 June 2017 (2016: nil).
Prepayments
Consolidated
Parent
2017
$’000
350
2016
$’000
368
2017
$’000
306
2016
$’000
313
NOTE 15. CURRENT ASSETS – INVESTMENT PROPERTY HELD FOR
SALE
Investment property held for sale
Consolidated
Parent
2017
$’000
1,610
2016
$’000
-
2017
$’000
1,610
2016
$’000
-
Recognition and measurement
During the period, the Canberra premises (Trevor Pearcey House) ceased to be owner-occupied. As a result, the property
asset (leasehold land and buildings) was reclassified from Property, Plant and Equipment to Investment Property.
Subsequently, the property was classified as held for sale as a result of the Group’s intention to dispose of the property
and the commencement of an active sales campaign. A sale is expected in the next 12 months.
Prior to its reclassification to investment property held for sale, the property was measured at cost less accumulated
depreciation and impairment losses. The property and its fixtures and fittings are depreciated over their estimated useful life
(5-40 years) on a straight-line basis. Post classification as Held for Sale, the asset is measured at the lower of carrying amount
and fair value less costs of disposal. The assets are not depreciated or amortised while they are classified as held for sale.
As at 30 June 2017, a valuation of the property was conducted in accordance with the Group’s policy by Jones Lang
LaSalle, independent valuers not related to the Group, to determine the fair value. The valuation was determined by
reference to recent market transactions on arms’ length terms. The property was valued at $1.65m and as a result the
current carrying value is considered to be fair and not further impaired.
Property, Plant &
Equipment
Investment Property
Investment Property
Held for Sale
Balance as at 30 June
Transfer from Property,
plant and equipment
Depreciation for
the period
Impairment loss
Reversal of carry forward
impairment losses
Transfer to Investment
property held for sale
Balance as at 30 June
2017
$’000
1,460
2016
$’000
1,725
(1,427)
-
2017
$’000
-
1,427
(33)
(84)
(45)
-
-
-
-
(181)
-
-
-
228
(1,610)
1,460
-
2016
$’000
2017
$’000
2016
$’000
-
-
-
-
-
-
-
-
-
-
-
-
1,610
1,610
-
-
-
-
-
-
-
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Annual & Sustainability Report 2017Annual & Sustainability Report 2017
NOTE 16. NON-CURRENT ASSETS - INVESTMENTS IN SUBSIDIARY
Consolidated
Parent
2017
$’000
2016
$’000
2017
$’000
2016
$’000
Australian Ethical Superannuation Pty Limited
(as trustee of the Australian Ethical Retail
Superannuation Fund)
Australian Ethical Foundation Limited
-
-
-
-
316
316
-
-
NOTE 17. NON-CURRENT ASSETS - PROPERTY, PLANT AND EQUIPMENT
Consolidated
Parent
Leasehold land - at cost
Building - at cost
Less: Accumulated depreciation
Leasehold improvements - at cost
Less: Accumulated depreciation
Plant and equipment - at cost
Less: Accumulated depreciation
2017
$’000
-
-
-
-
2,142
(194)
1,948
193
(81)
112
2,060
2016
$’000
230
1,657
(594)
1,063
1,090
(625)
465
409
(344)
65
1,823
2017
$’000
-
-
-
-
2,142
(194)
1,948
193
(81)
112
2,060
2016
$’000
230
1,657
(594)
1,063
1,090
(625)
465
409
(344)
65
1,823
Reconciliations
Reconciliations of the written down values at the beginning and end of the current and previous financial year are set out below:
Leasehold
Land
Buildings
Leasehold
Improvements
Plant and
Equipment
Consolidated and Parent
Balance at 1 July 2015
Additions
Impairment of assets
Write off of assets
Depreciation expense
Balance at 30 June 2016
Additions
$’000
230
-
-
-
-
230
-
$’000
1,239
-
(128)
-
(48)
1,063
-
Classified as held for sale (Note 15)
(230)
(1,063)
Disposals
Write off of assets
Depreciation expense
Balance at 30 June 2017
-
-
-
-
-
-
-
-
$’000
563
26
(53)
-
(71)
465
2,072
(134)
(197)
-
(258)
1,948
$’000
36
32
-
4
(7)
65
75
-
-
(2)
(26)
112
Total
$’000
2,068
58
(181)
4
(126)
1,823
2,147
(1,427)
(197)
(2)
(284)
2,060
Recognition and measurement
Leasehold land and buildings are shown at fair value, based on periodic, at least every 3 years, valuations by external
independent valuers, less subsequent depreciation and impairment for buildings. The valuations are undertaken more
frequently if there is a material change in the fair value relative to the carrying amount. Any accumulated depreciation at
the date of revaluation is eliminated against the gross carrying amount of the asset and the net amount is restated to the
revalued amount of the asset. Increases in the carrying amounts arising on revaluation of land and buildings are credited
in other comprehensive income through to the revaluation surplus reserve in equity. Any revaluation decrements are
initially taken in other comprehensive income through to the revaluation surplus reserve to the extent of any previous
revaluation surplus of the same asset. Thereafter the decrements are taken to profit or loss.
Note that in the current year, the land and buildings were initially reclassified as Investment property and then
reclassified again as Investment property held for sale and the assets are presented separately on the face of the
statement of financial position, in current assets.
Property, plant and equipment is stated at historical cost less accumulated depreciation and impairment losses. The
carrying amount of property, plant and equipment is reviewed annually to ensure that it is not in in excess of the
recoverable amount from these assets. Historical cost includes expenditure that is directly attributable to the acquisition
of the items. 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.
An item of property, plant and equipment is derecognised upon disposal or when there is no future economic benefit to
the consolidated Group. Gains and losses between the carrying amount and the disposal proceeds are taken to profit or
loss. Any revaluation surplus reserve relating to the item disposed of is transferred directly to retained profits.
Subsequent costs are included in the asset’s carrying amount or recognised as a separate asset, as appropriate, only
when it is probable that future economic benefits associated with the item will flow to the Group and the cost of the
item can be measured reliably. The carrying amount of any component accounted for as a separate asset is derecognised
when replaced. All other repairs and maintenance are charged to profit or loss during the reporting period in which they
are incurred.
Depreciation
Depreciation is calculated on a straight-line basis to write off the net cost of each item of property, plant and equipment
(excluding land) over their expected useful lives as follows:
Buildings
Leasehold improvements
Plant and equipment
40 years
3-10 years
3-7 years
The residual values, useful lives and depreciation methods are reviewed, and adjusted if appropriate, at each
reporting date.
Leasehold improvements and plant and equipment are depreciated over the unexpired period of the lease or the
estimated useful life of the assets, whichever is shorter. During the year, the Group undertook a refurbishment of
the Sydney office resulting in $1.8m of assets capitalised and a new 7-year lease for the offices at 130 Pitt Street,
Sydney was also signed.
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Annual & Sustainability Report 2017Annual & Sustainability Report 2017
NOTE 18. NON-CURRENT ASSETS - TERM DEPOSIT
NOTE 21. CURRENT LIABILITIES – PROVISIONS
Long term deposit
Consolidated
Parent
2017
$’000
504
2016
$’000
-
2017
$’000
504
2016
$’000
-
The long term deposit is held with National Australia Bank for a term of 6 months as security for a bank guarantee
over the Company’s Sydney Office property lease.
NOTE 19. CURRENT LIABILITIES - TRADE AND OTHER PAYABLES
Trade payables
Accrued expenses
Unamortised lease incentive
Community grant payable
Consolidated
Parent
2017
2016
2017
2016
$’000
380
1,687
170
320
2,557
Restated
$’000
440
768
80
220
1,508
$’000
313
1,032
170
379
1,894
$’000
425
401
80
395
1,301
Refer to note 28 for further information on financial instruments.
Recognition and measurement
These amounts represent liabilities for goods and services provided to the consolidated group prior to the end of
the financial year and which are unpaid. Due to their short-term nature they are measured at amortised cost and
are not discounted. The amounts are unsecured and are usually paid within 30 days of recognition.
NOTE 20. CURRENT LIABILITIES - EMPLOYEE BENEFITS
Annual leave
Long service leave
Employee benefits
Consolidated
Parent
2017
2016
2017
2016
$’000
340
394
993
1,727
Restated
$’000
331
336
833
1,500
$’000
340
394
993
1,727
$’000
331
336
833
1,500
Recognition and measurement
Employee benefit provisions are recognised when the Group has a present legal or constructive obligation as a result
of past events, it is probable that an outflow of resources will be required to settle the obligation and the amount
can be reliably estimated.
Short-term employee benefits
Liabilities for wages and salaries, including non-monetary benefits, annual leave and long service leave expected to
be settled wholly within 12 months of the reporting date are measured at the amounts expected to be paid when
the liabilities are settled. Non-accumulating benefits, such as sick leave, are not provided for but are expensed as the
benefits are taken by the employees.
Provision for remediation costs
Consolidated
Parent
2017
$’000
207
2016
$’000
900
2017
$’000
26
2016
$’000
-
Recognition and measurement
At 30 June 2016, the Group became aware of errors in the calculation of unit prices for the Australian Ethical Retail
Superannuation Fund in respect of 30 June 2016 and prior years. In the year ended 30 June 2016, a provision of
$900,000 was raised on the investigative work performed at the time.
During the year ended 30 June 2017, the errors were investigated and an additional provision was raised to fully
compensate members and in respect of consultant costs incurred to perform the investigative work. The additional
expenses incurred during the period are $794,833 for member remediation and $1,160,000 for consultant costs.
Throughout the remediation process, the Group remained committed to ensuring that members are not materially
disadvantaged as a result of the errors.
The remediation work has been completed and the remainder of the provision relates to project related costs to be paid.
Movements in provisions
Movements in each class of provision during the current financial year, other than employee benefits, are set out below:
Consolidated – 2017
Carrying amount at the start of the year
Additional provisions recognised
Amounts used
Unused amounts reversed
Carrying amount at the end of the year
Parent – 2017
Carrying amount at the start of the year
Additional provisions recognised
Amounts used
Carrying amount at the end of the year
Provision for
Remediation
$’000
900
2,205
(2,648)
(250)
207
Provision for
Remediation
$’000
-
1,894
(1,868)
26
NOTE 22. NON-CURRENT LIABILITIES - PAYABLES
Unamortised lease incentive
Consolidated
Parent
2017
$’000
547
2016
$’000
69
2017
$’000
547
2016
$’000
69
Refer to note 28 for further information on financial instruments.
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Annual & Sustainability Report 2017Annual & Sustainability Report 2017
NOTE 23. NON-CURRENT LIABILITIES - EMPLOYEE BENEFITS
NOTE 25. EQUITY - ISSUED CAPITAL (CONTINUED)
Long service leave
Consolidated
Parent
2017
$’000
104
2016
$’000
99
2017
$’000
104
2016
$’000
99
Recognition and measurement
The liability for long service leave not expected to be settled within 12 months of the reporting date are measured
at the present value of expected future payments to be made in respect of services provided by employees up
to the reporting date using the projected unit credit method. Consideration is given to expected future wage and
salary levels, experience of employee departures and periods of service. Expected future payments are discounted
using market yields at the reporting date on national government bonds with terms to maturity and currency that
match, as closely as possible, the estimated future cash outflows.
NOTE 24. NON-CURRENT LIABILITIES - PROVISIONS
Lease make-good
Consolidated
Parent
2017
$’000
228
2016
$’000
-
2017
$’000
228
2016
$’000
-
Recognition and measurement
A provision has been made for the present value of anticipated costs for future restoration of leased premises. The
provision includes future cost estimates associated with closure of the premises. The calculation of this provision
requires assumptions such as application of closure dates and cost estimates. The provision is periodically reviewed
and updated based on the facts and circumstances available at the time. Changes to the estimated future costs for
sites are recognised in the statement of financial position by adjusting the asset and the provision. Reductions in
the provision that exceed the carrying amount of the asset will be recognised in profit or loss.
NOTE 25. EQUITY - ISSUED CAPITAL
Consolidated and Parent
2017
2016
Number of
Shares
Number of
Shares
2017
$’000
2016
$’000
Ordinary shares - fully paid
1,115,854
1,094,209
9,923
8,693
Movements in ordinary share capital
Details
Date
Shares
Issue Price
$’000
Balance
1 July 2015
1,053,817
Vesting of AEFAG Rights
31 August 2015
11,899
$58.80
Vesting of AEFAC Rights
31 August 2015
16,834
$58.80
Issue of deferred shares to the Employee Share Trust
31 August 2015
11,659
Balance
30 June 2016
1,094,209
Issue of deferred shares to the Employee Share Trust
1 September 2016
6,240
7,004
699
990
-
8,693
-
Vesting of AEFAE Rights
8 September 2016
14,812
$81.11
1,202
Issue of deferred shares to the Employee Share Trust
14 October 2016
593
$47.43
28
Balance
30 June 2016
1,115,854
9,923
Ordinary shares
Ordinary shares entitle the holder to participate in dividends and the proceeds on the winding up of the Company
in proportion to the number of and amounts paid on the shares held. The fully paid ordinary shares have no par
value and the Company does not have a limited amount of authorised capital.
On a show of hands every member present at a meeting in person or by proxy shall have one vote and upon a poll
each share shall have one vote.
Recognition and measurement
Ordinary shares are classified as equity.
Incremental costs directly attributable to the issue of new shares are shown in equity as a deduction, net of tax,
from the proceeds.
Capital risk management
The consolidated entity’s objectives when managing capital is to safeguard its ability to continue as a going
concern, so that it can provide returns for shareholders and benefits for other stakeholders and to maintain an
optimum capital structure to reduce the cost of capital.
The capital risk management policy remains unchanged during the year.
(i) Regulatory capital requirements
In connection with operating a funds management business in Australia, the Parent entity is required to hold
an Australian Financial Services Licence (AFSL). As a holder of an AFSL, the Australian Securities & Investments
Commission (ASIC) requires the Company 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:
(a) $150,000;
(b) 0.5% of the average value of scheme property (capped at $5m); or
(c) 10% of the average responsible entity revenue (uncapped).
The Company must hold at least 50% of its minimum NTA required as cash or cash equivalents and hold at least
$50,000 in Surplus Liquid Funds (SLF).
The Company has complied with these requirements at all times during the year.
(ii) Dividend policy
Dividends paid to shareholders are typically in the range of 80-100% 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 Group had no long term debt arrangements.
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Annual & Sustainability Report 2017Annual & Sustainability Report 2017
NOTE 26. EQUITY – RESERVES
NOTE 27. EQUITY - DIVIDENDS
Share-based payments reserve
Employee share plan reserve
Consolidated
Parent
2017
$’000
-
1,012
1,012
2016
$’000
1,201
728
1,929
2017
$’000
-
1,012
1,012
2016
$’000
1,201
728
1,929
Share-based payments reserve
This reserve relates to rights granted by the Group to its employees under its previous share-based payment arrangements.
This plan has ceased and the final vesting of any rights under this award was granted on 8 September 2016.
Employee share plan reserve
This reserve relates to shares granted by the Group to its employees under its current share-based payment
arrangement.
Further information about share-based payments to employees is set out in Note 38.
Movements in reserves
Movements in each class of reserve during the current and previous financial year are set out below:
Consolidated and Parent
Balance at 1 July 2015
Employee share plan expense
Issue of shares held by entity to employee
Employee share plan – deferred
Balance at 30 June 2016
Shared-based
Payments
Reserve
Employee
Share Plan
Reserve
$’000
2,022
868
(1,689)
-
1,201
$’000
316
-
-
412
728
Total
$’000
2,338
868
(1,689)
412
1,929
Issue of shares held by entity to employee
(1,201)
(28)
(1,229)
Employee share plan – deferred
Balance at 30 June 2017
-
-
312
1,012
312
1,012
Dividends
Dividends declared and/or paid fully franked at 30% tax rate in respect of the corresponding financial year.
Final dividend for the year ended 30 June 2016 of 180 cents
(2015: 120 cents) per ordinary share
Interim dividend for the year ended 30 June 2017 of 50 cents
(2016: 120 cents) per ordinary share
2017
$’000
2016
$’000
2,009
1,313
558
2,567
1,313
2,626
Since year end, the Directors have declared a final dividend of 210 cents per fully paid ordinary share (2016: 180
cents), fully franked based on tax paid at 30%. The aggregate amount of the declared dividend expected to be
paid on 22 September 2017 out of profits for the year ended at 30 June 2017, but not recognised as a liability at
year end is $2,350,013 (2016: $2,009,000).
The financial effects of the dividends declared after end of year have not been brought to account in the
consolidated financial statements for the year ended 30 June 2017 and will be recognised in subsequent
financial reports.
Franking credits
Franking credits available for subsequent financial years based on a
tax rate of 30%
2017
$’000
2016
$’000
4,185
3,366
The above amounts represent the balance of the franking account as at the end of the financial year, adjusted for:
• franking credits that will arise from the payment of the amount of the provision for income tax at the reporting date
• franking debits that will arise from the payment of dividends recognised as a liability at the reporting date
• franking credits that will arise from the receipt of dividends recognised as receivables at the reporting date
Accounting policy for dividends
Dividends are recognised when declared during the financial year and no longer at the discretion of the Company.
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Annual & Sustainability Report 2017Annual & Sustainability Report 2017
NOTE 28. FINANCIAL INSTRUMENTS
Financial risk management objectives and framework
The Group’s activities expose it to a variety of financial risks, including market risk arising from Funds under
Management, credit risk and liquidity risk. The overall risk management program focuses on the unpredictability
of financial markets and seeks to minimise potential adverse effects on the financial performance of the Group.
The Group does not have a material exposure to currency, price and interest rate risk.
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 Management Strategy and the Risk Appetite
Statement. The Chief Risk Officer 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 Audit, Compliance and Risk Committee (ACRC). The Board regularly monitors the overall risk
profile of the Group and sets the risk appetite, usually in conjunction with the annual planning process.
The Board is responsible for ensuring that management has appropriate processes in place for managing all types
of risk. To assist in providing ongoing assurance and comfort to the Board, responsibility for risk management
oversight has been delegated to the ACRC. The main functions of the Committee are to identify emerging risks
and determine treatment and monitoring emerging and current risks. In addition, the Committee is responsible
for seeking assurances from management that the systems and policies in place to assist the Group to meet and
monitor its risk management responsibilities contain appropriate, up-to-date content and are being maintained.
The Group is complying with its Licences, and that there is a structure, methodology and timetable in place for
monitoring material service providers.
The following discussion relates to financial risks the Group is exposed to.
Market risk
Market risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of
changes in market prices.
Exposure
The Group’s revenue is significantly dependent on Funds Under Management (FUM) which is influenced by
equity market movements. Management calculates that a 10% movement in FUM changes annualised revenue
by approximately $2,141,000 (2016: $1,718,000).
Credit risk
Credit risk refers to the risk that a counterparty will default on its contractual obligations resulting in financial
loss to the Group. The Group is predominantly exposed to credit risk on its deposits with banks and financial
institutions. The Group manages this risk by holding cash and cash equivalents at financial institutions with a
Standard and Poor’s rating of ‘A’ or higher. The maximum exposure of the Group to credit risk on financial assets
which have been recognised on the Consolidated Statements of Financial Position is the carrying amount of cash
and cash equivalents. For all financial instruments other than those measured at fair value their carrying value
approximates fair value.
All trade and other receivables are short term in nature and are not past due or impaired.
Liquidity risk
Vigilant liquidity risk management requires the consolidated group to maintain sufficient liquid assets (mainly cash
and cash equivalents) and available borrowing facilities to be able to pay debts as and when they become due
and payable.
The consolidated group manages liquidity risk by maintaining adequate cash reserves and available borrowing
facilities by continuously monitoring actual and forecast cash flows and 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.
Remaining contractual maturities
The following tables detail the consolidated group’s and Company’s remaining contractual maturity for its financial
instrument liabilities. The amounts disclosed in the table are the contractual undiscounted cash flows. Balances due
within 12 months equal their carrying balances as the impact of discounting is not significant.
Consolidated - 2017
Non-derivatives
Non-interest bearing
Trade payables
Total non-derivatives
Consolidated - 2016 restated
Non-derivatives
Non-interest bearing
Trade payables
Income tax payable
Total non-derivatives
Parent - 2017
Non-derivatives
Non-interest bearing
Trade payables
Total non-derivatives
1 year
or less
$’000
Between 1
and 2 years
Between 2
and 5 years
$’000
$’000
Over
5 years
$’000
Remaining
contractual
maturities
$’000
3,691
3,691
-
-
-
-
-
-
3,691
3,691
1 year
or less
$’000
Between 1
and 2 years
Between 2
and 5 years
$’000
$’000
Over
5 years
$’000
Remaining
contractual
maturities
$’000
2,594
605
3,199
-
-
-
-
-
-
-
-
-
2,594
605
3,199
1 year
or less
$’000
Between 1
and 2 years
Between 2
and 5 years
$’000
$’000
Over
5 years
$’000
Remaining
contractual
maturities
$’000
3,025
3,025
-
-
-
-
-
-
3,025
3,025
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Annual & Sustainability Report 2017Annual & Sustainability Report 2017
NOTE 28. FINANCIAL INSTRUMENTS (CONTINUED)
NOTE 31. REMUNERATION OF AUDITORS
Parent - 2016
Non-derivatives
Non-interest bearing
Trade payables
Income tax payable
Total non-derivatives
1 year
or less
$’000
Between 1
and 2 years
Between 2
and 5 years
$’000
$’000
Over
5 years
$’000
Remaining
contractual
maturities
$’000
2,387
411
2,798
-
-
-
-
-
-
-
-
-
2,387
411
2,798
Fair value of financial instruments
Unless otherwise stated, the carrying amounts of financial instruments reflect their fair value.
NOTE 29. FAIR VALUE MEASUREMENT
Accounting policy for fair value measurement
When an asset or liability, financial or non-financial, is measured at fair value for recognition or disclosure
purposes, the fair value is based on the price that would be received to sell an asset or paid to transfer a
liability in an orderly transaction between market participants at the measurement date; and assumes that the
transaction will take place either: in the principal market; or in the absence of a principal market, in the most
advantageous market.
Fair value is measured using the assumptions that market participants would use when pricing the asset or
liability, assuming they act in their economic best interests. For non-financial assets, the fair value measurement
is based on its highest and best use. Valuation techniques that are appropriate in the circumstances and for which
sufficient data are available to measure fair value, are used, maximising the use of relevant observable inputs and
minimising the use of unobservable inputs.
NOTE 30. KEY MANAGEMENT PERSONNEL DISCLOSURES
Compensation
The aggregate compensation made to Directors and other members of key management personnel of the
consolidated group is set out below:
Consolidated
Parent
2017
$
2016
$
2017
$
2016
$
Short-term employee benefits
2,649,684
2,110,600
2,530,259
1,982,408
Post-employment benefits
264,060
147,150
252,714
134,972
Long-term benefits
77,731
44,328
77,731
44,328
Share-based payments
104,440
674,974
104,440
674,974
3,095,915
2,977,052
2,965,144
2,836,682
Comparatives have been represented to be consistent with the current year approach of measuring key
management personnel employee benefits, as prescribed under the relevant accounting standards.
Information regarding key management personnel’s remuneration and shares held in Australian Ethical
Investment Limited as required by Corporations Regulations 2M.3.03 is provided in the Remuneration Report.
During the financial year the following fees were paid or payable for services provided by KPMG, the auditor of the
Company, and its network firms:
Consolidated
Parent
2017
$
2016
$
2017
$
2016
$
Audit services for the consolidated group and subsidiaries - KPMG
Audit or review of the financial statements
151,710
57,710
111,450
37,450
Audit services in accordance with regulatory requirements
44,950
42,480
44,950
38,050
Assurance services in relation to Sustainability Report
19,500
19,500
19,500
19,500
216,160
119,690
175,900
95,000
Audit services for the non-consolidated trusts and super funds – KPMG*
137,400
137,400
137,400
137,400
Audit and review of managed funds for which the
Company acts as Responsible Entity
Audit and review of superannuation fund for
which the subsidiary entity acts as Responsible
Superannuation Entity
Assurance services in accordance with regulatory
requirements
62,760
48,330
26,160
26,160
-
-
-
-
Non-audit services - KPMG
Tax advice
226,320
211,890
137,400
137,400
150,087
41,850
121,637
34,900
Other accounting advice
106,023
63,775
106,023
41,775
256,110
105,625
227,660
76,675
Total fees paid to KPMG
698,590
437,205
540,960
309,075
* These fees are incurred by the Company and are effectively recovered from the funds via management fees.
The Board considered the non-audit services provided by the auditor and is satisfied that the provision of the non-audit
services above by the auditor is compatible with, and does not compromise, the auditor independence requirements of
the Corporations Act 2001 for the following reasons:
• all non-audit services are subject to the corporate governance procedures adopted by the Company and are reviewed
by the Audit, Risk and Compliance Committee to ensure that they do not impact the integrity and objectivity of the
auditor; and
• non-audit services provided do not undermine the general principles relating to auditor independence as set out in
APES 110 Code of Ethics for Professional Accountants, as they do not involve reviewing or auditing the auditor’s own
work, acting in a management or decision-making capacity for the Company, acting as an advocate for the Company or
jointly sharing risks and rewards.
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Annual & Sustainability Report 2017Annual & Sustainability Report 2017
NOTE 32. COMMITMENTS
Operating lease commitments relate to the lease of office premises. The Group entered a new long-term operating
lease for its Sydney office for a period of 7 years including additional office space on 1 July 2016. Lease incentives were
received and are recognised as a liability in the Statement of Financial Position. The aggregate benefit of incentives is
recognised as a reduction of rental expense on a straight-line basis.
Lease incentives were received and 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.
The Group has provided a bank guarantee of $504,000 over the rental of building premises at 130 Pitt Street.
The Group does not have an option to purchase the premises at the expiry of the lease period.
NOTE 33. RELATED PARTY TRANSACTIONS (CONTINUED)
Other related parties
Australian Ethical Superannuation Pty Limited (AES) acts as trustee for Australian Ethical Retail Superannuation Fund
(AERSF).
Australian Ethical Investment Limited (AEI) acts as the responsible entity for the following Australian Ethical Trusts (AETs):
- Australian Ethical Australian Shares Fund
- Australian Ethical Diversified Shares Fund
- Australian Ethical Income Fund (formerly Australian Ethical Cash Fund)
- Australian Ethical Fixed Interest Fund
- Australian Ethical International Shares Fund
- Australian Ethical Advocacy Fund
- Australian Ethical Property Trust
- Australian Ethical Emerging Companies Fund
- Australian Ethical Balanced Fund
Consolidated
Parent
2017
$’000
2016
$’000
2017
$’000
2016
$’000
Transaction with related parties
The following transactions occurred with related parties:
Lease commitments - operating
Committed at the reporting date but not
recognised as liabilities, payable:
Within one year
One to five years
More than five years
503
2,175
588
3,266
Liabilities recognised in respect of non-cancellable operating leases
Lease incentives:
Current
Non-current
162
547
709
483
2,134
-
2,617
80
69
149
503
2,175
588
3,266
162
547
709
483
2,134
-
2,617
80
69
149
NOTE 33. RELATED PARTY TRANSACTIONS
Parent entity
Australian Ethical Investment Limited is the parent entity.
Subsidiaries
Interests in subsidiaries are set out in Note 34.
Directors’ remuneration
Disclosures relating to key management personnel are set out in note 30 and the remuneration report included in the
Directors’ report.
Consolidated
Parent
2017
$
2016
$
2017
$
2016
$
-
-
-
-
-
-
-
-
-
-
3,800,000
3,803,470
7,337,121
5,202,786
1,056,928
714,907
1,378,114
2,688,557
133,308
136,323
9,288,631
7,616,711
9,288,631
7,616,711
Receipts from Australian Ethical
Superannuation Pty Limited:
Administration fees
Investment management fees
Transactions between the parent and subsidiary
entities under tax consolidation and related tax
sharing agreement
Dividends from the subsidiary
Director fee reimbursement from subsidiary
Receipts from the Australian Ethical Trusts:
Provision of investments services to the AETs
as identified above in accordance with the
trust deed
Receipts from Australian Ethical Retail
Superannuation Fund:
Provision of investment management/
administration services to AERSF
16,073,237
12,888,710
Provision of member administration services to AERSF 2,662,247
2,018,014
Investment management fee rebate given to AERSF
(192,055)
(70,008)
-
-
-
-
-
-
Payments to Australian Ethical Foundation Ltd:
Community grants paid to The Foundation
-
-
395,314
480,542
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Annual & Sustainability Report 2017Annual & Sustainability Report 2017
NOTE 33. RELATED PARTY TRANSACTIONS (CONTINUED)
NOTE 35. EVENTS AFTER THE REPORTING PERIOD
Receivable from and payable to related parties
The following balances are outstanding at the reporting date in relation to transactions with related parties:
3,200 shares will be issued on 7 September 2017 to the Employee Share Trust for employee long term incentives. This
amount comprises 12,416 shares for financial year 2017-2018 less 9,216 shares forfeited from prior years.
Consolidated
Parent
2017
$
2016
$
2017
$
2016
$
Current receivables:
Amounts receivable from the AETs
431,977
53,140
431,977
53,140
Amounts receivable from AES
-
-
1,306,140
50,201
Amounts receivable from AERSF
286,423
396,572
Current payables:
Amounts payable to AERSF
(1,855)
(1,675)
-
-
-
-
Amounts payable to The Foundation
(379,141)
(395,314)
(379,141)
(395,314)
Amounts payable to AES
-
-
(6,492)
-
Terms and conditions
All transactions were made on normal commercial terms and conditions and at market rates.
NOTE 34. INTERESTS IN SUBSIDIARIES
The consolidated financial statements incorporate the assets, liabilities and results of the following subsidiaries in
accordance with the accounting policy described in Note 2:
Name
Australian Ethical Superannuation Pty Limited
(AES) - Trustee of the Australian Ethical Retail
Superannuation Fund (AERSF)
Australian Ethical Foundation Limited
Ownership interest
Principal place of business /
Country of incorporation
2017
%
2016
%
Level 8, 130 Pitt Street
Sydney NSW 2000
Australia
Level 8, 130 Pitt Street
Sydney NSW 2000
Australia
100%
100%
100%
100%
Australian Ethical Foundation Limited (The Foundation) was established for the purpose of being a vehicle for the
disbursement of profits that are subject to Clause 15.1(c)(ii) of the Parent entity’s constitution which requires a portion
of profits to be provided for charitable, benevolent or conservation purposes. The creation of The Foundation allows for
flexibility when allocating money, to manage multi-year grants and for the creation of a corpus for long term funding of
worthwhile causes and organisations.
All income received and net assets including cash of The Foundation are restricted to activities of the Foundation and are
not available for distribution to AEI’s shareholders or to settle liabilities of other Group entities.
Apart from the dividend declared as disclosed in Note 27, no other matter or circumstance has arisen since 30 June
2017 that has significantly affected, or may significantly affect the consolidated group’s operations, the results of those
operations, or the consolidated group’s state of affairs in future financial years.
NOTE 36. RECONCILIATION OF PROFIT AFTER INCOME TAX TO
NET CASH FROM/(USED IN) OPERATING ACTIVITIES
Profit after income tax for the year
Adjustments for:
Depreciation and amortisation
(Gain)/loss on disposal of property, plant and
equipment
Non-cash employee benefits expense
- share-based payments
Consolidated
Parent
2017
2016
2017
2016
$’000
2,924
284
210
Restated
$’000
3,186
182
(7)
$’000
1,833
284
210
$’000
4,032
182
(7)
200
1,188
200
1,188
Impairment loss
Unamortised lease incentive
(228)
181
568
(53)
(228)
568
181
(53)
Dividend received from subsidiary
-
-
(1,378)
(2,689)
Change in operating assets and liabilities:
Decrease/(increase) in trade and other
receivables
Decrease/(increase) in deferred tax assets
Decrease/(increase) in other current assets
Increase/(decrease) in trade and other
payables
Increase/(decrease) in employee benefits
Increase/(decrease) in other provisions
Decrease in current tax liability
Net cash from/(used in) operating activities
(470)
1,286
(1,638)
1,608
(142)
(169)
101
12
18
(45)
906
(1,228)
232
(465)
(908)
3,283
(297)
900
(477)
4,674
6
449
232
254
(721)
(98)
(41)
(424)
(297)
-
(110)
3,671
98
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Annual & Sustainability Report 2017Annual & Sustainability Report 2017
NOTE 37. EARNINGS PER SHARE
Profit after income tax attributable to the owners of Australian Ethical
Investment Limited
2,924
3,186
Consolidated
2017
$’000
2016
$’000
Basic earnings per share
Diluted earnings per share
Weighted average number of ordinary shares used in calculating basic
earnings per share
Adjustments for calculation of diluted earnings per share:
Rights over ordinary shares
Deferred shares
Weighted average number of ordinary shares used in calculating
diluted earnings per share
Recognition and measurement
Cents
Cents
269.98
298.50
262.25
287.74
2017
Number of
shares
2016
Number of
shares
1,082,877
1,067,549
26,583
39,929
5,306
-
1,114,766
1,107,478
Basic earnings per share
Basic earnings per share is calculated by dividing the profit attributable to the owners of Australian Ethical Investment
Limited, excluding any costs of servicing equity other than ordinary shares, by the weighted average number of ordinary
shares outstanding during the financial year, adjusted for bonus elements in ordinary shares issued during the financial year.
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 weighted average number of shares assumed to have been issued for no consideration in relation to dilutive potential
ordinary shares, which relate to rights over ordinary shares and deferred shares issued as part of the Company’s long term
employee benefits.
NOTE 38. SHARE-BASED PAYMENTS
The following share-based payment arrangements existed as at 30 June 2017.
(a) Performance rights (equity-settled)
During the year, all outstanding performance rights to ordinary shares vested and there were no new issuances of
performance rights. Included under employee benefits expense in the Consolidated Statement of Comprehensive
Income is nil (2016: $868,000) relating to rights issued under this program.
(b) Deferred shares
Under the long term incentive scheme introduced in 2014, participants are granted shares subject to meeting
specified performance criteria over the performance period. The number of shares that the participant receives is
determined at the time of grant with the shares being held in trust. These shares are issued for nil consideration
with the shares having voting rights and employees receive dividends.
Included under employee benefits expense in the Consolidated Statement of Comprehensive Income is $200,000
(2016: $320,000) relating to the performance shares granted.
Deferred shares are held in an Employee Share Trust until vesting conditions are met. Refer to the remuneration
report for details on the vesting conditions.
2017
Grant date
Vesting date
Balance at
the start of
the year
Granted
Vested
Forfeited
Balance at
the end of
the year
31/08/2014
31/08/2017
12,394
31/08/2015
31/08/2018
10,358
31/08/2016
31/08/2019
03/01/2017
31/08/2019
-
-
-
-
10,663
(388)
(173)
(31)
(6,861)
5,145
(1,625)
8,560
(2,054)
8,578
1,321
-
-
1,321
22,752
11,984
(592)
(10,540)
23,604
Recognition and measurement
Equity-settled share-based compensation benefits are provided to employees.
Equity-settled transactions are awards of shares that are provided to employees in exchange for the rendering of services.
The grant-date fair value of equity-settled transactions are recognised as an employee expense with a corresponding
increase in equity over the vesting period that 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
conditions are expected to be met and the prevailing share price. The objective is that the amount ultimately recognised
as an expense is based on the number of awards that meet the related service conditions at the vesting date.
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Annual & Sustainability Report 2017Annual & Sustainability Report 2017
NOTE 39. CONTINGENT LIABILITIES
A claim for specified damages was lodged by a subsidiary of the Company during the financial year against the
Company relating to the unit pricing matter disclosed in Note 21. No further information is disclosed as the
disclosure of such information may prejudice the Company’s position in the claim.
NOTE 40. RESULTS OF THE FOUNDATION
All income received and net assets including cash of The Foundation are restricted to the Foundation’s activities
and are not available for distribution to AEI’s shareholders or to settle liabilities of other Group entities.
As at and for the year ended 30 June 2017, the impact of The Foundation before intercompany eliminations is
noted below:
Statement of comprehensive income
Revenue from parent entity
Interest income
Community grants expense
Surplus for the period
Statement of financial position
Assets:
Cash and cash equivalents
Receivables from parent entity
Liabilities:
Payables
Net assets
Equity
Current year surplus
Retained earnings
Total equity
2017
$’000
2016
$’000
379
5
(380)
4
876
1
(450)
427
2017
$’000
2016
$’000
372
379
(320)
431
4
427
431
252
395
(220)
427
427
-
427
DIRECTOR'S DECLARATION
In the Directors’ opinion:
• the attached financial statements and notes comply with the Corporations Act 2001, the Accounting
Standards, the Corporations Regulations 2001 and other mandatory professional reporting requirements;
• the attached financial statements and notes comply with International Financial Reporting Standards as
issued by the International Accounting Standards Board as described in Note 2 to the financial statements;
• the attached financial statements and notes give a true and fair view of the Company’s and Consolidated
Group’s financial position as at 30 June 2017 and of their performance for the financial year ended on
that date; and
• there are reasonable grounds to believe that the Company and the Consolidated Group will be able to pay
its debts as and when they become due and payable.
The Directors have been given the declarations required by section 295A of the Corporations Act 2001.
Signed in accordance with a resolution of Directors made pursuant to section 295(5)(a) of the Corporations
Act 2001.
On behalf of the Directors
Phil Vernon
Managing Director and Chief Executive Officer
30 August 2017
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Annual & Sustainability Report 2017Annual & Sustainability Report 2017 This is the original version of the audit report over the financial statements signed by the directors on
30 August 2017. Page references should be read as follows to reflect the correct references now that
the financial statements have been presented in the context of the annual report in its entirety:
•
The audited Remuneration Report is set out on pages 50 to 65, as opposed to pages 7 to 22 as outlined
below.
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105
The above statements of comprehensive income should be read in conjunction with the accompanying notesAnnual & Sustainability Report 2017Annual & Sustainability Report 2017 106
107
Annual & Sustainability Report 2017Annual & Sustainability Report 2017 SHAREHOLDER INFORMATION AS AT 1 SEPTEMBER 2017
Security
Number of holders
Number of issue
Voting rights
Fully paid ordinary shares
1,437
1,115,854
One vote per share
Shareholder
Select Managed Funds Pty Ltd
Mr J A Thier
Ms C LE Couteur
Pacific Custodians Pty Ltd
Mr H Pender
Mr E Y W & Mrs P B Y Tse
Mrs J M Boag
Mr T R Lee
Mrs A M & Mr B A McGregor
National Nominees Limited
HB Sarjeant & Assoc Pty Ltd
Mr A S Cook
Garrett Smythe Ltd
Ms D Thier
Mr P A Vernon
Dr J I Ajani
Mr A C Gracey
Mr M & Mrs A Beuchat
Nurturing Evolutionary Development Pty Ltd
BNP Paribas Noms Pty Ltd
Balance
%
196,472
17.61
51,367
49,336
32,823
32,077
31,000
28,503
4.60
4.42
2.94
2.87
2.78
2.55
26,376
2.36
22,447
22,172
20,140
18,176
17,499
15,297
13,449
11,256
10,049
9,667
9,600
8,995
2.01
1.99
1.80
1.63
1.57
1.37
1.21
1.01
0.90
0.87
0.86
0.81
Total
626,701
56.16
Balance of register
489,153
43.84
Grand total
1,115,854
100.00
DISTRIBUTION OF HOLDINGS OF FULLY PAID SHARES
%
No. of holders
Securities
Range
108
109
1 to 1,000
1,001 to 5,000
5,001 to 10,000
10,001 to 100,000
100,001 and Over
Total
1,313
247,759
22.20%
97
10
16
1
197,075
17.66%
72,581
6.50%
401,967
36.02%
196,472
17.61%
1,437
1,115,854
100.00%
On Friday, 1 September 2017:
• AEF ordinary shares closed at $114.53; accordingly, 5 or more shares constitute a marketable parcel; and
• the Company had 10 shareholders whose holding is not a marketable parcel, these 10 shareholders
owned a total of 18 shares.
Annual & Sustainability Report 2017Annual & Sustainability Report 2017 110
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Annual & Sustainability Report 2017Annual & Sustainability Report 2017 Company
directory
AEI GROUP
Responsible Entity
Australian Ethical Investment Limited
ACN 003 188 930; AFSL Number 229949
Registrable Superannuation Entity
Australian Ethical Superannuation Pty Limited
ACN 079 259 733; RSEL Number L0001441
Australian Ethical Foundation Limited
ACN 607 166 503
OFFICES
Head Office
Australian Ethical Investment Limited
Level 8, 130 Pitt Street
Sydney NSW 2000
Registered office
Care of Company Matters Pty Limited
Level 12, 680 George Street
Sydney, NSW 2000
Phone +61 8280 7355
PO Box 20547
World Square NSW 2002
Post
GPO Box 8, Sydney 2001
Phone +61 2 8276 6288
Fax +61 2 8276 6287
Email enquiries@australianethical.com.au
www.australianethical.com.au
SHARE REGISTRY
Link Market Services Limited
Locked Bag A14
Sydney South, NSW 1235
Phone +61 1300 554 474
Fax +61 2 9287 0303
Email registrars@linkmarketservices.com.au
www.linkmarketservices.com.au
SECURITY EXCHANGE LISTING
Australian Ethical Investment Limited is listed on the
Australian Securities Exchange
ASX Code: AEF
DIRECTORS
Steve Gibbs (Chair and Non-Executive Director)
Mara Bun (Non-Executive Director)
Tony Cole (Non-Executive Director) until 30 June 2017
Kate Greenhill (Non-Executive Director)
Phillip Vernon (Managing Director and Chief
Executive Officer)
COMPANY SECRETARY
Tom May
BANKER AND CUSTODIAN
National Australia Bank Limited
Level 3, 255 George Street
Sydney NSW 2000
ADMINISTRATOR
For superannuation
Link Super Pty Ltd
Locked Bag 5125
Parramatta NSW 2124
For managed funds
Boardroom Pty Ltd
GPO Box 3993
Sydney NSW 2001
AUDITORS AND TAXATION
KPMG Australia
300 Barangaroo Avenue
Sydney NSW 2000
MEDIA ENQUIRIES
Honner
Suzanne Dwyer
Level 5, 8 Spring Street
Sydney NSW 2000
CONTACT US
Phone 1800 021 227
Email enquiries@australianethical.com.au
Address Reply Paid GPO Box 8, Sydney NSW 2000
www.australianethical.com.au
This report is published on 100% recycled paper. The fibre source
has been independently certified by the Forestry Stewardship
Council (FSC).
Unless otherwise indicated, the photographs and drawings
of assets in the report are not real assets connected to the
Australian Ethical Managed Funds Investment Schemes
(‘Managed Funds’) or the Australian Ethical Retail Superannuation
Fund (‘Super Fund’). Photographs and drawings of public
buildings, transport, or panoramic views do not depict Managed
Funds or Super Fund assets. Where used, photographs of the
assets of the Managed Funds or Super Funds are the most recent
available. The information in this report is general information
only, and does not take into account your personal financial
situation or needs. You should consider obtaining financial advice
that is tailored to suit your personal circumstances. Any views or
opinions expressed are the author or quoted person’s own and
may not reflect the views or opinions of Australian Ethical.
COPYRIGHT: No part of this publication may be reproduced,
stored in a retrieval system or transmitted in any form or by
any means, electronic, mechanical, photocopying, recording or
otherwise without the permission of the publisher.
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Annual & Sustainability Report 2017Annual & Sustainability Report 2017