Annual
Report
2021 – INVESTING FOR A BETTER WORLD
About this report
Welcome to the Australian Ethical
Investment Limited (Australian Ethical)
Annual Report for 2021.
We have included the performance for Australian Ethical and its wholly owned
subsidiaries: Australian Ethical Superannuation Pty Ltd (Australian Ethical Super) and
Australian Ethical Foundation Limited (The Foundation), for the period 1 July 2020 to
30 June 2021 (FY21) in this report.
Unlike many other financial services organisations, we know that our impact at
Australian Ethical goes much further than the strong financial returns we make for our
members and investors.
Together, our annual report and sustainability reporting suite will meet the requirements
of the Global Reporting Initiative’s (GRI) Sustainability Reporting Standards and continue
our long history of providing best practice reporting on how we make money matter.
KPMG has audited the financial statements within our Annual Report and will assure a
number of key sustainability disclosures in our sustainability reporting.
We welcome your feedback on our reports. Please contact Tom May, General Counsel
& Company Secretary, Australian Ethical Investment Limited on 0488 779 474 or at
tmay@australianethical.com.au.
Our Corporate Governance Statement is available at
australianethical.com.au/shareholders/corporate-governance
ANNUAL REPORT 2021 Contents
Message from the CEO
Message from the Chair
Highlights
Investment report
Investment performance
Our senior leadership team
Annual report
Shareholder information
Company directory
2
4
6
8
10
12
15
98
99
1
Message from the CEO
John McMurdo, Chief Executive Officer & Managing Director
This time last year many of us thought we were in the middle
of the COVID-19 crisis but in truth it was only just beginning.
Twelve months later and countries remain gripped
by the pandemic with vaccine shortages and
escalating infection rates. In Australia at the time
of writing, swathes of the country are in strict
lockdown and struggling to control an outbreak of
the Delta variant.
And while these circumstances have brought
suffering in many forms, they have also set the
ball rolling on urgent and overdue improvements.
We’ve been reminded of the value of being
connected, of good health, of diversity and
inclusion. Most significantly, we’ve been reminded
of the value of nature and safeguarding the one
planet we share.
But the latest report from the IPCC1 tells us we
are almost out of time. Or, to quote UN Secretary
General António Guterres, we’re facing a “code
red for humanity.”2
Australians know this. Seven in 10 want to see
stronger climate policy3, while 86% expect their
super or other savings to be invested responsibly4.
We’ve seen our addressable market explode from
10% of Australians in 20195 to 70-80% in 20216,
together with record net flows into our business.
No longer prepared to wait, Australians are taking
climate action into their own hands and turning to
Australian Ethical to invest their money.
As a result, our funds under management have
grown from $4 billion to $6 billion during the
period. And yes, while this growth is worth
celebrating, what’s more important is the seismic
shift of money to good investments that help to
build a better future for all of us.
That’s because we don’t invest in fossil fuel
companies7, or companies involved in nuclear,
tobacco or gambling. We measure our impact.
The companies in our portfolio produced
77% less carbon than their benchmark8, we
have proportionally 13 times more investment
in renewable power generation than our
benchmark9. We track the contributions the
companies we invest in make to the global
Sustainable Development Goals10. We actively
engage with companies we invest in and advocate
for better corporate behaviour from those we don’t.
We believe our purpose of investing for a better
world has never been more urgent. It’s what defines
our investment philosophy, it’s how we run our
business, it’s what motivates our people and it’s
why people choose to invest with us.
More than one year into the pandemic with no
definite end in sight, we are using this time to think
about the business we want to be in the future. How
can we grow the influence of what we do? How
can we make more of a positive impact? How can
we leverage what we do to address the challenges
we face? And how can we do more to bring others
along with us?
And so, beyond the numbers and the figures on our
spreadsheets, this year has been one of humility
and humanity for all of us at Australian Ethical; a
time of self-reflection as we consider what comes
next for our unique business.
None of us really knows what the world will look
like after COVID-19. We have moved beyond the
point where textbooks agree on what happens
next. However, in times like these we must focus on
what we do know, that there will be no future unless
we double down on our commitment to protecting
people, planet and animals.
We also know that doing less harm is no longer
enough. Instead, all businesses must become
a force for good and contribute to building an
economy that is inclusive, green and resilient.
Our success proves that it’s possible; current
circumstances prove that it’s necessary.
On behalf of the leadership team at Australian
Ethical, thank you for your continuing interest in our
business. We hope you enjoy our annual report and
reading about our many successes this year. We
remain committed to working hard with the highest
integrity for all our stakeholders as we continue to
invest for a better world.
John.
2
ANNUAL REPORT 2021 1. Climate Change 2021: The Physical Science Basis, IPCC, 9 August 2021
2. Statement made by UN Secretary General António Guterres, 9 August 2021
3. Lowy Institute Climate Poll 2021 (sample size 3286 Australian adults)
4. RIAA Consumer Trends Report 2020, RIAA
5. Australian Ethical Research, Pollinate, March 2019
6. 2021 ESG Investor Report, Investment Trends
7. We don’t invest in companies whose main business is fossil fuels or gambling, or in diversified companies that
earn some fossil fuel or gambling revenue and aren't creating positive impact with their other activities.^
8. Carbon intensity (tonnes CO2e per $ revenue) of Australia Ethical share investments compared to the blended benchmark.*^
9. Proportion of our share investments in renewable power generation compared to the blended benchmark.*
10. Based on the ‘sustainable impact’ revenue earned by companies whose shares we invest in, compared to the blended benchmark.*^
*Shareholdings as at 30 June 2021. ^Further information on page 100 of this report.
3
Message from the Chair
Steve Gibbs, Chair
One of the more heartening milestones during this past
financial year was Australian Ethical’s 35th anniversary.
It was an opportunity to reflect on where we have come
from and, more importantly, where we are going.
Leading with purpose is now a powerful
competitive differentiator. Companies are
realising that to ignore purpose is to become
irrelevant.2 True purpose can’t be backdated,
retrofitted or invented overnight – it needs a
foundation grounded in authenticity.
Looking at our past, our original, authentic and
long-standing investment in purpose has given
us a strong head start.
Looking to the future, the true power of that head
start lies in how we now build on it to deliver
even greater impact. We believe Australian
Ethical has an unmissable opportunity to grow
our business and – most importantly – grow the
positive impact of what we do. But we must act
decisively to harness the momentum, otherwise
the window will be lost.
We hope this annual report provides you with
a rich picture of our values-based mission, our
impact and our strategy for building a future-fit
company to benefit all our stakeholders.
Steve.
Australian Ethical has always been driven by
purpose. In 1986, our founders set out to prove
that harnessing the inherent power of financial
markets could bring about significant social
change. It was a novel concept, but our founders
could see that a society that allocates resources
purely to generate short-term profit is untenable.
Fast forward to 2021 and their once visionary
approach is becoming mainstream as an
increasing number of investors seek to make a
positive impact alongside the more traditional
metrics of risk and return.1
As we look back, we have much to be proud of.
Not only have we pioneered ethical investing in
Australia and made a positive impact on people,
planet and animals, but for over three decades
we have run our business with purpose at its core.
Does our purpose make us a better
business?
Yes, unequivocally.
It may have taken 30 years to move from niche
to game-changer, but we have shown what a
sustainable business can and should look like.
We’ve proved that brands with purpose grow, that
companies with purpose last and that people
with purpose thrive. In fact, our once-radical
ethos is increasingly seen as the way to do
business.
1 From Values to Riches 2020: Charting consumer expectations and demand for responsible investing in Australia, RIAA.
2 Purpose: Shifting from why to how? McKinsey Quarterly, 22 April 2020
4
ANNUAL REPORT 2021 for over three decades
we have run our business
with purpose at its core
5
Highlights
$6.07 billion in funds under management
$59.1 million revenue
56% increase in net flows
$11.3 million profit after tax1
Multiple Investment
Excellence Awards2
Emerging Companies
fund returned 50.3%3
Australian Shares super option
No.1 over 1, 3, 5, 7 & 10 years4
MySuper Balanced (accumulation
option) No.1 over 3 years4
23% growth in funded customers5
No.1 fastest growing
Super fund in Australia over 5 years
by members & AUM6
77% less CO2 produced
by the companies we invest in,
compared to benchmark7
Nil investment in fossil
fuel companies, nuclear, tobacco,
gambling companies8,9
2.5 times more impact towards
the sustainable development goals
than benchmark10
13 x more investment in
renewable power generation than
benchmark11
6
ANNUAL REPORT 2021 A record $1.6 million donated to the
Australian Ethical Foundation12
We engaged with 500+ companies for people, planet & animals13
Best for the World for customer & governance by B Corps14
No.1 for customer advocacy15 no.2 for industry NPS (super)15
82% employee engagement16
1. Attributable to shareholders. Underlying profit pre-performance fees up 30%.
2. See pages 8 and 21 of this report.
3.
4.
Australian Ethical’s Emerging Companies fund returned 50.3% (after retail fees) for the 12 months to 30 June 2021,
outperforming its benchmark the S&P/ASX Small Industrials by 17.3 percentage points
Australian Ethical Super’s Australian Shares option ranks No.1 out of 50 for returns over 1, 3, 5, 7 and 10 years
according to the SuperRatings Fund Crediting Rate Survey – SR50 Australian Shares Index as at 30 June 2021.
Balanced Accumulation Option ranked No.1 out of 50 for returns in the SR50 MySuper Index over 3 years as at
30 June 2021, and achieved top quartile performance over 3, 5 and 7 years ending 30 June 2021 in the
SuperRatings Balanced Survey June 2021.#
Includes both funded super fund members and managed fund investors.
5.
6. KPMG 2021 Super Insights Report, published May 2021, using statistics from APRA and ATO as at 30 June 2020.
Carbon intensity (tonnes CO2e per $ revenue) of Australia Ethical share investments compared to the blended
7.
benchmark.*^
We don’t invest in companies whose main business is fossil fuels or gambling, or in diversified companies that
earn some fossil fuel or gambling 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, providing its negative revenue is sufficiently low (a maximum of 5% to 33% depending on the activity).^
8.
9. We have never invested in tobacco and support Tobacco Free Portfolios.^
10. Based on the ‘sustainable impact’ revenue earned by companies whose shares we invest in, compared to the
blended benchmark.*^
11. Proportion of our share investments in renewable power generation compared to the blended benchmark.*^
12. Provisioned for donation to the Australian Ethical Foundation in FY21.
13. Total includes lending our voice to support others’ initiatives, engaging with companies directly (on our own or
with others) and filing and voting on shareholder resolutions. Represents FY21 activity.
14. B Corps ‘Best for the World Honouree 2021’ Customer and Governance. Awarded to B Corps whose score in the
top 5% of all 3,500+ B Corps worldwide. This relates to the Australian Ethical entity, not the investment portfolio.
15. Investment Trends research, June 2021: Number 1 for customer advocacy, Number 2 for industry NPS (super).
16. Culture Amp Survey, June 2021 (Top quartile Australian employee engagement benchmark is 70%).
* Shareholdings as at 30 June 2021. ^Further information on page 100 of this report.
Past performance is not a reliable indicator of future performance.
# SuperRatings does not issue, sell, guarantee or underwrite this product. See the website for details of its ratings
criteria. SuperRatings performance figure is net of percentage based administration and investment fees.
7
Investment report
David Macri, CFA, Chief Investment Officer
The 2021 financial year will go down as one of the better
periods for equity markets globally in recent years.
Despite the challenges of COVID-19, the
Australian equity market reached new highs
during the 12 months breaking through 7,000
points early in 2021. The final quarter of the
financial year saw the Australian market continue
its upward march, returning 8.5% and 28.5%
over the 12 months (as measured by the
S&P/ASX 300 Accumulation index).
International equities also performed extremely
strongly, with the MSCI World Index generating
a return of 28.1% in Australian dollars and 37.5%
in local currencies. The difference reflects the
strength of the Aussie dollar through FY21,
starting the year at 0.69 USD per AUD and
ending at 0.75.
Performance highlights*
We saw another year of exceptional investment
performance for our customers with all but five of
our 21 Managed Funds/Super options exceeding
their benchmark.
Standout results for our managed fund investors
were our Australian Shares Fund which returned
41.9% (after retail fees) outperforming its
benchmark by 13.4 percentage points (ppts),
and our Emerging Companies Fund which
returned 50.3% (after retail fees) outperforming its
benchmark by 17.3 ppts. In addition, the Emerging
Companies Fund generated performance fees of
$2.9 million. Strong stock selection again drove
the outperformance of these funds.
For our super members, our Balanced
Accumulation Option (MySuper) delivered a 17.5%
return, with our Australian Shares Accumulation
Option delivering a 38.8% return for the financial
year placing it 3rd out of 104 in the SuperRatings
Fund Crediting Rate Survey for Australian Shares
Options. Over the longer term, the Option ranked
first over 3, 5, 7 and 10 years in the same survey.
We are extremely proud of these results which
are testament to our process and team.
Meanwhile, industry recognition for our
investment portfolios and superannuation fund
was both global and local. In late 2020, we
were recognised by Morningstar as one of just
six global leaders for our commitment to ESG,
with local accolades from Money Magazine,
Finder.com, Financial Standard and Money
Management. Canstar awarded our Diversified
Shares and Emerging Companies Funds its
top 5-star rating, while consumer comparison
site, Mozo, named us ‘most recommended’ for
superannuation. The details of this achievements
are set out on page 21.
Future proofing our ethical
investment leadership
During the past financial year, we took significant
steps to shore up our ethical investing leadership
by investing in technology, cutting-edge portfolio
and risk management practices, and expanding
our talented investment team.
In 2020 we appointed Alpha Vista to conduct
a review of our investment governance and to
help us develop a truly world class, innovative
approach to asset allocation.
The review is part of our long-term expansion
strategy and was led by Dr. Ashby Monk, a
research director of the Stanford Global Projects
Centre, who has consulted to some of the world’s
largest pension plans.
The findings from the review will facilitate a single
view of all our portfolios and allow us to manage
risk more accurately, while also contributing to
overall portfolio performance.
Changes to the investment team included
the promotion of Mike Murray, CFA to Head of
Domestic Equities and the appointment of John
Woods, CFA, as Head of Asset Allocation.
*Past performance is not a reliable indicator of future performance.
8
ANNUAL REPORT 2021 Fund returned 50.3%
(after retail fees)
+50.3% Emerging Companies
+41.9%
+17.5%
Australian Shares
Fund returned 41.9%
(after retail fees)
Balanced Accumulation
Option (MySuper)
returned 17.5%
+38.8% Australian Shares
Accumulation Option
returned 38.8%
9
Investment performance*
Managed Funds returns to 30 June 2021#
Thirteen of our 16 managed funds met or exceeded their benchmark for FY21. Our Australian Shares and
Emerging Companies funds in particular had an exceptional year.
1 year
%
2 years
% p.a.
3 years
% p.a.
5 years
% p.a.
7 years
% p.a.
10 years
% p.a.
15 years
% p.a.
20 years
% p.a.
Fund Performance
Income
Benchmark1
Income (Wholesale)
Benchmark1
Fixed Interest
Benchmark2
Fixed Interest
(Wholesale)
Benchmark2
Balanced
Benchmark3
Balanced (Wholesale)
Benchmark3
Advocacy
Benchmark4
Advocacy (Wholesale)
Benchmark4
Diversified Shares
Benchmark4
Diversified Shares
(Wholesale)
Benchmark4
International Shares
Benchmark5
International Shares
(Wholesale)
Benchmark5
Australian Shares
Benchmark6
Australian Shares
(Wholesale)
Benchmark6
Emerging Companies
Benchmark7
Emerging Companies
(Wholesale)
Benchmark7
0.4
0.1
0.4
0.1
(1.5)
(0.8)
(1.2)
(0.8)
18.3
16.4
19.3
16.4
30.3
27.8
31.5
27.8
30.4
27.8
31.5
27.8
27.1
27.5
28.3
27.5
41.9
28.5
43.1
28.5
50.3
33.0
51.1
33.0
0.6
0.4
0.7
0.4
0.8
1.6
1.3
1.6
9.6
8.2
10.6
8.2
11.3
11.1
12.3
11.1
11.3
11.1
12.4
11.1
13.8
15.8
14.9
15.8
20.3
8.9
21.4
8.9
30.4
11.0
31.2
11.0
1.1
0.9
1.2
0.9
3.3
4.2
3.8
4.2
9.7
8.8
10.8
8.8
11.9
11.0
13.0
11.0
12.0
11.0
13.1
11.0
13.2
14.5
14.4
14.5
16.2
8.0
17.3
8.0
25.3
9.4
26.0
9.4
1.3
1.3
1.6
1.3
2.0
3.2
2.7
3.2
8.5
9.0
n/a
n/a
10.7
11.2
11.8
11.2
10.7
11.2
11.9
11.2
12.5
14.7
13.7
14.7
13.6
10.0
14.9
10.0
20.0
10.8
20.8
10.8
1.4
1.6
n/a
n/a
2.8
4.1
3.6
4.1
8.0
8.4
n/a
n/a
10.3
10.0
11.5
10.0
10.3
10.0
11.6
10.0
10.8
12.5
n/a
n/a
14.0
10.0
15.4
10.0
n/a
n/a
n/a
n/a
2.2
2.1
n/a
n/a
n/a
n/a
n/a
n/a
8.3
9.2
n/a
n/a
11.0
10.4
n/a
n/a
11.2
12.4
n/a
n/a
10.8
15.0
n/a
n/a
13.1
9.6
n/a
n/a
n/a
n/a
n/a
n/a
3.1
3.3
n/a
n/a
n/a
n/a
n/a
n/a
5.6
6.8
n/a
n/a
n/a
n/a
n/a
n/a
6.5
7.7
n/a
n/a
n/a
n/a
n/a
n/a
10.7
5.4
n/a
n/a
n/a
n/a
n/a
n/a
3.5
3.8
n/a
n/a
n/a
n/a
n/a
n/a
6.4
6.7
n/a
n/a
n/a
n/a
n/a
n/a
7.4
7.1
n/a
n/a
n/a
n/a
n/a
n/a
9.9
7.3
n/a
n/a
n/a
n/a
n/a
n/a
* Past performance is not a reliable indicator of future performance.
# After fees performance
1 Bloomberg AusBond Bank Bills Index
2 Bloomberg AusBond Composite
3 Indices of underlying asset classes weighted by the Fund’s Strategic Asset Allocation
4 75% S&P/ASX 200 Accumulation / 25% MSCI World ex Australia (NET)
5 MSCI World ex Australia (NET)
6 S&P/ASX300 Accumulation
7 S&P/ASX Small Industrials Accumulation
Note: Where benchmarks have changed, we have melded them together.
MSCI data is the property of MSCI. No use or distribution without written consent. Data is provided ‘as is’ without
any warranties. MSCI assumes no liability for or in connection with the data. For full disclaimer, please see
australianethical.com.au/sources
10
ANNUAL REPORT 2021 Super and pension returns to 30 June 2021**
Our MySuper option (Balanced Accumulation) delivered a 17.5% return, while our Australian Shares
Accumulation option delivered a 38.8% return for the financial year.
1 year
%
2 years
% p.a.
3 years
% p.a.
5 years
% p.a.
7 years
% p.a.
10 years
% p.a.
15 years
% p.a.
20 years
% p.a.
17.5
0.0
(0.2)
4.3
7.6
Accumulation options Performance
Defensive
Benchmark1 ~
Conservative
Benchmark8
Balanced
(accumulation)
Benchmark9
Growth
Benchmark10
Australian Shares
Benchmark6 ~
International Shares
Benchmark5 ~
Advocacy
Benchmark4 ^
17.9
20.4
22.1
38.8
25.2
25.3
24.1
28.4
24.6
0.1
0.1
3.4
3.8
9.6
8.1
9.8
9.6
19.6
8.3
13.1
13.8
11.1
9.8
0.5
0.5
4.8
4.2
9.9
7.6
10.3
8.7
16.1
7.4
12.6
12.6
11.8
9.7
0.8
0.7
4.1
3.9
9.2
7.8
10.0
9.6
14.3
9.0
12.6
12.6
11.1
9.8
0.9
1.0
4.2
3.8
8.4
6.7
9.0
8.0
14.3
7.6
10.1
10.7
10.2
8.8
1.5
1.7
4.1
4.4
8.2
6.8
9.0
8.2
13.2
0.9
9.8
13.7
10.5
9.7
2.3
3.0
n/a
n/a
5.5
5.2
5.2
5.8
10.6
2.7
n/a
n/a
n/a
n/a
2.8
3.6
n/a
n/a
6.2
5.2
6.3
5.8
9.7
n/a
n/a
n/a
n/a
n/a
1 year
%
2 years
% p.a.
3 years
% p.a.
5 years
% p.a.
7 years
% p.a.
10 years
% p.a.
15 years
% p.a.
20 years
% p.a.
Pension options Performance
Defensive
Benchmark1 <
Conservative
Benchmark11
Balanced
Benchmark12
Growth
Benchmark13
Australian Shares
Benchmark6 ~
International Shares
Benchmark5 <
(0.1)
(0.2)
5.0
8.3
14.7
13.6
23.2
24.1
42.6
28.1
27.3
27.1
0.1
0.1
3.6
4.3
8.6
6.5
11.0
10.5
21.7
9.0
14.0
15.4
0.6
0.5
5.2
4.7
9.0
6.2
11.5
9.6
17.5
8.0
13.4
14.1
0.9
0.9
4.6
4.4
8.4
6.3
11.1
10.4
15.7
9.8
13.5
14.3
1.0
1.1
4.5
4.2
8.0
5.8
10.1
8.6
15.4
8.4
10.3
12.0
1.7
1.8
4.5
4.9
8.1
6.4
10.2
8.9
14.5
1.5
9.7
14.6
2.7
3.1
n/a
n/a
5.5
5.0
6.0
6.2
11.6
3.3
n/a
n/a
3.3
3.6
n/a
n/a
6.4
5.2
7.0
6.2
10.6
n/a
n/a
n/a
** Super and Pension returns are calculated in compliance with APRA SRS702. It is the return that would have been achieved
for a representative member with a $50,000 balance and no contributions, after all administration and investment fees,
taxes and other costs.
8 SuperRatings SR50 Capital Stable (20-40) Index
9 SuperRatings SR50 Balanced (60-76) Index
10 SuperRatings SR50 Growth (77-90) Index
11 SuperRatings SRP50 Capital Stable (20-40) Index
12 SuperRatings SRP25 Conservative Balanced (41-59) Index
13 SuperRatings SRP50 Growth (77-90) Index
~ Net of tax and % administration fees
< Net of % administration fees
11
Our senior leadership team
John McMurdo
Chief Executive Officer and Managing Director
MBA, GAICD
John brings more than 30 years’ experience in investment management,
private client advisory and wealth management across Australia and New
Zealand, including 18 years in CEO roles at several leading investment
and wealth management businesses. He has significant Board and
Directorship experience within and outside financial services.
John has an MBA from Henley Business School (U.K.), is a graduate of
the Australian Institute of Company Directors and a member of the Fund
Management Board Committee of the Financial Services Council.
David Macri
Chief Investment Officer
BSc, CFA
David has been with Australian Ethical for more than 12 years, with nine
of these spent as Chief Investment Officer. He is responsible for all
investment aspects of the company, including the in-house management
of diversified funds, fixed interest, domestic and international equities,
and the Australian Ethical Super fund which includes asset allocation and
manager selection in the unlisted asset classes.
He has over 22 years’ experience in the financial services industry,
including stints on the ‘buy-side’ (Credit Suisse Asset Management),
‘sell-side’ (Macquarie) and as an Investment Consultant (Mercer and
Mellon).
Mark Simons
Chief Financial Officer
B Bus, CA, GAICD
Mark is responsible for business performance, financial control and fund
accounting. Mark has more than 30 years’ experience in financial services,
having previously held senior roles within Australian Ethical, Challenger,
Perpetual, Tyndall and KPMG.
12
ANNUAL REPORT 2021 Kim Heng
Chief Operating Officer
BEng, PRINCE2, DipPM
Kim manages all aspects of the organisational strategy focused on
operations and technology. With 20+ years’ experience in information
technology, program management and delivery, major transformations
and Operations, Kim has previously held roles at Local Government
Super, FuturePlus Financial Services and RT Health.
Maria Loyez
Chief Customer Officer
MEng
Maria is responsible for sales, marketing and customer experience to
help drive business growth, which in turn increases positive impact
on society. Maria has more than 20 years’ strategic marketing, CX and
leadership experience having previously held senior roles at neo-bank
Volt, SocietyOne, OFX, AMP, Optus and Virgin.
Karen Hughes
Chief Risk Officer and Company Secretary
BSc (Hons), ACA (ICAEW), GAICD
Karen is responsible for the Risk Management Framework at Australian
Ethical and is joint Company Secretary. Karen has over 25 years’
experience in risk and compliance with previous roles at StatePlus,
Tyndall, Jardine Fleming and PwC.
13
Marion Enander
Chief Strategy & Innovation Officer
BCom, MBA
Marion is driving and championing Australian Ethical’s strategic
direction, the innovation agenda and heads up the People & Culture
team. She has extensive experience in strategic leadership and
consulting roles at companies such as Credit Suisse, Perpetual and
Booz Allen Hamilton. She has a MBA from London Business School (UK).
Tom May
General Counsel and Company Secretary
BA, LLB, MBA, TFASFA, MAICD, FGIA
Tom is joint Company Secretary and oversees the company’s
governance and legal functions to ensure that the Group meets its
regulatory obligations. Tom has 30 years’ legal experience in Australia,
Asia and Europe.
Dr Stuart Palmer
Head of Ethics Research
BA, LLB, MLitt, PhD
Stuart evaluates the impacts which the products, services and
operations of companies 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 the
Ethics Centre and as a banker and lawyer.
14
ANNUAL REPORT 2021 Australian Ethical
Investment Limited and
its Controlled Entities
Annual Report
30 June 2021
Contents
Directors’ Report
Remuneration Report
Auditor’s Independence Declaration
Statements of comprehensive income
Statements of financial position
Statement of changes in equity
Statements of cash flows
Notes to the financial statements
Directors’ declaration
Independent auditor’s report
16
36
54
55
56
57
59
60
93
94
15
Directors’
Report
The directors present their
report, together with the financial
statements, on the consolidated
entity (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 2021.
16
ANNUAL REPORT 2021
Directors
The following persons were directors of Australian Ethical Investment Limited during the
whole of the financial year and up to the date of this report, unless otherwise stated:
Steve Gibbs
Non-Executive Director since 2012 and Chair since 2013
BEcon, MBA
Steve chairs the People, Remuneration and Nominations Committee, is a member
of the Investment Committee, the Product Disclosure Statement Committee and
the Australian Ethical Investment Limited and Australian Ethical Superannuation
Pty Limited Audit, Risk & Compliance Committees. He is Chair of Australian
Ethical Superannuation Pty Limited and Australian Ethical Foundation Limited.
Steve is also the Non-Executive Chair of Netlinkz Limited. Steve has extensive
experience at both an executive and non-executive level in the investment
and superannuation industries, including being a former CEO of the Australian
Institute of Superannuation Trustees, a former CEO of what is now Commonwealth
Superannuation Corporation and a non-executive director of Hastings Funds
Management and Westpac Funds Management. Steve has been recognised for
his commitment to, and expertise in, ethical and responsible investing.
Mara Bûn
Non-Executive Director since 2013
BA (Political Economy), GAICD
Mara is a Member of the People, Remuneration and Nominations Committee,
the Investment Committee and the Australian Ethical Investment Limited
and Australian Ethical Superannuation Pty Limited Audit, Risk & Compliance
Committees. She is a Director of Australian Ethical Superannuation Pty Limited
and Australian Ethical Foundation Limited.
Mara brings executive experience from Green Cross Australia, Choice,
CSIRO, Macquarie Bank and Canstar. She is a Founder of The Salmon Project,
specialist advisors to Climatetech and Agritech scale-ups advancing Series
B venture funding through deep tech R&D. She is the Non-Executive Chair of
four organisations: the Gold Coast Waterways Authority; Bowerbird Collective,
a chamber music ensemble dedicated to nature conservation through
performance; asset consultants Australian Impact Investments; and the
Australian Conservation Foundation where Mara is also President.
Kate Greenhill
Non-Executive Director since 2013
BEc, FCA, GAICD
Kate is Chair of the Australian Ethical Investment Limited and Australian Ethical
Superannuation Pty Limited Audit, Risk & Compliance Committees and is a
Member of the People, Remuneration and Nominations Committee and the
Investment Committee. Kate is a Director of Australian Ethical Superannuation
Pty Limited and Australian Ethical Foundation Limited, and a Member of the
Australian Ethical Superannuation Pty Limited Insurance Benefits Committee.
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 25 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 the Treasurer
of a not-for-profit organisation in the education sector and a Director and Chair of
the Audit and Risk Management Group of Intersect Australia Ltd.
17
Michael Monaghan
Non-Executive Director since 2017
BA, FIAA, FAICD
Michael is Chair of the Investment Committee and a member of the People,
Remuneration and Nominations Committee, the Product Disclosure Statement
Committee and the Australian Ethical Investment Limited and Australian Ethical
Superannuation Pty Limited Audit, Risk & Compliance Committees. He is a
director of Australian Ethical Superannuation Pty Limited and the Australian
Ethical Foundation Limited.
Michael has more than 30 years’ experience in investment, consulting and
leadership of financial services organisations both in Australia and internationally.
He was Managing Director of State Super Financial Services Australia Limited
(StatePlus) from 2011 to 2016 and previously was a Partner in the actuarial practice
of Deloitte Touche Tohmatsu, the CEO of Intech Investment Consultants and held
senior executive positions at Deutsche Bank, IBM and Lendlease Corporation.
Michael is currently a Director of Flag Income Notes 3 Pty Ltd and Alpha Vista
Financial Services Holdings Pty Ltd, a start-up global asset management business
leveraging large scale data and computing capabilities and artificial intelligence.
Julie Orr
Non-Executive Director since 2018
BEc, MCom, MCom(Hons), CA, GAICD, FGIA
Julie is a Member of the People, Remuneration and Nominations Committee,
the Australian Ethical Investment Limited Audit, Risk & Compliance Committee
and the Investment Committee. She is also a Director of Australian Ethical
Foundation Limited, AvSuper and Masters Swimming NSW.
She has over 20 years of experience in executive and board roles including
experience with superannuation, investments, financial planning, stockbroking,
research, insurance, audit, finance, acquisitions and business integration.
Julie’s most recent executive experience was Group General Manager
Corporate Development and General Manager Operations for IOOF. She was
previously Director of Finance India and Asia Pacific for Standard and Poor’s,
Head of Research for Morningstar, Chief Operating Officer at Intech and Senior
Audit Manager with Ernst & Young. Julie’s prior board experience includes
Perennial Value Management, Ord Minnett and Tax Payers Research foundation.
John McMurdo
Chief Executive Officer and Managing Director, appointed February 2020
MBA, GAICD
John joined the Australian Ethical Board in February 2020 as Chief Executive
Officer and Managing Director. He brings more than 30 years’ experience in
investment management, private client advisory and wealth management
across Australia and New Zealand, including 18 years in CEO roles at several
leading investment and wealth management businesses. He also brings
significant previous Board and Directorship experience within and outside
financial services.
John has an MBA from Henley Business School (U.K.), is a graduate of
the Australian Institute of Company Directors and a member of the Fund
Management Board Committee of the Financial Services Council.
18
ANNUAL REPORT 2021
Company secretary
Tom May and Karen Hughes are joint Company
Secretaries.
Tom May
BA, LLB, MBA, TFASFA, MAICD, FGIA
Tom also oversees governance and legal functions to
ensure that the Group meets its regulatory obligations
and maintains industry leading governance practices.
Tom has 30 years legal experience in Australia, Asia
and Europe.
Karen Hughes
BSc (Hons), ACA (ICAEW), GAICD
Karen is also 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 PwC.
Karen was appointed joint Company Secretary on
25 August 2020.
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
Introduction and commitment to our purpose
While the world in 2021 is different to what most people
would have imagined, at Australian Ethical we see
many of our founding principles being embraced by a
wider audience.
The movement to incorporate purpose through
investment has accelerated as businesses search
for a reason for being beyond profits and look to
do good by solving some of the world’s biggest
societal challenges. And as society’s expectations of
businesses evolve, we’ve seen those businesses with
an established purpose pre-pandemic rewarded by
stakeholders through increased customer loyalty, brand
awareness and growth.
At Australian Ethical, our purpose has been a constant
during these changing times, serving as both anchor
and compass. It is the lens through which we see
the world and it underpins our decision-making,
innovation and growth plans. It brings energy, curiosity,
engagement, meaning, resilience and a determination
to succeed.
As we adapt to a post-pandemic world, we must never
forget the events that have defined the past two years
nor the lessons they have taught – both as business
leaders and as individuals. For Australian Ethical, this
means doubling down our commitment to investing for
a better world so we can create better outcomes for
people, planet and animals. Today and tomorrow.
19
Year in review
Australian Ethical has recorded another year of milestones which have cemented
our position as Australia’s original and leading pure play ethical investor. ESG is
and always has been in our DNA.
The pandemic has ushered in a new way of
thinking for many investors, forcing more people
to confront the global threat of climate change
and how it will impact their lives. It has shown
how global risks have cascading effects, and
seldom manifest in an isolated manner.
Global recognition for our authenticity is
especially important as ESG becomes the
biggest buzzword in investing and even the
most cynical of investment managers jump on
the bandwagon, new products are launched,
and older funds are rebadged as sustainable.
In response Australians are embracing ethical
investing in record numbers as they seek to
drive positive action using all available levers.
We have seen our addressable market explode
as people realise that a better world is not just
possible, but that they’re the ones who can help
make it happen through how they invest.
As a result, we have seen record customer
flows into our products as Australians continue
to seek us out to make their money matter. We
ended the financial year with $6.07 billion in
funds under management, a significant uptick
on the record $5.05 billion we celebrated just
6 months ago in December 2020, which itself
was an audacious target we had set ourselves
in 2015 when we had just over $1 billion under
management.
This growth in FUM is of course supported by
the outstanding investment returns delivered
for our customers by our award-winning
investments team, who added several local and
global accolades to their already impressive
credentials1.
In November 2020, we were recognised by
Morningstar as one of just six global leaders
for our commitment to ESG. The report singled
out our Australian Shares Fund as “setting the
ESG standard for Australian domestic-equity
strategies.”
In the report, the Morningstar ESG Commitment
Level: Our first assessment of 100-plus
strategies and 40 asset managers, it said:
“Unquestionably, Australian Ethical Investment
is true to its ethical label, evidenced by the
robust integration of ESG principles into the
investment processes, activism, advocacy, and
memberships undertaken by the firm.”
Today people can now choose between plenty
of products that claim to offer the chance to
do the right thing by the planet, but they need
reassurance that the products they’re buying
meet their ethical standards rather than just
being packaged attractively.
Strategically, we have seen the green shoots we
reported in our half year results continue to grow
which gives us confidence about the path our
business is on. These green shoots are evident
across our business from operations through
to investments, and from marketing through to
customer services. For example, our ongoing
commitment to enhancing the customer
experience has been bolstered by bringing the
customer contact centre in-house, a complex
project that was successfully executed in early
2021. A new brand identity and updated website,
launched in May, will help ensure we achieve
enough brand recognition and resonance to
capture the opportunities we see ahead of us.
And while our business is 35 years old – a
veritable veteran in responsible investing terms
– we believe that our biggest opportunities are
yet to come.
Over the coming pages we will expand on the
many successes of the past 12 months and
provide an update on our strategic roadmap
and our plan to extend our market leadership
position.
But first we take this opportunity to thank
everyone at Australian Ethical for another stellar
year and for proving that money can be a
powerful force for good.
20
Australian Ethical Investment Limited and its Controlled Entities DIRECTOR’S REPORTFor the year ended 30 June 2021ANNUAL REPORT 2021 Financial year 2021 highlights
$6.07 billion in funds under management,
50% up on prior year
Record underlying profit of $11.05 million,
up 19% (underlying profit pre-performance fees up 30%)
Diluted EPS 3-year CAGR of 31%
Strategic investment in the business
of $4.6 million
Record net inflows of $1.03 billion,
up 56%
Strong growth in adviser channel with
FUM now exceeding $1 billion
Increase in funded customer numbers
by 23%
Investment performance after fees
of $0.99 billion
Performance fee on Emerging
Companies Fund (ECF) of $2.9 million
Outstanding returns on our funds, in
particular Australian Shares Fund and
Emerging Companies Fund
In November, recognised by Morningstar
as one of just six global leaders for our
commitment to ESG2
Multiple investment excellence awards1
We remain the fastest growing super
fund over 5 years by FUM
and members3
A record $1.6 million donated
to the Foundation to support its philanthropic endeavours
1 In addition to the global recognition from Morningstar, local accolades included Money Magazine, Finder.com, Financial
Standard and Money Management. Canstar gave its top 5-star rating to our Diversified Shares and Emerging Companies
Funds while consumer comparison site Mozo named us ‘most recommended’ for superannuation.
2 In November 2020, Morningstar named Australian Ethical as one of just six global leaders, out of 40 asset managers
assessed for ESG commitment. Australian Ethical was the only Australian asset manager to achieve this rating. Based
on the second assessment (May 2021), one further asset manager was added as a “leader”, who was an Australian
asset manager. Inaugural ESG assessment: The Morningstar ESG Commitment Level: Our first assessment of 100-
plus strategies and 40 asset managers, Second assessment: The Morningstar ESG Commitment Level: Our second
assessment of 140 strategies and 31 asset managers.
3 KPMG 2021 Super Insights Report – published May 2021, using statistics published by APRA and ATO as at 30 June 2020.
21
Profit
The net profit for the Group amounted to $11.1
million. The net profit attributable to shareholders
amounted to $11.3 million, compared with
$9.5 million for the 12 months to 30 June 2020.
Underlying profit after tax was $11.05 million, up
19% compared with the prior corresponding
period. Excluding the impact of performance
fees, underlying profit increased 30%.
Net profit attributable to shareholders excluding
the impact of performance fees also rose 30%
compared to the prior corresponding period.
Operating revenue increased 18% to $58.7 million,
up from $49.9 million for the year to 30 June 2020.
This increase was driven by strong FUM growth,
underpinned by record net inflows and strong
fund performance, partially offset by the impact
of superannuation fee reductions (including those
implemented in the second half of FY204) and fee
and threshold reductions across some managed
funds in October 2020 and June 20214. During the
year the average FUM based fee margin reduced
from 1.13% to 1.04%.
Other income included the settlement of an
insurance claim for $0.5 million, lodged in
2017 relating to a historical unit price matter. In
turn, $0.2 million was paid into the Operating
Financial Risk Reserve of the superfund.
Pleasingly, we have been able to donate $1.6
million to the Australian Ethical Foundation
following our success during this financial year.
This is the largest amount we have donated to
the Foundation (prior year $1.3 million) which
will amplify the positive impact it makes via
its strategic philanthropic grants and other
associated initiatives. This $1.6 million Foundation
donation included $0.1m which AEI had received
from the Federal Government’s cash flow
boost COVID-19 stimulus package, which was
subsequently allocated for impactful not-for-
profit initiatives. AEI did not receive JobKeeper
payments from the Federal Government.
4 On 1 April 2020 the percentage-based administration fee was reduced from 0.41% to 0.29% across all
superannuation and pension options. On 1 October 2020 the Balanced Fund wholesale investment threshold was
reduced from $500k to $200k; the Income Fund management fee was reduced from 0.35% to 0.20% (wholesale)
and 0.50% to 0.20% (retail); and the Fixed Interest Fund management fee was reduced from 0.45% to 0.30%
(wholesale) and 1.00% to 0.50% (retail). The defensive superannuation option management fee was reduced from
0.40% to 0.20%. In June 2021, fees were reduced on the Australian Shares (1.25% to 1.20%) and International (1.10%
to 0.89%) super and pension options and the Balanced (1.84% to 1.51%), International (1.85% to 0.99%), Diversified
(1.90% to 1.39%), Advocacy (1.90% to 1.39%), Australian Shares (1.99% to 1.69%) and Emerging Companies (1.99%
to 1.69%) retail funds, and the Balanced (0.94% to 0.85%) and International (0.85% to 0.59%) wholesale funds.
22
Australian Ethical Investment Limited and its Controlled Entities DIRECTOR’S REPORTFor the year ended 30 June 2021ANNUAL REPORT 2021 Expenses
Operating expenses increased by 18% as we
continue to invest in our brand, investment
expertise, distribution channels, customer
experience and in delivering strategic and
regulatory initiatives.
Key drivers of the cost increases include:
• Higher fund-related costs predominantly
from the increase in customer numbers and
funds under management, implementation
of regulatory change compliance
• The redesign of our insurance offering for
super customers
• A new customer relationship management
system
• Bringing our super member contact centre
in-house
• A member education program
• Expanding our focus on innovation including
rolling out training for all staff, feasibility
assessments of key technology projects and
research on future trends
• A new, refreshed brand and movement
• Investing in capability and marketing to
grow our adviser channel and high net worth
customer segments
• $0.7 million of software development
costs which would previously have been
capitalised, in line with recent IFRIC guidance
on AASB138 Intangible Assets
$bn
Opening FUM
Super net flows
Managed Funds* net flows
Total net flows
Regulatory projects
Closing FUM
Funds under management
During the period, we have seen record
breaking net inflows of $1.03 billion, 56% above
the prior corresponding period. Managed funds
flows (excluding institutional) increased 161% as
we see the results of our strategic focus on this
channel and our targeted investment campaigns
gain traction.
During the period we saw record super flows of
$614 million, an increase of 31% year on year –
these super flows are predominantly from our
direct-to-consumer channel. In June we saw
the highest ever monthly net inflows in super of
$91 million as we continue to invest in our digital
acquisition strategy.
Investment in growing our adviser channel
is yielding strong results with flows from this
channel increasing 168% during the year to
reach FUM of $1.2 billion across managed funds,
super and our SMA product which was launched
in April 2020.
These strong flows, together with strong
investment performance after fees of $0.99
billion during the period, have resulted in
excellent year on year FUM growth of 50% to
$6.07 billion at 30 June 2021.
These numbers include outflows of $0.04 billion
as part of the early release of superannuation
scheme.
The below table outlines FUM movements for
the period:
30 June 2021
30 June 2020
% change
4.05
0.61
0.42
1.03
0.99
6.07
3.42
0.47
0.19
0.66
(0.02)
4.05
19%
31%
122%
56%
large
50%
* Includes Managed Funds (retail, wholesale and institutional) and SMA
23
Investment performance
Fee reductions
As ever, we remain committed to making
ethical investing as accessible and competitive
as possible, which includes making strategic
fee reductions as we pass the benefits of our
growing scale onto our customers. Since 2014,
our pricing has more than halved, with FUM
increasing six-fold over the same period6.
In October 2020, we reduced the fee on the
Defensive super option, and the Income and
Fixed Interest funds, and reduced the threshold
on the Balanced wholesale fund. In June 2021,
we reduced the fee on the Australian Shares
and International super options and the
Balanced, International, Diversified, Advocacy,
Australian Shares and Emerging Companies
retail funds, and the Balanced and International
wholesale funds.
And while ensuring we have competitive fees
is important for our customers, we think returns
and impact are even more important. Our fee
reduction strategy focuses on ensuring there is
an equitable balanced share in the success of
our growing company between shareholders
and customers, while delivering competitive
returns and meaningful real-world outcomes for
people, planet and animals.
Our investment team have delivered another
year of strong investment performance
for our customers with all but five out of 21
Managed Funds/Super options exceeding their
benchmark.
Standout results for our managed fund
investors include the performance of our
Australian Shares Fund (retail) which returned
41.9% (outperforming its benchmark by 13.4%)
and our Emerging Companies Fund (retail)
which returned 50.3% (outperforming its
benchmark by 17.3%). In addition, the Emerging
Companies Fund generated performance
fees of $2.9 million. Strong stock selection
and active portfolio management drove the
outperformance of these funds during what was
another volatile year for equity markets.
For our super members, our Balanced option
(MySuper) delivered a 17.5% return, with our
Australian Shares super option delivering a
38.8% return for the financial year. Our Australian
Shares super option has been ranked first over
1, 3, 5, 7 and 10 years5.
Meanwhile, industry recognition for our
investments team was both global and local.
In addition to the global recognition from
Morningstar, local accolades included Money
Magazine, Finder.com, Financial Standard and
Money Management. Canstar gave its top 5-star
rating to our Diversified Shares and Emerging
Companies Funds while consumer comparison
site Mozo named us ‘most recommended’ for
superannuation.
5 Australian Ethical Super’s Australian Shares option ranks no.1 over 1 year, 3 years, 5 years, 7 years and 10 years
according to the SuperRatings Fund Crediting Rate Survey – SR50 Australian Shares Index as at 30 June 2021.
6 Since 2014 revenue margin has reduced from 2.26% to 1.04% whilst FUM has increased from $0.9bn to $6.07bn.
24
Australian Ethical Investment Limited and its Controlled Entities DIRECTOR’S REPORTFor the year ended 30 June 2021ANNUAL REPORT 2021 Operational excellence & compelling client experience
As a purpose-driven organisation, we know
we occupy a unique place in the financial
services landscape which depends in large
part on the special relationship we have with
customers, which is why we’re always focused
on enhancing their experience.
Over the past 12 months we have made
significant progress against operational
objectives which have already improved the
customer experience for both our current and
future customers. Projects include redesigning
our insurance offer to remove cross subsidies,
implementing a new customer relationship
management system and insourcing the
customer contact centre to have more control
over the customer journey. We believe the
success of these objectives can be measured
by our high NPS and customer retention metrics.
No.1 for customer advocacy7
No.2 NPS for industry NPS (super)7
No.3 for retention8
We have more work to do in creating a seamless
digital experience for customers. The pandemic
has only accelerated these plans as we design
for the future. As people have become more
accustomed to working, doing business, and
investing through digital channels, they’re
rightly expecting a frictionless, omnichannel
experience from all their transactions. Further
initiatives are planned in FY22 to deliver
enhanced customer experiences.
With the continuing focus on cyber security
risks, digital privacy and data security,
we have also continued to upgrade our
technology platform.
In addition, we have made significant
investment in our sales and distribution
capabilities, adding to existing bench
strength in response to booming demand
in the intermediated channel. With research
pointing to 86% of Australians expecting their
financial adviser to ask them about their values
in relation to their investments9, advisers are
increasingly turning to us because of our
established reputation as the country’s leading
ethical investor. As a result of our investment
in this important channel, we’ve seen flows
increase by 168% and we have exceeded
the $1 billion in FUM milestone for our adviser
channel. Meanwhile, unprompted adviser
brand recognition has more than doubled,
and we have seen a strong uptick in adviser
perception across many other metrics.10
Most noticeable perhaps for external
stakeholders is our new brand look and feel, a
decision that was taken to better differentiate
ourselves in what’s becoming a very crowded
market. Our updated brand identity celebrates
our ethical pedigree, our investment
excellence and our visionary roots to create
a unique visual identity quite unlike any other
financial services company in Australia. We’ve
also updated our website and are continuing
to improve the user experience.
7 Investment Trends research, June 2021
8 KPMG 2021 Super Insights Report – published May 2021, using statistics published by APRA and ATO as at 30 June 2020.
9 From Values to Riches: Charting consumer expectations and demand for responsible investing in Australia, RIAA 2020
10 Investment Trends April 2021 adviser brand tracker results
25
Culture is everything
COVID-19
Though we may look different on the outside,
our unique culture remains intact on the
inside. Despite the many changes of the past
12 months, including more lockdowns and
continuing uncertainty, Australian Ethical
employees remain engaged and energised. We
were pleased that our most recent employee
engagement survey reported an overall
engagement score of 82%, which puts us
above the top quartile for financial services
organisations in Australia and in line with the top
quartile with new technology companies.
When employees are committed to a purpose,
they become an engine for change, which is
why we’re proud of the authentic and lived
purpose our employees activate both internally
and externally. They prove there’s another way –
a better way – to do business. It’s through them
that our purpose flows to our customers, our
shareholders and our communities. On behalf of
the Board, we’d like to thank all Australian Ethical
employees for their continuing commitment to
investing for a better world.
We have been continuing to invest in our
employees’ wellbeing over the past 12 months.
This includes enhancing our workplace
culture to introduce more innovation and more
experimentation, as well as a high-performance
framework. Meanwhile, we continue to be a
leader in gender diversity with 50% female
representation on our Board, 44% on our
Senior Leadership Team and 57.5% across all
employees.
The operational challenges that Australian
Ethical has faced are negligible compared to
the heavy human, social and economic toll that
is being wrought worldwide by the pandemic.
As an organisation we extend our sympathies
to all those who have been affected, and our
gratitude to those on the frontline.
With half the country in lockdown at time
of writing shows that COVID remains a
concern. However, our business has proven
to be exceptionally resilient by delivering
outperformance for investors, members and
shareholders despite the ongoing volatility and
uncertainty.
We are continuing to monitor the COVID
situation and our employees’ wellbeing
remains front of mind. This includes their
day-to-day health and safety as well as
their ongoing mental health. The business
has strict COVID-safe practices in place
and has implemented creative ways to stay
connected. Our unique culture has helped
us withstand the considerable upheaval, and
our pre-pandemic flexible working policy has
meant employees have been able to choose a
working arrangement that suits their individual
circumstances.
As a result of these measures, and a robust
crisis management plan, we have continued
to operate effectively with minimal disruption
to business-as-usual operations. Business
productivity has remained high, and we have
continued to deliver outcomes for all our
stakeholders.
26
Australian Ethical Investment Limited and its Controlled Entities DIRECTOR’S REPORTFor the year ended 30 June 2021ANNUAL REPORT 2021 Climate change
For more than 30 years, Australian Ethical has
been investing to protect our planet. During
these three decades, the scientists with the
Intergovernmental Panel on Climate Change
(IPCC) have been issuing major reports about the
state of the climate, gradually expressing more
certainty about what is happening and why.
The latest report, released on 9 August
2021, confirmed what we expected: “It is
unequivocal that human influence has warmed
the atmosphere, ocean and land. Widespread
and rapid changes in the atmosphere, ocean,
cryosphere and biosphere have occurred.”
In other words, the climate crisis is not just a
threat to future generations; it is a threat that we
are already feeling the consequences of today.
If we continue the current global trajectory, the
crisis will only worsen, deepening the impact of
irreversible changes to our world.
The principal direct impact of climate change on
Australian Ethical’s business is its effect on our
investment portfolios. The prospects and value of
the businesses we invest in are exposed to risks
and opportunities flowing from the many effects
of climate change.
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 are affecting
the productivity and viability of different types of
agriculture.
Achieving the Paris goals of limiting the increase
in the global average temperature to well below
2°C above pre-industrial levels is essential, but
not easy. The scientists in the latest IPCC report
showed that if humans make immediate, rapid
and widespread cuts in emissions, warming could
be limited to 1.5°C, with the climate stabilising
after the middle of the century. It will require a
complete transformation of the way the world
produces and consumes energy, as well as
radical measures to cut emissions from other
key sources such as transport, land use and
agriculture. It will also require ambitious climate
policies from governments.
We identify, assess and manage material
climate-related investment risks through our
ethical investment process. All investments
are screened according to the 23 principles of
our Ethical Charter which is embedded in our
constitution. Our investment screening and
company engagement guides us to sectors and
companies which are aligning their businesses
with the transition needed to limit global
warming to 1.5 degrees. These companies are
better positioned to manage many climate-
related risks, such as the risk of introduction
or increase in carbon pricing. However, the
effects of climate change will be felt across
the economy and society. Higher global
warming threatens to disrupt trade and financial
markets and carries significant risk of loss to all
investment portfolios.
Our ethics research team monitors existing
and emerging climate-related risks using
diverse information sources. The team monitors
developments in:
• scientific understanding of the rate and
impacts of global warming
• domestic and international climate policy and
regulation
• technological innovation in climate mitigation
and adaptation.
Our ethical screening and engagement
approach focuses on the need to reduce
emissions to limit dangerous climate change,
but also recognises it is crucial that companies
have business models and strategies which are
adaptable to the physical impacts of current and
future climate change.
27
Investment portfolio management
Our ethical research defines our sustainable
investment universe, guiding us to companies
better positioned to manage many risks arising
from a transition to net zero emissions. Our
ethical assessment of the climate impacts
of companies and industry sectors and their
products and services can also assist us
in identifying climate-related financial risks
and opportunities and feed into our buy, sell
and portfolio management decisions. For
example, company prospects and valuations
in the energy sector may be affected by our
assessment of the future regulatory environment
for the sector.
Influencing companies
We encourage better measurement and
reporting of direct and indirect greenhouse gas
emissions; emissions reduction target setting;
and analysis of the resilience of the company’s
business strategy to different climate scenarios.
We aim to reduce companies’ contribution to
global warming as well as reducing climate-
related harm to their business prospects.
Through engagement we also build our own
understanding of climate-related risk.
We exercise our influence through private
engagement, voting at company meetings,
public praise or criticism, shareholder
resolutions and divestment.
The resilience of our real estate and
infrastructure investment
Real estate and infrastructure are exposed to
many physical impacts of different levels of
global warming. Greater extremes of heat and
cold raise operating costs and in some cases
will threaten operational viability. Increased
frequency and severity of wind, fire, storms and
flooding mean many assets will suffer significant
damage more often, increasing repair costs and
the need for additional investment to protect
them. Some buildings and infrastructure will
no longer be capable of fulfilling their original
function and will become liabilities rather than
assets, with owners required to dismantle or
decommission them. We rely heavily on the
management of climate-related risks by our
external property and infrastructure managers
and describe some of their work and challenges
in our annual climate reporting.
Targets
Our target of net zero emissions by 2050 for
our investments is aligned with the emissions
reduction needed to achieve a 1.5°C warming
limit. We keep our climate objectives and
actions updated against the growing impacts of
climate change as well as growing opportunities
to limit that change. This includes work setting
interim emissions reduction targets under the
latest criteria from the Science Based Targets
Initiative. We are committed to setting targets
which are evidence based and linked to specific
and ambitious concrete action to drive a faster
net zero transition.
Measurement, transparency, accountability
We measure and report annually on our climate
performance following the recommendations
of the Task Force on Climate-Related Financial
Disclosures (TCFD). Our reporting includes the
emissions intensity of our share investments
(carbon footprinting) and the level of our share
investment in renewable energy. This helps us
test the effectiveness of our management of
climate transition risk and our progress towards
our net zero emissions target. We also report
on our operational emissions and the 100%
offsetting of those emissions.
28
Australian Ethical Investment Limited and its Controlled Entities DIRECTOR’S REPORTFor the year ended 30 June 2021ANNUAL REPORT 2021 Strategic update
In last year’s annual report, we laid out our
medium-term strategy to support our purpose
of investing for a better world. Our ambition was
to remain as Australia’s leading responsible
investor as we move towards a low-carbon
world and we identified the four strategic pillars
to help us get there. These were:
1. Principled investment leadership
2. Advocates for a better world
3. Compelling client experience
4. Impactful business
Success, we said, would depend on how
we turn our ideas and ambition into tangible
solutions that generate financial returns and a
sustainable future.
Twelve months later and we’re seeing the
benefits of the strategic investments we have
made to strengthen our operating platform,
diversify our acquisition channels and improve
our customer experience.
Our strategic priorities and our progress are set
out here:
Good momentum on delivering on our Strategy in FY21
01
02
03
04
+
Principled
investment
leadership
Market leading
returns11
Recognised as
a global leader
in ESG14
New roles: Head
of Strategic Asset
Allocation, Head of
Domestic Equities
Advocates
for a better
world
Media voice for
Climate Change
Bill & improved
biodiversity
protection
Corporate advocacy
on key topics incl
modern slavery,
traditional owner, and
emissions reduction
Since inception
>$6m allocated to
not-for-profits via
The Foundation
Compelling
client
experience
Top Net Promoter
Scores12
Insourced customer
centre allowing more
control over client
experience
High retention rates
– AE has third lowest
super outflows in
the industry15
Impactful
business
Refreshed Brand
strategy and Brand
identify
HNW segment:
Number of inflows
above $1m has
grown over 400%
New distribution
capability & adviser
channel now >$1bn
Leadership
& innovation
Top quartile
employee
engagement13
Leadership &
Innovation training
Developed
worldviews for
innovation with global
innovation partner
Rather than negatively impacting our strategy, the ongoing pandemic has accelerated our plans.
We believe we are emerging stronger and the extraordinary momentum we’re seeing gives us
confidence in the strategy, confirming that now is the time to extend our market leadership.
11 See Year in review
12 Investment Trends research, June 2021: Number 1 for customer advocacy, Number 2 for industry NPS (super only)
13 Culture Amp Survey, June 2021
14 See Year in review
15 KPMG 2021 Super Insights Report – published May 2021, using statistics published by APRA and ATO as at 30 June 2020.
29
Strategic outlook
One of the many highlights of the past 12
months for Australian Ethical has been reaching
$5 billion in funds under management. This
was an aspirational and audacious goal
we set ourselves in 2015 when funds under
management were just over $1 billion. At the
time, it meant growing our business five times
bigger over five years.
Naturally, there were people who thought the
goal was beyond us and that ethical investing
would never become mainstream. And yet quite
the opposite has proved to be true with interest
in ethical investing continuing to grow and a
seismic surge over the past 18 months. This
surge, which combines the near-term impact
of the COVID-19 pandemic and a multi-decade
shift in capital markets, has been a watershed
moment for the investment industry. As a result,
today’s investors are increasingly seeking
access to strategies across asset classes that
are designed to deliver positive impacts for
people and the planet, as well as performance.
Our long history of doing business with purpose
has shown what a sustainable business can and
should look like. We’ve proved that brands with
purpose grow, that companies with purpose last
and that people with purpose thrive.
And so, with the $5 billion FUM milestone
behind us – and a further $1 billion since to push
through the $6 billion FUM mark - our minds
turn to how we can extend our gamechanger
status to grow the positive impact of what we
do. What follows is an overview of the significant
opportunity we see ahead of us, the existing
strengths of our business and the strategic
priorities we will invest in to realise our ambition.
The opportunity
While the pandemic has disrupted our lives
in numerous and profound ways; it has also
underscored the importance of tackling looming
threats – such as the climate catastrophe –
before it is too late. It has transformed how
people think about our economies and societies
with growing support for policies that support
the transition to a greener, more inclusive and
more resilient tomorrow. And with climate
change driving activism at all levels, capital
markets are getting behind finding viable
solutions and the economics of climate change
are shifting for the better.
The pandemic has also changed what people
are looking for from companies: it’s no longer
enough to support change, companies need
to be actively making that change happen. We
think the future of business will be shaped by
consumers’ expectations for companies to
address their role in solving the climate crisis
and other major global issues. Success will
come to those that are willing to step up and
prove they’re about more than just profit at all
costs.
Meanwhile here in Australia, the size of the
responsible investment market continues to
grow in tandem with Australians’ expectations
of how their money is invested. Ethical and
responsible investing may have gone into the
pandemic with a full head of steam, but its
dramatic growth since then has vanquished any
lingering scepticism. As such, we’ve seen our
potential addressable market grow significantly
over the last 24 months. Where once only the
deeply ethically conscious were interested in
our way of investing, estimates from multiple
sources now put that potential market at
anywhere from 70% to 80% of the Australian
population.
This seismic shift presents a unique opportunity
for Australian Ethical. As Australia’s largest
pureplay ethical investment manager and
globally recognised for our approach, we
have a considerable head start over our more
recently converted competitors. Meanwhile
as a purpose-driven organisation, we have an
unmatched authenticity in wanting to invest for
a better world. These factors alone, combined
with our products, people, strong balance sheet
and positive momentum, already position us for
success.
But to capture the full growth opportunity we
see ahead of us and retain our leadership
position in an increasingly competitive
marketplace, we need to continue to deliver on
our strategic roadmap, fast track our investment
in key capabilities and build a forward-looking
business platform.
30
Australian Ethical Investment Limited and its Controlled Entities DIRECTOR’S REPORTFor the year ended 30 June 2021ANNUAL REPORT 2021 A high growth strategy
Outlook
To futureproof our leadership position and
amplify our positive impact, the business
will pursue an aggressive growth strategy
that shores up our existing market share and
expands it where we see the most potential.
Our goal is to build a much bigger, more
impactful business and we will be reinvesting
heavily in our existing business to achieve this
ambition.
Over the short-term, our strategic focus will
be on deepening our investment capability,
expanding our product offering, growing our
brand awareness, fully digitising and upgrading
the customer experience and significantly
expanding our newer customer segments.
Over the long-term, we anticipate that our
short-term focus will cement our leadership
long into the future while allowing us to
leverage the scale in our business to grow
profit.
And while there are many factors in the
external environment that are outside of our
control, we see a significant opportunity to
multiply the size of our business as we have
done before. With our planned investment
and market positioning, if we execute well,
we believe it’s possible to continue on our
current growth trajectory and grow our
business 3 to 5 times over the next 4 to 5 years,
generating greater impact, greater returns for
our shareholders and greater benefits for our
community.
We are aware that the speed at which we
execute this strategy is vital and dictated by
the once in a business lifetime expansion
of the addressable market and imminent
competition.
The planets are aligning very quickly for
Australian Ethical with societal, political and
economic tailwinds pointing to a business case
for responsible investing that is impossible to
ignore. And while we are well-positioned –
with no debt, strong cashflows and positive
momentum – we need to be much more
ambitious to safeguard and grow our market
share in what will be a fiercely contested market
in the near term.
As such, our expense growth in the short-
term will reflect the investment we will make
into our business to realise our ambitious
growth aspirations. We expect profit growth
to remain modest during this time, though we
expect to see a strong increase in funds under
management and revenue.
Looking out to the medium and long-term,
we expect to see higher levels of profitability
and operating leverage from achieving greater
scale as we realise the anticipated benefits of
investing in our business.
Like all fund managers, we remain highly
leveraged to financial markets at a time when
COVID is still a concern and compounded by a
slow vaccine rollout in Australia, and we expect
market volatility to continue. Any performance
fee generated by the Emerging Companies
Fund is not guaranteed year on year.
But what we have is a 35-year head start on the
other investors who are rushing to capitalise on
this moment. We are committed to leveraging
our leading position and continuing to drive
impact through our award-winning ethical
investment process, our deep ethical research
and our purpose-driven approach.
31
Financial performance – management analysis
Net Profit after tax (NPAT) including performance fee
Add: Net loss attributable to The Foundation*
Net profit after tax attributable to shareholders
Adjustments:
Government grant income
Payment of government grant to The Foundation
Net proceeds from insurance settlement
Tax on adjustments
Gain on disposal of investment property held for sale
Underlying profit after tax (UPAT) including performance fee
Performance fee (after tax and community grant)
Net Profit after tax (NPAT) excluding performance fee
Underlying profit after tax (UPAT) excluding performance fee
Basic EPS on NPAT (cents per share)
Basic EPS on NPAT attributable to shareholders (cents per share)
Diluted EPS on NPAT attributable to shareholders (cents per share)
Basic EPS on UPAT attributable to shareholders (cents per share)
Diluted EPS on UPAT attributable to shareholders (cents per share)
2021
$’000
11,118
143
11,261
(100)
100
(299)
90
–
11,052
(1,885)
9,233
9,167
10.06
10.19
10.02
10.00
9.84
2020
$’000
9,457
–
9,457
%
Increase
18%
19%
–
–
–
–
(178)
9,279
(2,250)
7,207
7,029
8.62
8.62
8.42
8.46
8.26
19%
28%
30%
* refer to Note 43 for additional details in relation to The Foundation’s financial results.
Dividends
Dividends paid during the financial year were as follows:
Final dividend for the year ended 30 June 2020 of 2.50 cents
(2019: 3.00 cents) per ordinary share – fully franked
Special performance dividend for the year ended 30 June 2020
of 1.00 cents (2019: nil) per ordinary share
Interim dividend for the year ended 30 June 2021 of 3.00 cents
(2020: 2.50 cents) per ordinary share – fully franked
2021
$’000
2020
$’000
2,810
3,362
1,124
3,371
7,305
–
2,810
6,172
Since year end the Directors have declared a final dividend of 4.00 cents per fully paid ordinary
share (2020: 2.50 cents) and special performance fee dividend of 1.00 cents per fully paid ordinary
share (2020: 1.00 cents). The aggregate amount of the declared dividend expected to be paid on
16 September 2021 out of profits for the year ended 30 June 2021, but not recognised as a liability at
year end, is $5,619,000 (2020: $3,934,000). All dividends paid during the year were fully franked based
on tax paid at 27.5%. The final dividend to be paid in September 2021 will be fully franked at 30.0%.
32
Australian Ethical Investment Limited and its Controlled Entities DIRECTOR’S REPORTFor the year ended 30 June 2021ANNUAL REPORT 2021
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
Details
Balance
Date
Shares
1 July 2020
112,387,138
Weighted
Average
issue price
$’000
11,191
Vesting of deferred shares in the
Employee Share Trust (1,096,407 shares)
August – September
2020
Purchase of deferred shares in the
Employee share plan – on-market
Vesting of deferred shares in the
Employee Share Trust (51,785 shares)
6 October 2020
February – March
2021
–
–
–
$0.96
1,025
$4.53
(1,635)
$1.41
95
Balance
30 June 2021
112,387,138
10,676
No amounts are unpaid on any of the shares. Refer to Note 42 for additional information and a
detailed breakdown of the shares vested during the year.
Significant changes in the state
of affairs
Likely developments and
expected results of operations
There were no significant changes in the state of
affairs of the Group during the financial year.
Matters subsequent to the end
of the financial year
Apart from the dividend declared as disclosed
in Note 32, no other matter or circumstance has
arisen since 30 June 2021 that has significantly
affected, or may significantly affect the Group’s
operations, the results of those operations, or
the Group’s state of affairs in future financial
years. Management have considered the impact
of the ongoing COVID-19 pandemic in Australia
and assessed there are no changes required to
the financial statements subsequent to the end
of the financial year.
Additional information about the Group’s
business is available to shareholders on our
website.
Environmental regulation
The Company does not hold any direct
investment in commercial property. To
the best of the directors’ knowledge, the
relevant environmental regulations under
Commonwealth and State legislation have
been complied with.
33
Meetings of Directors
The number of meetings of the Company’s Board of Directors (‘the Board’) held during the year
ended 30 June 2021, 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
Michael Monaghan
Julie Orr
John McMurdo
10
10
10
10
10
10
10
10
10
10
10
10
7
7
7
7
7
–
7
7
7
7
7
–
6
6
6
6
6
–
6
6
6
5
6
–
Product Disclosure
Statement Committee
Investment Committee
Eligible
Attended
Eligible
Attended
Steve Gibbs
Kate Greenhill
Mara Bun
Michael Monaghan
Julie Orr
John McMurdo
2
–
–
2
–
–
2
–
–
2
–
–
4
4
4
4
4
–
4
4
4
4
4
–
Indemnity and insurance
of officers
Indemnity and insurance
of auditor
The Company has indemnified the Directors and
executives of the Company for costs incurred, in
their capacity as a Director or executive, for which
they may be held personally liable, except where
there is a lack of good faith.
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.
During the financial year, the Company paid a
premium in respect of a contract to insure the
Directors and executives 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.
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.
34
Australian Ethical Investment Limited and its Controlled Entities DIRECTOR’S REPORTFor the year ended 30 June 2021ANNUAL REPORT 2021 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.
Non-audit services
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 36
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.
The Directors are of the opinion that the services
as disclosed in Note 36 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
There are no officers of the Company who are
former partners of KPMG.
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.
Auditor’s independence
declaration
A copy of the auditor’s independence declaration
as required under section 307C of the Corporations
Act 2001 is set out immediately after this Directors’
report.
Auditor
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.
On behalf of the Directors
JOHN MCMURDO
Managing Director and Chief Executive Officer
25 August 2021
Sydney
35
Remuneration
Report 2021
For the year ended 30 June 2021
Dear Shareholder,
On behalf of the Board, I am pleased to present our Remuneration Report for 2021.
The 2021 financial year has been challenging due to the ongoing impact of COVID-19.
Notwithstanding those challenges it would be fair to say that 2021 was an outstanding year for
Australian Ethical as we continue to implement our long-term growth strategies.
It is particularly encouraging to see so many Australians trusting Australian Ethical to lead the way
with climate change action and ethical investing.
This year we are delighted to have again achieved record new member and investor numbers, record
net inflows, record profit for the year, strong relative investment performance across most of our
managed funds and superannuation investment options, created a new role of Chief Strategy and
Innovation Officer and welcomed our new Chief Customer Officer.
Our strong staff engagement has been maintained throughout the year, a testament to the shared
purpose that underpins the strength of our business, and the commitment of our people.
Our remuneration policy aligns to the philosophy of the Company that sees our people as
key stakeholders in the Company’s success. Our remuneration framework aims to reward our
management and employees fairly, competitively and provide a direct link between contribution and
reward and alignment with the long-term performance of the Company.
As it has been three years since we formally benchmarked our executive remuneration practices,
the Board engaged external remuneration advice to ensure our framework and practices remain
contemporary, fair and align with our transformational growth agenda through to 2025 and beyond.
Changes we expect to introduce during the next year are summarised in section 3.
We are committed to ensuring our remuneration arrangements remain fair to all stakeholders and are
effective in attracting and retaining talented people who are motivated and professional.
STEVE GIBBS
Chair
People, Remuneration & Nominations Committee
36
Australian Ethical Investment Limited and its Controlled Entities REMUNERATION REPORTFor the year ended 30 June 2021ANNUAL REPORT 2021 1. About this Report
This report deals with the remuneration arrangements that were in place for all employees of
Australian Ethical Investment Limited (the ‘Company’), and its wholly owned subsidiaries (together
referred to as the ‘Group’) during the financial year ended 30 June 2021. It describes the philosophies
behind the remuneration arrangements and other employee benefits.
This remuneration report specifically focuses on the remuneration of Non-Executive Directors, the
Managing Director/Chief Executive Officer (CEO) and members of the Senior Leadership Team (SLT),
collectively referred to as Key Management Personnel (‘KMP’) and has been subject to independent
audit as required by section 308(3C) of the Corporations Act 2001.
2. Our Remuneration Philosophy and Structure
The Company’s remuneration philosophy 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.
Remuneration principles
The principles underpinning our remuneration framework are:
Fairness
• attract and retain talented people
• reward people fairly for their work recognising the expertise and value they bring to the Group
Alignment
• build long term ownership in the Group
• align reward with contribution to the Group’s performance
• align shareholder interests and employees
• promote the values of the Ethical Charter included within the Constitution and be
aligned with the purpose of the Group
• foster collaboration, trust and diversity of thoughts and ideas
• incorporate risk management performance measures in all employee scorecards
• be motivating for employees
Simplicity
• be simple to administer and to communicate to all stakeholders
The remuneration philosophy is consistent with the principles of the Australian Ethical Constitution
and Charter. It is designed to:
• ensure that the Group facilitates “the development of workers’ participation in the ownership and
control of their work organisations and places” – Charter element (a)
• not “exploit people through the payment of low wages or the provision of poor working conditions”
– Charter element (ix)
• not “discriminate by way of race, religion or sex in employment, marketing, or advertising practices”
– Charter element (x)
The remuneration framework is also designed to encompass the Group’s values of wisdom,
authenticity, action, and empathy which are embedded in our culture. Adherence to these values is a
gate to incentives.
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% of what the
profit for that year would have been had not the bonus or incentive payment been deducted.
37
Income Inequality and Ethical Considerations
AEI’s hiring practices and process of setting remuneration for all employees centres around
high performance and the Group’s values and culture. We rely on a variety of sources to identify
professional values-aligned candidates, including LinkedIn, agencies, job advertising networks and
our existing employees’ networks. Intertwined within our hiring practices are our Group’s values
around remunerating people fairly for the work that they do and our Charter which stipulates that we
do not discriminate by way of race, religion or gender in employment nor exploit people through the
payment of low wages or poor working conditions.
To ensure we reflect the community around us and therefore benefit from a full range of thinking
styles and approaches to work, we strive to achieve diversity with our employees across a number of
dimensions including gender, age and ethnicity. We are one of the few Boards on the ASX with 50:50
gender equality and we have 44% female representation on the SLT (target minimum 40% of each
gender). Our overall workforce gender balance sits at 57% females (target 50%).
Elements of Remuneration (financial year ended 30 June 2021)
The following framework applied to all employees of Australian Ethical Investment Limited (not
including Non-Executive Directors) for the financial year ended 30 June 2021. Employees of
Australian Ethical Superannuation Pty Limited are entitled to receive all the below elements of
remuneration with the exception of long-term incentives linked to the performance of the Company.
Element
Description
Quantum
Fixed
Remuneration
(FR)
Short Term
Incentive (STI)
Comprises
base salary,
superannuation,
packaged
employee
benefits and
associated fringe
benefits tax.
An annual
incentive aimed
at rewarding
employees for
achievement
of annual
objectives.
Applies to all
employees who
have satisfied
the risk and
values gate.
Paid as
Cash
• Reviewed annually, or on promotion.
• Benchmarked against market data1 for comparable
roles based on position, skills and experience
brought to the role.
• Target remuneration is based around the median
of the relevant comparator group for each job role,
taking into consideration companies in a similar
industry and of a similar size.
• Maximum achievable is a percentage of Fixed
Remuneration up to 100% depending on the role,
determined by Board discretion.
Cash and
deferred
shares
• Actual outcome is linked to performance and
contribution against annual financial and non-
financial KPIs.
• On an annual basis PRN will consider an additional
discretionary bonus paid in deferred shares for
specified members of the Investment team,
connected to performance fees achieved.
• Short term incentives are treated as follows in the
following circumstances:
– resignation – usually forfeited, subject to Board
discretion;
– termination for serious misconduct – forfeited;
– retirement – at discretion of the Board;
– death or total and permanent disablement –
at discretion of the Board; and
– redundancy – at discretion of the Board.
1 Benchmarked to data provided by the Financial Institutions Remuneration Group Inc (FIRG). FIRG is a peer group
provider of remuneration and benefits data in the financial services industry.
38
Australian Ethical Investment Limited and its Controlled Entities REMUNERATION REPORTFor the year ended 30 June 2021ANNUAL REPORT 2021 Element
Description
Quantum
Paid as
Long Term
Incentive (LTI)
Aimed at
fostering 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.
Applies to all
employees who
have satisfied
the risk and
values gate.
Other
employee
benefits
The Group also
provides other
benefits to all
employees.
• Awarded as percentage of Fixed Remuneration
Shares
• Shares are issued or purchased and held in trust
for 3 years.
• Vest in the name of the employee after 3 years,
provided that:
– employee remains employed; and
– subject to 3-year compound annual growth in
diluted earnings per Share (EPS) as follows:
• 0 – 5% – nil vests
• 5% – 10% – pro rata up to 100%
• > 10% – fully vests.
• The Board has discretion to adjust EPS for items
that do not reflect management and employee
performance and day to day business operations
and activities.
• Employees participate in dividends and have
voting rights from the date of grant.
• On cessation of employment, no unvested
shares shall vest unless the Board in its absolute
discretion determines otherwise.
Benefits include:
–
• an employee assistance program;
• volunteer leave (2 days per annum);
• self-education/study assistance;
• professional association memberships, annual
health checks and annual flu vaccinations;
• flexible working arrangements;
• subsidies of training and education costs; and
• parental support including 18 weeks paid leave
for primary carers and two weeks for secondary
carers and superannuation contributions paid
whilst on leave for up to 24 months. To support
parents returning to work after taking parental
leave, we provide primary carers with one day of
paid leave each week for the first 3 months.
• Salary continuance insurance for five years
Our remuneration structure comprises both short and long-term incentives to ensure support for
a strong risk culture that values member outcomes and shareholder alignment. Our short-term
incentives relating to investment performance measures incorporate 1 and 3 year performance
against benchmarks and relative to peers. This is to ensure that incentives are aligned to longer term
customer and member outcomes.
39
Performance measures for Short Term Incentives
Performance measures for Short Term Incentives are based on a Balanced Scorecard of financial and
non-financial metrics, and an individual’s specific performance objectives. Weightings vary with each
individual and are based on their role. Employees have no contractual right to receive an STI award and the
Board retains discretion to amend or withdraw the STI at any time. Adherence to the Company’s values and
risk culture are required to remain eligible for an STI award. The following table provides the overall Balanced
Scorecard and the performance outcomes for these objectives for the financial year ended 30 June 2021.
Measure
Metric
Profit
Net profit after tax attributable to
shareholders (NPAT)
Cost to income ratio
Business
growth
Net inflows targets set based on
prior year experience, budget
expectations and stretch target
Compelling
client
experience
Net Promoter Score (NPS) metric
for super and managed fund
clients.
Brand identity review and refresh
Investment
performance
Balanced Fund (BF), Australian
Shares Fund (ASF) & Emerging
Companies Fund (ECF)
performance against market
benchmarks. Stretch target for
BF is benchmark + 2%, ASF is
benchmark + 3%, for ECF is
benchmark +4%, over blended
1 and 3 year horizons.
BF, ASF & ECF performance
relative to peers. Measured in
quartiles with stretch target being
1st quartile, over blended 1 and 3
year horizons.
Super Fund Balanced option
(MySuper) relative to peers
performance and Sharpe ratio.
Measured in quintiles with stretch
target being 1st quintile, over
blended 1 and 3 year horizons.
Why this metric
is appropriate
Incentive Award
Achievement for FY21
Provides alignment to
the Group’s financial
performance
Growth and scale will
benefit our customers
through lower fees and
better products and
service. It also allows us to
deliver greater social and
environmental impact.
Customer satisfaction with
product and service is
measured using customer
surveys conducted
by survey tools and
independent industry
consultants.
Delivering long term
competitive investment
returns for our customers
is core to our offering.
NPAT before performance
fees of $9.4m and NPAT after
performance fee of $11.3m.
Record NPAT up 19% on prior
year.
Cost to income before
performance fee of 77%.
Record net inflows of $1.03bn,
an increase of 56% on prior
year.
Achieved top quartile NPS
(+49) and launched new
brand identity, website and
consumer brand movement.
BF, ASF & ECF performance
– exceeded stretch targets.
ASF & ECF vs peers – top
quartile achieved.
BF vs peers – top quartile for
3 years and below median for
1 year.
Super Fund Balanced option
(My Super) performance vs
peers – top quintile for 3 years
and 3rd quintile for 1 year.
Super Fund Balanced option
(My Super) Sharpe ratio vs
peers – top quintile for 3 years
and bottom quintile for 1 year.
40
Australian Ethical Investment Limited and its Controlled Entities REMUNERATION REPORTFor the year ended 30 June 2021ANNUAL REPORT 2021 Measure
Metric
Why this metric
is appropriate
Incentive Award
Achievement for FY21
Strategic &
regulatory
initiatives
and Business
Plan Key
Result Areas
Employee
engagement
Risk
Strategy development
Delivery of agreed strategic &
regulatory initiatives program as
a team.
Delivery of Key Result Areas per
the annual Business Plan
Employee annual engagement
score (as surveyed by Culture
Amp). Assessed against market
comparisons
SLT leadership and team
development measured by
performance on 3600 feedback,
team engagement scores,
unwanted turnover, team
upskilling
Innovation and high performance
are embedded in Company
culture
Adherence to the Company’s
values is treated as a gate to
short term incentive awards.
Stretch target is top quartile versus
financial services companies.
Metrics focus on fostering
risk management culture
and managing strategic and
operational risk within Board
approved risk appetite for
business activities and strategic
projects. Adherence to the
Company’s risk culture is treated
as a gate to the entire short term
incentive award.
Poor risk action results in
reduction to or forfeiture of STI.
Delivering priorities
consistent with the long-
term strategies of the
Group
Providing a motivating
and inspiring workplace
and high employee
engagement has been
proven to drive better
business outcomes
for customers and
shareholders.
Delivered all regulatory
projects. Delivered a high
number of Business Plan Key
Result Areas and strategic
programs including a number
of initiatives not planned but
highly valuable.
Staff engagement score
of 82% in top quartile of
Australian Finance and New
Tech companies. Maximum
target achieved.
More than 50% of staff put
through leadership and team
member coaching course.
3600 feedback implemented.
Established a culture of
innovation.
It is critical for our SLT
to have a high degree
of ownership for risk
management.
Impact assessed collectively
and individually based on risk
management framework of
the Company, assessed by
PRN and reviewed by Board.
High % of target achieved.
In assessing the performance of the business and the CEO, the Board acknowledges an excellent
set of Group results, outperformance of stretch objectives in a number of key areas and significant
progress on our strategic agenda.
The PRN considered the SLT’s STI awards in light of the Balanced Scorecard achievements, and
each individual’s contribution to the results and recommended to the Board each SLT STI award, as
reflected in the statutory table. Awards reflect recognition of the continued strong performance of
individuals, the team and the achievement of record business results.
41
3. Developments in Remuneration Practices
Over the past few years, the Royal Commission into Misconduct in the Banking, Superannuation and
Financial Services Industry, APRA, shareholders and media have put the spotlight on remuneration
practices at financial service institutions. The main focus has been on the variable incentive
assessment criteria driving the wrong behaviour and poor customer outcomes. We recognise the
important role that remuneration can play in managing risk and emphasising a positive risk culture.
In line with this, our balanced scorecard and individual objectives combine both financial
objectives and non-financial customer outcomes, balancing risk management, and ensuring
adherence to our desired cultural values. All employees, including KMPs have objectives
underpinned by the company’s core values and incentivise ethical behaviour and positive
customer outcomes. There are clear criteria determining how performance objectives are met and
consequences where they are not met.
Each year, the Board reviews the remuneration framework and has had oversight of remuneration
arrangements for all employees, setting key performance objectives to influence the work ethic/
behaviour of employees and the remuneration outcomes.
In FY21, the Board initiated a detailed review of our remuneration structure, including industry
benchmarks and incentives, in light of the company’s current market position and aspirational
strategic growth targets to 2025. This review has been conducted in the context of proposed
changes to the regulatory environment on remuneration and ensuring we continue to meet our
highest ethical standards. This review was supported by external remuneration consultancy AON
Hewitt.
The review concluded that long-term award incentive opportunities for senior executive roles are
below market comparative opportunities and that there had been an identifiable shift towards the
deferment of short-term incentive awards where those awards exceeded a threshold.
A summary of key expected changes to the remuneration structure to take effect from 1 July 2021
are noted below.
• All permanent staff presently participate in a Long-term Incentive (LTI) program ranging between
10%-33% of fixed annual remuneration, depending on role type and seniority. This will be
replaced by an Employee Share Plan (ESP) fixed at 10% of annual remuneration for the majority of
employees and will remain subject to the current 3-year vesting timeframe and hurdle criteria. The
ESP will be settled in shares.
• A new Executive Long-term Incentive (ELTI) program designed to more closely align to the
business strategy with specifically designed KPIs to achieve the growth and business objectives.
Specifically, where LTI for executives currently range from 10-33% of fixed remuneration annually
depending on role, they will in future range from 10-60%, being 10% in the ESP and up to 50% p.a.
in the ELTI.
• The ELTI will have a 4-year vesting timeframe.
• Vesting criteria will include achievement of stretch FUM and Cost to Income ratio targets,
non-financial measures including customer satisfaction, employee engagement and risk
management, and an ongoing commitment to our ethical expression, ESG leadership and
excellence.
• The ELTI will be implemented via issuance of performance rights to qualifying executives.
• No award will vest if targets are not attained. If the targets, which are consistent with the growth
ambitions as described in the Directors report, are met or exceeded the Board may increase the
ELTI to be awarded having regard to the overall performance of the company.
42
Australian Ethical Investment Limited and its Controlled Entities REMUNERATION REPORTFor the year ended 30 June 2021ANNUAL REPORT 2021 • No material structural change is proposed in the striking of fixed remuneration or annual Short-term
Incentives (STI). Normal annual review of fixed remuneration to apply with reference to market
comparisons.
• Introducing the addition of a deferred component paid in shares to any STI paid to Key Management
Personnel (KMP’s) above $100,000 in any given year. A deferred component is already in place for
the CEO and some of the Investment team.
In considering implementing a higher LTI opportunity, the Board has been cognisant of the
remuneration philosophy remaining consistent with the Constitution and the Ethical Charter as set out
in section 2 and ensuring that the structure of the new LTI closely aligns the interests of Executives with
those of shareholders.
The weighting of new potential remuneration towards long-term and deferred incentives is consistent
with the best practice governance principles signaled in the foreshadowed FAR and CPS 511 regulation.
4. Senior Leadership Team Remuneration Outcomes
Corporate performance
In considering the Company’s short and long-term incentive payments, regard is had to the following
measures:
2017
2018
2019
2020
2021
Net Profit After Tax attributable to shareholders ($’000)
2,920
4,998
6,465
9,457
11,261
Underlying Profit After Tax (UPAT) ($’000)1
4,235
4,998
6,540
9,279
11,052
UPAT excluding performance fees
4,139
4,998
6,024
7,028
9,167
Diluted Earnings Per Share (cents per share)
2.62
4.46
5.84
8.42
10.02
Diluted Earnings Per Share (EPS) growth (3 years)
2.8% 35.2% 28.5% 47.3% 31.0%
Diluted EPS growth excluding performance fees (3 years)
1.6% 35.2%
25.3%
36.4%
23.2%
Share price at end of period ($, restated for share split)
0.94
1.35
1.77
6.66
8.44
Dividends (cents per share, restated for share split)
2.60
4.00
5.00
5.00
Special performance fee dividend (cents per share)2
–
–
–
1.00
7.00
1.00
Staff engagement scores
55%
78%
71%
86%
82%
1 Underlying Profit After Tax is a non-IFRS measure and is not audited
2 The Special performance fee dividend is linked to the performance fee achieved on the Emerging Companies
Fund outperformance in FY20 and FY21
43
Weighting of remuneration components
The following are the weightings of the various components of maximum remuneration for the CEO
and target remuneration for the CIO and other SLT members.
Target Remuneration by Component
CEO
CIO
43%
43%
43%
43%
14%
14%
Other KMPs
74%
19%
7%
0%
20%
40%
50%
80%
100%
Fixed Remuneration
STI
LTI
The below is the actual incentive pay received by the SLT, in aggregate, in relation to the maximum
incentive pay they were entitled to. The percentages equate to the ratio of STI and LTI components
against fixed salary
Potential vs Actual Incentive Pay by Component
2021 Actual
2021 Potential
2020 Actual
2020 Potential
45.5%
46.0%
39.8%
45.2%
STI
LTI
12.2%
12.2%
10.8%
10.8%
44
Australian Ethical Investment Limited and its Controlled Entities REMUNERATION REPORTFor the year ended 30 June 2021ANNUAL REPORT 2021 The following two tables set out Senior Leadership Team remuneration.
• The table ‘Senior Leadership Team Remuneration Outcomes – Statutory Basis’ 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 Leadership Team Remuneration Outcomes – Cash and Vesting Basis’ shows
amounts received by the senior leadership team in cash and shares vested during the financial year
ended 30 June 2021.
The movement in the Senior Leadership Team remuneration outcomes (statutory basis) between
FY2020 and FY2021 is explained in the following table:
Role
Explanation of movement
Chief Executive
Officer (CEO)
The full year cost of the CEO has been recognised in the current year, whilst the prior
year includes only 5 months of costs due to appointment part way through the prior
year. The Interim CEO in prior year did not receive any incentives.
Chief Strategy
& Innovation
Officer (CSIO)
The new CSIO commenced on 13 July 2020. Amounts disclosed for the CSIO reflect
the period of time in this role.
Chief Customer
Officer (CCO)
The new CCO commenced on 20 July 2020. Amounts disclosed for the CCO reflect
the period of time in this role.
Head of People
& Culture (HP&C)
The People & Culture department reports to the CSIO. Amounts disclosed in the prior
year for the HP&C include termination benefits following restructuring of the People
& Culture department.
Other
Increase in some individual salaries in line with industry benchmarking to ensure
reward remains competitive and fair.
45
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47
Unvested and Ordinary Shares
The movement during the reporting period in the number of unvested shares and ordinary shares in the Company, held
directly, or beneficially, by each key management person, including their related parties is outlined in the table below.
Name
Grant
Date
Vesting
Date
Share Price
at Grant
Date
Balance
at 1 July
2020
No. of
shares
granted
No. of
shares
forfeited/
expired
No. of
shares
vested
No. of
shares
sold
Balance
at
30 June
2021
1-Sep-20
1-Sep-21
1-Sep-20 1-Sep-22
1-Sep-20 1-Sep-23
1-Sep-20 1-Sep-23
1-Sep-19 1-Sep-22
1-Sep-20 1-Sep-23
1-Sep-20
1-Sep-17
1-Sep-21
1-Sep-18
1-Sep-19 1-Sep-22
1-Sep-20 1-Sep-23
Managing Director & CEO
J McMurdo
Unvested
Unvested
Unvested
Ordinary shares
Total
Current management
M Enander
Unvested
Ordinary shares
Total
K Heng
Unvested
Unvested
Ordinary shares
Total
K Hughes
Unvested
Unvested
Unvested
Unvested
Ordinary shares
Total
M Loyez
Unvested
Ordinary shares
Total
D Macri
Unvested
Unvested
Unvested
Unvested
Ordinary shares
Total
T May
Unvested
Unvested
Unvested
Unvested
Ordinary shares
Total
S Palmer
Unvested
Unvested
Unvested
Unvested
Ordinary shares
Total
M Simons
Unvested
Unvested
Unvested
Unvested
Ordinary shares
Total
1-Sep-20 1-Sep-23
1-Sep-20
1-Sep-17
1-Sep-18
1-Sep-21
1-Sep-19 1-Sep-22
1-Sep-20 1-Sep-23
1-Sep-20
1-Sep-17
1-Sep-18
1-Sep-21
1-Sep-19 1-Sep-22
1-Sep-20 1-Sep-23
1-Sep-17
1-Sep-20
1-Sep-21
1-Sep-18
1-Sep-19 1-Sep-22
1-Sep-20 1-Sep-23
1-Sep-20
1-Sep-17
1-Sep-18
1-Sep-21
1-Sep-19 1-Sep-22
1-Sep-20 1-Sep-23
4.5316
4.5316
4.5316
4.5316
2.1500
4.5316
0.8873
1.3175
2.1500
4.5316
4.5316
0.8873
1.3175
2.1500
4.5316
0.8873
1.3175
2.1500
4.5316
0.8873
1.3175
2.1500
4.5316
0.8873
1.3175
2.1500
4.5316
5,193
–
–
5,193
– 48,602
–
–
– 58,988
–
–
–
21,653
–
–
21,653
34,100
20,900
13,256
–
–
68,256
–
–
–
6,620
–
6,620
–
7,048
–
7,048
–
–
6,289
–
–
6,289
6,779
–
6,779
131,500
90,200
56,898
–
75,286
–
–
26,995
–
–
353,884 26,995
26,200
19,700
12,791
–
–
58,691
31,600
22,800
14,419
–
19,600
88,419
41,000
25,000
15,814
–
–
81,814
–
–
6,068
–
–
6,068
–
–
6,841
–
–
6,841
–
–
–
7,503
–
7,503
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
5,193
–
5,193
–
48,602
–
–
– 58,988
–
–
–
–
–
–
–
6,620
–
6,620
21,653
7,048
–
28,701
(34,100)
–
–
–
34,100
–
–
–
–
(34,100)
–
–
20,900
13,256
6,289
–
(34,100) 40,445
–
–
–
–
–
–
6,779
–
6,779
–
–
(131,500)
– 90,200
–
56,898
–
–
26,995
–
131,500
–
176,921
(29,865)
– (29,865) 351,014
(26,200)
–
–
–
26,200
–
–
–
–
–
(8)
(8)
–
19,700
12,791
6,068
26,192
64,751
(31,600)
–
–
–
31,600
–
–
–
–
(51,200)
–
22,800
14,419
6,841
–
– (51,200) 44,060
(41,000)
–
–
–
41,000
–
–
–
–
–
–
–
–
25,000
15,814
7,503
41,000
89,317
48
Australian Ethical Investment Limited and its Controlled Entities REMUNERATION REPORTFor the year ended 30 June 2021ANNUAL REPORT 2021
Contract terms
All KMP’s have formal contracts of employment and are permanent employees with a 12-week notice
period.
The Managing Director & CEO remuneration structure for FY22 is outlined below:
Salary
Term Notice period
STI
LTI
Fixed salary from
1 September
2021 is $500,000
inclusive of
superannuation
No
fixed
term
6 months,
however, could
be terminated
without
notice due to
negligence in
carrying out
responsibilities,
dishonesty,
breaching
Company
policies or
criminal activity.
Target STI of 75% of
fixed remuneration
with a maximum STI
of 2 times the target,
based on a balanced
scorecard of KPIs,
specific objectives
and Board discretion.
Of the amount
payable each year,
50% shall be paid in
cash and 50% shall be
deferred in the form
of Company shares
vesting as follows –
one third one year
after grant date, one
third two years after
grant date and one
third three years after
grant date.
Employee share
plan – reducing
from 33% to 10% of
fixed remuneration
effective 1 July
2021. The shares
are subject to the
rules and terms
of the Employee
Share Plan.
Executive LTI –
performance rights
at 50% of fixed
remuneration and
eligible to increase
subject to achieving
stretch hurdles
to match the
Company’s growth
targets (outlined in
section 3).
Malus Provision
The Board has
the discretion to
reduce or cancel
any STI or LTI for:
• Fraudulent
or dishonest
conduct;
• Material
misstatements
or omission in
the financial
statements; or
• Circumstances
occur that
the Board
determines to
have resulted
in unfair or
inappropriate
benefit
49
5. Non-Executive Director Arrangements
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 and the Chairman of Australian
Ethical Superannuation Ltd (AES) does not receive any additional fees for chairing this Board.
The director fee pool available for payment to NEDs of the Company is approved by shareholders.
The maximum annual aggregate pool for directors’ remuneration is $675,000, which was approved
at the AGM in October 2019. A review of NEDs’ remuneration is undertaken annually by the Company
Board, taking into account recommendations from the PRN.
All NEDs are directors of Australian Ethical Investment Limited (AEI), Australian Ethical Superannuation
Pty Ltd, Australian Ethical Foundation Limited (the Foundation) and members of each Board’s Audit,
Risk and Compliance Committee (‘ARC’) and the PRN, with the exception of Ms Orr who sits on the
Board of AEI, the Foundation, and AEI’s PRN and ARC only. All NEDs also sit on the Board of AEI’s
Investment Committee. AEI’s Product Disclosure Statements (‘PDS’) Committee comprises Mr Gibbs
and Mr Monaghan, and AES’s Insurance Benefits Committee comprises Mr Gibbs and Ms Greenhill.
The following table sets out the agreed remuneration for Non-Executive Directors by position for
a full year, with effect from 1 December 2019 and have remained unchanged since this date. Non-
executive directors do not receive performance-related pay and are not provided with retirement
benefits apart from statutory superannuation.
From 1 December 2019
Base fees
Chair
Other non-executive directors
Additional fees
ARC – chair
ARC – member
Investment Committee (IC) – chair
Investment Committee (IC) – member
PDS Committee – chair
PDS Committee – member
Insurance Benefits Committee (IBC) – chair
Insurance Benefits Committee (IBC) – member
PRN – chair
PRN – member
AEI
$
AES
$
The
Foundation
$
87,241
49,885
29,288
29,288
16,337
9,335
15,000
10,000
2,060
2,060
–
–
–
–
16,337
9,335
–
–
–
–
3,090
3,090
–
–
–
–
–
–
–
–
–
–
–
–
–
–
50
Australian Ethical Investment Limited and its Controlled Entities REMUNERATION REPORTFor the year ended 30 June 2021ANNUAL REPORT 2021 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
Fees and
Leave
$
Cash Bonus
$
Super
$
Termination
Benefits
$
Long
Service
Leave
$
Long Term
Incentives
– Equity
$
Total
$
Name
2021
S Gibbs
K Greenhill
M Bun
139,012
116,449
98,722
M Monaghan
104,934
J Orr2
Total
2020
S Gibbs1
K Greenhill
M Bun
63,215
522,332
67,349
106,261
96,415
M Monaghan
114,209
J Orr2
Total
59,472
443,706
–
–
–
–
–
–
–
–
–
–
–
–
13,044
11,063
9,379
9,969
6,005
49,460
6,287
10,095
9,159
10,850
5,650
42,041
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
152,056
127,512
108,101
114,903
69,220
– 571,792
–
–
–
–
–
73,636
116,356
105,574
125,059
65,122
– 485,747
1 S Gibbs did not receive remuneration as a director during his period of time as Acting Managing Director and
CEO. His remuneration during this period appears in the Senior Leadership Remunerations tables above. Mr Gibbs
resumed as Chair on 10 February 2020.
2 J Orr is a director of AEI Limited and a member of AEI’s PRN, ARC and Investment committee. She is not a director
of AES Pty Limited.
Shares owned by Non-Executive Directors
Name
Non-Executive Directors
M Bun
Purchase
date
Balance at
1 July 2020
No. of shares
purchased
No. of
shares sold
Balance at
30 June 2021
AEF Ordinary shares
13-Nov-17
Total
57,000
57,000
–
–
–
–
57,000
57,000
51
6. Governance
The Role of the People, Remuneration and Nominations
Committee (PRN)
The role of the PRN 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 PRN 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 PRN members for the financial year ended 30 June 2021 were:
• Steve Gibbs (Chair);
• Mara Bun;
• Kate Greenhill;
• Michael Monaghan; and
• Julie Orr
The PRN met seven times during the year. Attendance at these meetings is set out in the Directors’
Report. At the PRN’s invitation, the Managing Director, Chief Strategy & Innovation Officer and Head
of People & Culture attended all meetings except where matters were associated with their own
performance evaluation, development and remuneration were to be considered. The PRN considers
advice and views from those invited to attend meetings and draws on services from a range of
external sources, including remuneration consultants.
Annually, an assessment is made on the eligibility for vesting of deferred shares issued under the
Long-Term Incentive Employee Share Plan for which all AEI employees participate in.
Malus Provisions
The Board has the discretion to reduce or forfeit awards where:
• the participant has acted fraudulently or dishonestly or is in breach of their obligations to the
Company;
• the Company becomes aware of material misstatement or omission in the financial statements
of the Company; or
• circumstances occur that the Board determines to have resulted in unfair or inappropriate benefit
to the recipient.
52
Australian Ethical Investment Limited and its Controlled Entities REMUNERATION REPORTFor the year ended 30 June 2021ANNUAL REPORT 2021 CEO and SLT Performance
The CEO is responsible for reviewing the performance of SLT and determining whether their
performance requirements were met. In addition, the CEO has oversight of all employees’
performance appraisals. Both quantitative and qualitative data is used to determine whether
performance criteria are achieved.
An annual assessment of the CEO is completed by the Chairman and is overseen by the Board,
with input from the PRN. The review includes measurement of performance against agreed KPI’s
and Company performance. The PRN also has oversite of SLT performance.
Hedging Policy
SLT 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’s shares during “blackout
periods”. These periods occur between the end of the half year and two days after the release of
the half-year results, and between the end of the full year and two days after the release of the full
year results. In addition, where potential price sensitive information is known and not required to be
disclosed to the the market, the directors and relevant employees are constrained from trading the
Company’s shares.
The Directors report, incorporating the Remuneration report, is signed is accordance with a
resolution of the Board of Directors.
STEVE GIBBS
Chair
People, Remuneration & Nominations Committee
25 August 2021
53
kpmg
Lead Auditor’s Independence Declaration under
Section 307C of the Corporations Act 2001
To the Directors of Australian Ethical Investment Limited
I declare that, to the best of my knowledge and belief, in relation to the audit of Australian Ethical
Investment Limited for the financial year ended 30 June 2021 there have been:
i.
ii.
no contraventions of the auditor independence requirements as set out in the
Corporations Act 2001 in relation to the audit; and
no contraventions of any applicable code of professional conduct in relation to the
audit.
KPMG
Karen Hopkins
Partner
Sydney
25 August 2021
40
©2021 KPMG, an Australian partnership and a member firm of the
KPMG global organisation of independent member firms affiliated
with KPMG International Limited, a private English company limited
by guarantee. All rights reserved.
The KPMG name and logo are trademarks used under license by
the independent member firms of the KPMG global organisation.
Liability limited by a scheme
approved under Professional
Standards Legislation.
54
Australian Ethical Investment Limited and its Controlled Entities FINANCIAL STATEMENTSFor the year ended 30 June 2021ANNUAL REPORT 2021
kpmg
Lead Auditor’s Independence Declaration under
Section 307C of the Corporations Act 2001
To the Directors of Australian Ethical Investment Limited
I declare that, to the best of my knowledge and belief, in relation to the audit of Australian Ethical
Investment Limited for the financial year ended 30 June 2021 there have been:
no contraventions of the auditor independence requirements as set out in the
Corporations Act 2001 in relation to the audit; and
no contraventions of any applicable code of professional conduct in relation to the
i.
ii.
audit.
KPMG
Karen Hopkins
Partner
Sydney
25 August 2021
40
©2021 KPMG, an Australian partnership and a member firm of the
KPMG global organisation of independent member firms affiliated
with KPMG International Limited, a private English company limited
by guarantee. All rights reserved.
The KPMG name and logo are trademarks used under license by
the independent member firms of the KPMG global organisation.
Liability limited by a scheme
approved under Professional
Standards Legislation.
Australian Ethical Investment Limited and its Controlled Entities
FINANCIAL STATEMENTS
For the year ended 30 June 2021
Statements of comprehensive income
For the year ended 30 June 2021
Revenue
Operating revenue
Other income
Total revenue
Non-operating gains
Gain on disposal of investment
property held for sale
Expenses
Operating expenses
Employee benefits
Fund related
Marketing
IT expenses
External services
Community grants expense
Depreciation – property, plant
& equipment
Depreciation – right of use assets
Other operating expenses
Occupancy
Finance costs
Total operating expenses
Profit before income tax expense
Income tax expense
Net Profit for the year
Other comprehensive income
Items that will not be reclassified
subsequently to profit or loss
Gain/(Loss) on revaluation of
investments
Other comprehensive income
for the year, net of tax
Total comprehensive income
for the year1
Note
5
6
7
8
9
10
11
12
13
13
14
15
16
17
Consolidated
Parent
2021
$’000
2020
$’000
2021
$’000
2020
$’000
58,711
399
59,110
49,902
–
49,175
100
45,394
–
49,902
49,275
45,394
–
178
–
178
(18,767)
(9,840)
(4,951)
(3,263)
(2,335)
(1,750)
(554)
(615)
(1,224)
(258)
(57)
(43,614)
15,496
(4,378)
11,118
(18,191)
(7,568)
(4,169)
(1,794)
(1,721)
(1,291)
(453)
(445)
(959)
(366)
(58)
(37,015)
13,065
(3,608)
9,457
(18,331)
(3,261)
(4,951)
(2,648)
(2,057)
(1,619)
(554)
(615)
(946)
(258)
(57)
(17,893)
(2,368)
(4,169)
(1,787)
(1,131)
(1,300)
(453)
(445)
(794)
(366)
(58)
(35,297)
(30,764)
13,978
(3,376)
10,602
14,808
(2,978)
11,830
8
8
(3)
(3)
–
–
–
–
11,126
9,454
10,602
11,830
Basic earnings per share
Diluted earnings per share
41
41
Cents
10.06
9.90
Cents
8.62
8.42
1 Comprehensive income includes the results of The Foundation (refer to Note 43)
The above statements of comprehensive income should be read in conjunction with the accompanying notes
55
Statements of financial position
As at 30 June 2021
Assets
Current assets
Cash and cash equivalents
Trade and other receivables
Prepayments
Right-of-use assets
Other receivables
Total current assets
Non-current assets
Deferred tax
Property, plant and equipment
Right-of-use assets
Term deposit
Other receivables
Investments in subsidiary
Financial assets through other
comprehensive income
Total non-current assets
Total assets
Liabilities
Current liabilities
Trade and other payables
Employee benefits
Income tax
Lease liabilities
Total current liabilities
Non-current liabilities
Lease liabilities
Trade and other payables
Provisions
Deferred tax
Total non-current liabilities
Total liabilities
Net assets
Equity
Issued capital
Reserves
Retained profits
Total equity
Consolidated
Parent
Note
2021
$’000
2020
$’000
2021
$’000
2020
$’000
18
19
20
21
17
22
20
23
24
25
26
27
17
20
20
28
29
17
30
31
27,813
4,217
909
626
465
21,427
4,771
1,172
450
–
23,143
6,300
740
626
465
18,516
6,210
1,020
450
–
34,030
27,820
31,274
26,196
2,900
1,219
672
504
–
–
141
2,134
1,938
847
504
440
–
133
2,617
1,219
672
504
–
316
2
2,052
1,938
847
504
440
316
2
5,436
39,466
5,996
33,816
5,330
36,604
6,099
32,295
7,250
4,593
1,364
740
6,113
3,849
852
529
5,988
4,537
1,364
740
5,632
3,831
852
529
13,947
11,343
12,629
10,844
834
218
252
35
1,339
15,286
24,180
10,676
1,034
12,470
24,180
1,112
273
246
25
1,656
12,999
20,817
11,191
784
8,842
834
218
252
35
1,339
13,968
22,636
10,676
1,033
10,927
1,112
271
246
25
1,654
12,498
19,797
11,191
791
7,815
20,817
22,636
19,797
The above statements of financial position should be read in conjunction with the accompanying notes
56
Australian Ethical Investment Limited and its Controlled Entities FINANCIAL STATEMENTSFor the year ended 30 June 2021ANNUAL REPORT 2021 Statements of changes in equity
For the year ended 30 June 2021
Issued
capital
$’000
Share-based
payment
reserve
$’000
FVOCI1
reserve
$’000
Retained
profits
$’000
Total
equity
$’000
Consolidated
Balance at 1 July 2019
10,634
Adjustment arising from transition to AASB 16
–
Balance at 1 July 2019 – restated
10,634
Profit after income tax expense 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 vested under deferred shares plan
during the year
Employee share plan – deferred shares
Employee share plan – shares purchased
on-market
Revaluation of investments
Balance at 30 June 2020
–
557
–
–
–
11,191
792
–
792
–
–
–
–
(557)
1,188
(632)
–
791
(4)
–
(4)
–
–
–
–
–
–
–
(3)
(7)
5,592
17,014
(35)
(35)
5,557
16,979
9,457
9,457
(3)
(3)
9,454
9,454
(6,172)
(6,172)
–
–
–
3
–
1,188
(632)
–
8,842
20,817
Issued
capital
$’000
Share-based
payment
reserve
$’000
FVOCI1
reserve
$’000
Retained
profits
$’000
Total
equity
$’000
Consolidated
Balance at 1 July 2020
Adjustment arising from IFRIC guidance on
AASB 138
Balance at 1 July 2020 – restated
Profit after income tax expense for the year
Other comprehensive income for the year,
net of tax
Total comprehensive income for the year
11,191
–
11,191
–
–
–
Transactions with owners in their capacity as owners:
Dividends provided for or paid
Shares vested under deferred shares plan
during the year
Employee share plan – deferred shares
Employee share plan – shares purchased
on-market
Revaluation of investments
–
1,120
–
(1,635)
–
791
–
791
–
–
–
–
(1,120)
1,362
–
–
Balance at 30 June 2021
10,676
1,033
1 Fair value through other comprehensive income (FVOCI)
(7)
–
(7)
–
–
–
–
–
–
–
8
1
8,842
20,817
(185)
(185)
8,657
20,632
11,118
11,118
8
8
11,126
11,126
(7,305)
(7,305)
–
–
–
–
1,362
(1,635)
(8)
–
12,470
24,180
The above statements of changes in equity should be read in conjunction with the accompanying notes
57
Statements of changes in equity
For the year ended 30 June 2021
Issued
capital
$’000
Share-based
payment
reserve
$’000
Retained
profits
$’000
Total
equity
$’000
Parent
Balance at 1 July 2019
Adjustment arising from transition to AASB 16
Balance at 1 July 2019 – restated
Profit after income tax expense 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
10,634
–
10,634
–
–
–
–
Shares vested under deferred shares plan during the year
557
Employee share plan – deferred shares
Employee share plan – shares purchased on-market
Balance at 30 June 2020
–
–
11,191
792
–
792
–
–
–
–
(557)
1,188
(632)
791
2,192
13,618
(35)
(35)
2,157
11,830
–
13,583
11,830
–
11,830
11,830
(6,172)
(6,172)
–
–
–
–
1,188
(632)
7,815
19,797
Issued
capital
$’000
Share-based
payment
reserve
$’000
Retained
profits
$’000
Total
equity
$’000
Parent
Balance at 1 July 2020
Adjustment arising from IFRIC guidance on AASB 138
Balance at 1 July 2020 – restated
Profit after income tax expense 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
11,191
–
11,191
–
–
–
–
Shares vested under deferred shares plan during the year
1,120
Employee share plan – deferred shares
Employee share plan – shares purchased on-market
Balance at 30 June 2021
–
(1,635)
10,676
791
–
791
–
–
–
–
(1,120)
1,362
–
7,815
19,797
(185)
(185)
7,630
19,612
10,602
10,602
–
–
10,602
10,602
(7,305)
(7,305)
–
–
–
–
1,362
(1,635)
1,033
10,927
22,636
The above statements of changes in equity should be read in conjunction with the accompanying notes
58
Australian Ethical Investment Limited and its Controlled Entities FINANCIAL STATEMENTSFor the year ended 30 June 2021ANNUAL REPORT 2021 Statements of cash flows
For the year ended 30 June 2021
Consolidated
Parent
Note
2021
$’000
2020
$’000
2021
$’000
2020
$’000
Cash flows from operating activities
Receipts from customers
Payments to suppliers and employees
Payments for strategic investments
in insourcing the members’ contact
centre and building the CRM
Rental income received
Interest received
Community grants paid
Net proceeds from insurance
settlement
Government grant income
Income taxes paid
Net cash from operating activities
40
Cash flows from investing activities
Net proceeds from sale of investment
property held for sale
Payments for property, plant and
equipment
22
Payment for purchase of SVA unit trusts
Purchase of investment in August
Investment Pty Limited
Dividends received from subsidiary
Net cash from investing activities
Cash flows from financing activities
Purchase of employee’s deferred
shares
Dividends paid
Interest on lease liabilities
32
Net cash used in financing activities
Net increase in cash and cash
equivalents
Cash and cash equivalents at the
beginning of the financial year
Cash and cash equivalents at the
end of the financial year
59,199
(38,561)
20,638
(689)
–
59
(1,321)
299
100
(3,583)
15,503
47,202
(34,169)
13,033
47,301
36,177
(32,575)
(26,800)
14,726
9,377
–
(357)
118
179
(840)
–
–
(3,639)
8,851
–
54
(1,400)
–
100
(1,100)
12,023
–
118
152
(937)
–
–
(2,421)
6,289
–
1,437
–
1,437
(92)
–
(28)
–
(120)
(764)
(60)
–
–
613
(92)
–
(28)
1,721
1,601
(764)
–
–
4,016
4,689
(1,635)
(632)
(1,635)
(632)
(7,305)
(57)
(8,997)
(6,172)
(58)
(6,862)
(7,305)
(57)
(8,997)
(6,172)
(58)
(6,862)
6,386
2,602
4,627
4,116
21,427
18,825
18,516
14,400
18
27,813
21,427
23,143
18,516
The above statements of cash flows should be read in conjunction with the accompanying notes
59
Notes to the financial statements
NOTE 1. ABOUT THIS REPORT
The financial report covers the consolidated entity 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 limited
by shares (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 Group’s registered office is at Level 8, 130 Pitt Street, Sydney NSW 2000.
The financial statements were authorised for issue, in accordance with a resolution of directors,
on 25 August 2021. The directors have the power to amend and reissue the financial statements.
NOTE 2. SIGNIFICANT ACCOUNTING POLICIES
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.
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
at fair value through other comprehensive income, and financial assets and liabilities at fair value
through profit or loss.
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 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 Group in accordance
with Class Order 10/654, issued by the Australian Securities and Investments Commission.
Principles of consolidation
The consolidated financial statements incorporate the assets and liabilities of all subsidiaries of
Australian Ethical Investments Limited (‘Company’ or ‘Parent Entity’) as at 30 June 2021 and the
results of all subsidiaries for the year then ended.
Subsidiaries are all those entities over which the Group has control. The Group controls an entity
when the Group is exposed to, or has rights to, variable returns from its involvement with the entity
and has the ability to affect those returns through its power to direct the activities of the entity.
Subsidiaries are fully consolidated from the date on which control is transferred to the Group.
They are de-consolidated from the date that control ceases.
60
Australian Ethical Investment Limited and its Controlled Entities NOTES TO THE FINANCIAL STATEMENTSFor the year ended 30 June 2021ANNUAL REPORT 2021 NOTE 2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Intercompany transactions, balances and unrealised gains on transactions between entities in the
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 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 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.
New or amended Accounting Standards and Interpretations adopted
The 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. These include:
• Annual improvements to IFRS 2015-2017 Cycle
• International Financial Reporting Interpretations Committee (‘IFRIC’) Guidance on AASB 138
Intangible Assets
Any new or amended Accounting Standards or Interpretations that are not yet mandatory have not
been early adopted.
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.
Income tax & deferred tax assets/liabilities – refer to Note 17
The Group is subject to income taxes in the jurisdictions in which it operates. Estimation is required in
determining the provision for income tax. There are many transactions and calculations undertaken
during the ordinary course of business for which the ultimate tax determination is uncertain.
Deferred tax assets are recognised for deductible temporary differences only if the Group considers it is
probable that future taxable amounts will be available to utilise those temporary differences and losses.
61
NOTE 3. CRITICAL ACCOUNTING JUDGEMENTS, ESTIMATES AND ASSUMPTIONS (CONTINUED)
Estimation of useful lives of assets – refer to Note 22
The Group determines the estimated useful lives and related depreciation and amortisation charges
for its property, plant and equipment and finite life intangible assets based on the available information
at balance date. The useful lives could change in future periods as a result of technical innovations,
planned use and benefits or some other event. The depreciation and amortisation charge will increase
where the useful lives are less than previously estimated lives, or technically obsolete or non-strategic
assets that have been abandoned or sold will be written off or written down.
Operating lease term – Note 20
The lease term is a significant component in the measurement of both the right-of-use asset and lease
liability. Judgement is exercised in determining whether there is reasonable certainty that an option to
extend the lease or purchase the underlying asset will be exercised, or an option to terminate the lease
will not be exercised, when ascertaining the periods to be included in the lease term. In determining
the lease term, all facts and circumstances that create an economical incentive to exercise an
extension option, or not to exercise a termination option, are considered at the lease commencement
date. Factors considered may include the importance of the asset to the Group’s operations;
comparison of terms and conditions to prevailing market rates; incurrence of significant penalties;
existence of significant leasehold improvements; and the costs and disruption to replace the asset. The
Group reassesses whether it is reasonably certain to exercise an extension option, or not exercise a
termination option, if there is a significant event or significant change in circumstances. The group has
considered its current lease term for the Pitt St office, and there are no changes as a result of COVID-19.
Employee benefits provision – refer to Note 27 and Note 28
The liability for employee benefits expected to be settled more than 12 months from the reporting date is
recognised and measured at the present value of the estimated future cash flows to be made in respect
of all employees at the reporting date. In determining the present value of the liability, estimates of
attrition rates and pay increases through promotion and inflation have been taken into account.
Lease make good provision – refer to Note 29
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 recognised is periodically reviewed and updated based on the facts and
circumstances available at the time. Changes to the estimated future costs 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.
Share-based payment transactions – refer to Note 42
The consolidated entity measures the cost of equity-settled transactions with employees by reference
to the fair value of the equity instruments at the date at which they are granted. At the date the shares
are granted the fair value is determined as the on-market purchase price if the shares are purchased
or a 90-day VWAP price if the shares are issued. The accounting estimates and assumptions relating
to equity-settled share-based payments would have no impact on the carrying amounts of assets and
liabilities but will impact profit or loss and equity.
NOTE 4. BUSINESS SEGMENTS
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 of one main operating segment being Funds
Management.
62
Australian Ethical Investment Limited and its Controlled Entities NOTES TO THE FINANCIAL STATEMENTSFor the year ended 30 June 2021ANNUAL REPORT 2021 NOTE 5. REVENUE
Operating revenue
Management fees
Performance fees
Administration fees (net of Operational Risk
Financial Reserve contributions)
Member fees (net of rebates)
Interest income
Rental income
Dividends
Revenue
Consolidated
Parent
2021
$’000
43,185
2,895
8,431
4,144
56
–
–
2020
$’000
33,916
3,640
8,825
3,230
166
125
–
58,711
49,902
2021
$’000
37,870
2,895
2021
$’000
29,385
3,640
6,638
8,089
–
51
–
–
139
125
1,721
49,175
4,016
45,394
Recognition and measurement
Management, administration and member fees
Fee revenue is earned from provision of funds management services to customers outside the Group.
Fee revenue is measured based on the consideration specified in the eight Managed Funds and
Australian Ethical Retail Superannuation Fund (‘AERSF’) Product Disclosure Statement (‘PDS’). The
Group recognises revenue as the services are provided.
The superannuation administration fee charged to the members of AERSF was reduced from 0.41% to
0.29% on 1 April 2020. The administration fee entitlement in accordance with the Product Disclosure
Statement (‘PDS’) is net of $787k (2020: $504k) paid directly to the Operational Risk Financial Reserve
(‘ORFR’) of the superannuation fund.
For the parent entity, administration fees received from the Australian Ethical Superannuation Pty
Limited (‘AES’) subsidiary is a FUM based fee.
Performance fees
Performance fees in relation to the Emerging Companies Fund are dependent on fund performance
per PDS and are recognised when it is highly probable that performance hurdles have been achieved
and a reversal is unlikely.
Interest income
Interest revenue is recognised as interest accrues using the effective interest method.
Rental income
Rental income in the prior year is recognised using the straight-line method over the term of the lease.
Dividends
Dividends are recognised as revenue when the right to receive payment is established.
63
NOTE 6. OTHER INCOME
Government grant income
Net proceeds from insurance settlement
Consolidated
Parent
2021
$’000
100
299
399
2020
$’000
–
–
–
2021
$’000
100
–
100
2020
$’000
–
–
–
The Group was not eligible for and did not receive any JobKeeper payments from the Federal
Government. However, the Group was eligible for and received a grant of $100,000 under ‘Boosting
Cash Flow for Employers’ which was part of the Australian government’s COVID-19 support program
for employing entities. This grant was received by all entities with aggregate FY20 revenue of less
than $50m. The Group donated the entire grant income to The Foundation which in turn donated
the funds to Pollinate Group. The Pollinate Group, which has been heavily impacted by COVID-19 in
recent times, works in India and Nepal, supporting women entrepreneurs to deliver solar lights and
clean energy cookstoves to communities. Refer to Note 43 for additional details on The Foundations
charitable activities.
During the year, the Parent Entity settled the insurance claim in respect of the unit pricing matter first
disclosed in the 30 June 2017 annual report for $525,000. These proceeds were, in turn, paid to its
subsidiary, Australian Ethical Superannuation Pty Limited in settlement of a claim the subsidiary had
lodged with the Company in relation to the same unit pricing matter. The subsidiary paid $225,885 of
the proceeds to the Operational Risk Financial Reserve of the Australian Ethical Retail Superannuation
Fund to return the amount originally paid from reserve.
NOTE 7. EMPLOYEE BENEFITS
Employee remuneration
Directors fees
Other employment costs
Consolidated
Parent
2021
$’000
17,777
570
420
18,767
2020
$’000
17,412
484
295
18,191
2021
$’000
17,515
400
416
2020
$’000
17,259
341
293
18,331
17,893
Recognition and measurement
Employee benefits are expensed as the related service is provided. A liability is recognised for the
amount expected to be paid if the Group has a present legal or constructive obligation to pay this amount
as a result of past service provided by the employee and the obligation can be estimated reliably.
The grant-date fair value of equity-settled share-based payment arrangements granted to employees
is generally recognised as an expense, with a corresponding increase in equity, on vesting of
the awards. The amount recognised as an expense is adjusted to reflect the number of awards
for which the related service and performance conditions are expected to be met, such that the
amount ultimately recognised is based on the number of awards that meet the related service and
performance conditions at the vesting date.
In the prior year, Steve Gibbs did not receive remuneration as a director during the period of time he
was Acting Managing Director and CEO.
64
Australian Ethical Investment Limited and its Controlled Entities NOTES TO THE FINANCIAL STATEMENTSFor the year ended 30 June 2021ANNUAL REPORT 2021 NOTE 8. FUND RELATED
During the prior year, the Company outsourced the investment management and general ledger record-
keeping to NAB Asset Servicing, effective 1 May 2020. This included the calculation of unit prices for the
managed funds, tax calculations for distributions and preparation of monthly accounting reconciliations.
Whilst the outsourcing results in an increase in administration fees, this is partially offset by reduction in
employment costs following the implementation.
Administration fees includes implementation of the redesign of our insurance offering within the
super fund of $400k.
Administration and custody fees
Licence, ratings and platform fees
Regulatory & industry body fees
Ethical research
Regulatory projects
Consolidated
Parent
2021
$’000
7,790
907
393
79
671
2020
$’000
6,275
918
306
69
–
2021
$’000
2,176
730
244
79
32
2020
$’000
1,325
754
220
69
–
9,840
7,568
3,261
2,368
Regulatory projects relates to the cost of upgrading systems and processes to ensure compliance
with new regulatory requirements in the superannuation industry including implementing RG271
(Internal Dispute Resolution), RG97 (Disclosing Fees and Costs in PDSs and Period Statements) and
ATO superannuation streamlining projects (SuperStream and SuperMatch). In the prior year, these
costs were paid by the Administrator in accordance with a three-year regulatory project holiday.
Recognition and measurement
Expenses are recognised at the fair value of the consideration paid or payable for services rendered.
NOTE 9. MARKETING
Distribution costs
Brand awareness
Other
Consolidated
Parent
2021
$’000
2,333
1,196
1,422
4,951
2020
$’000
1,941
1,005
1,223
4,169
2021
$’000
2,333
1,196
1,422
4,951
2020
$’000
1,941
1,005
1,223
4,169
Other marketing costs include events, market content and media agency fees.
65
NOTE 10. IT EXPENSES
Front office IT systems
Support systems, infrastructure and security
Strategic projects
Consolidated
Parent
2021
$’000
1,311
1,011
941
2020
$’000
919
753
122
3,263
1,794
2021
$’000
1,230
1,011
407
2,648
2020
$’000
912
753
122
1,787
Strategic projects represent investment in the technology platforms including internalising the
superannuation members’ contact centre, building the CRM and implementing improvements to
member engagement channels and member statements. The cost of building the contact centre and
the CRM were expensed under the accounting requirements for cloud-computing.
NOTE 11. EXTERNAL SERVICES
Internal & external audit and tax services
Consultants
Legal services
Other
Consolidated
Parent
2021
$’000
736
1,018
299
282
2,335
2020
$’000
870
362
261
228
1,721
2021
$’000
529
950
299
279
2,057
2020
$’000
674
30
199
228
1,131
Consultants includes advisory services in relation to strategic projects delivered during the year.
These initiatives included a GS007 project, strategy & innovation initiatives, and new product
development.
NOTE 12. 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 $1,607,000 (2020: $1,300,000) have been expensed and gifted to The
Foundation. Of this amount, $100,000 has already been paid to the Foundation and donated to support
COVID-19 relief efforts during the year. An additional $143,000 from the Foundation’s corpus has been
entirely provided for in the current year to supplement strategic, community and innovation grants.
66
Australian Ethical Investment Limited and its Controlled Entities NOTES TO THE FINANCIAL STATEMENTSFor the year ended 30 June 2021ANNUAL REPORT 2021 NOTE 13. DEPRECIATION AND AMORTISATION
Depreciation of property, plant and
equipment
Amortisation of intangible asset – CMS &
website
Total
Depreciation of right-of-use asset – Sydney
office lease
Depreciation of right-of-use asset – IT
infrastructure
Total
Consolidated
Parent
2021
$’000
2020
$’000
2021
$’000
2020
$’000
459
95
554
580
35
615
1,169
395
58
453
421
24
445
898
459
95
554
580
35
615
1,169
395
58
453
421
24
445
898
Refer to Note 22 for additional information on depreciation and amortisation.
NOTE 14. OTHER OPERATING EXPENSES
Consolidated
Parent
Insurance
Travel
ASX listing fees and registry costs
Printing and subscriptions
Other
NOTE 15. OCCUPANCY
2021
$’000
509
170
276
111
158
1,224
2020
$’000
2021
$’000
2020
$’000
337
220
128
127
147
959
252
170
276
90
158
946
Occupancy costs in relation to Sydney office
Occupancy costs in relation to investment
property held for sale
Consolidated
Parent
2021
$’000
258
–
258
2020
$’000
276
90
366
2021
$’000
258
–
258
179
220
128
120
147
794
2020
$’000
276
90
366
NOTE 15. OCCUPANCY (CONTINUED)
Included in occupancy costs are outgoings including cleaning services, utilities and repairs &
maintenance costs. The lease on the Sydney office is recorded in accordance with AASB 16 from 1 July
2019, and as such rent expense is included in depreciation of the right-of-use asset. Refer to Note 13
and Note 22.
NOTE 16. FINANCE COSTS
Interest on lease liabilities
Consolidated
Parent
2021
$’000
57
2020
$’000
58
2021
$’000
57
2020
$’000
58
67
NOTE 17. INCOME TAX
Income tax expense
Current tax
Deferred tax asset – origination and reversal
of temporary differences
Adjustment recognised for prior periods
Deferred tax liability – reversal of temporary
differences
Adjustment due to change in income tax rate
(292)
Deferred tax adjustment on transition to
AASB 16
–
Consolidated
Parent
2021
$’000
2020
$’000
2021
$’000
2020
$’000
5,426
3,896
(766)
(304)
–
10
(32)
(25)
108
(35)
4,211
(565)
–
10
(280)
–
3,257
(290)
(32)
(25)
103
(35)
Aggregate income tax expense
4,378
3,608
3,376
2,978
Deferred tax included in income tax expense
comprises:
Increase in deferred tax assets
Increase in deferred tax liabilities
Deferred tax – origination and reversal of
temporary differences
Numerical reconciliation of income tax expense
and tax at the statutory rate
Profit before income tax expense
Tax at the statutory tax rate of 30% (2020: 27.5%)
Tax effect amounts which are not deductible/
(taxable) in calculating taxable income:
Non-taxable intercompany dividends from
Australian Ethical Superannuation Pty Limited (AES)
Other non-taxable items
Adjustment due to change in income tax rate
Deferred tax adjustment on transition to AASB 16
Adjustment recognised for prior periods
Income tax expense
(766)
10
(756)
(329)
25
(304)
(565)
10
(555)
(315)
25
(290)
15,639
4,692
13,065
3,593
13,979
4,194
14,808
4,072
–
(22)
(292)
–
4,378
–
4,378
–
(26)
108
(35)
3,640
(32)
3,608
(516)
(22)
(280)
–
3,376
–
3,376
(1,104)
(26)
103
(35)
3,010
(32)
2,978
68
Australian Ethical Investment Limited and its Controlled Entities NOTES TO THE FINANCIAL STATEMENTSFor the year ended 30 June 2021ANNUAL REPORT 2021 NOTE 17. INCOME TAX (CONTINUED)
The applicable weighted average effective tax rate for the consolidated group is 28.0% (2020: 27.6%)
and for the parent entity is 24.2% (2020: 20.1%). The effective tax rate for the consolidated group
excluding The Foundation is 28.0% (2020: 27.6%).
The parent entity effective tax rate is lower than the consolidated group due to the receipt of fully
franked intercompany dividends from its subsidiary, Australian Ethical Superannuation Pty Limited.
Consolidated
Parent
2021
$’000
2020
$’000
2021
$’000
2020
$’000
Deferred tax asset
Deferred tax asset comprises temporary differences attributable to:
Employee benefits
Accruals
Community grants
Provision for employee leave
Provision for lease make-good
Other payables
Lease liabilities
Deferred tax asset
Movements:
Opening balance
Charged to profit or loss
Closing balance
Deferred tax liability
Deferred tax liability comprises temporary
differences attributable to:
Amounts recognised in profit or loss:
Property, plant and equipment
Deferred tax liability
Movements:
Opening balance
Charged to profit or loss
Closing balance
Provision for income tax
892
210
456
551
76
633
82
678
125
338
405
74
414
100
881
134
456
545
76
442
83
675
87
338
402
74
376
100
2,900
2,134
2,617
2,052
2,134
766
2,900
1,805
329
2,134
2,052
565
2,617
1,737
315
2,052
Consolidated
Parent
2021
$’000
2020
$’000
2021
$’000
2020
$’000
35
35
25
10
35
25
25
–
25
25
35
35
25
10
35
25
25
–
25
25
Consolidated
Parent
2021
$’000
1,364
2020
$’000
852
2021
$’000
1,364
2020
$’000
852
69
NOTE 17. INCOME TAX (CONTINUED)
Recognition and measurement
Tax expense comprises of current and deferred tax 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.
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. 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. The carry forward values of
deferred tax assets and liabilities have been adjusted to reflect applicable future corporate tax rates.
Australian Ethical Investment Limited and its wholly owned subsidiary, Australian Ethical
Superannuation Pty Limited, have formed an income tax consolidated Group under the Tax
Consolidation System. Australian Ethical Investment Limited is responsible for recognising the
current 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
consolidated group.
Under the tax sharing agreement, Australian Ethical Superannuation Pty Limited agrees to pay its
share of the income tax payable to Australian Ethical Investment Limited on the same day that
Australian Ethical Investment Limited pays the Australian Taxation Office for group tax liabilities.
The tax liability for the subsidiary entities is recognised through intercompany payable or receivable.
NOTE 18. CURRENT ASSETS – CASH AND CASH EQUIVALENTS
Cash at bank
Term deposits
Deposits at call
Consolidated
Parent
2021
$’000
197
5,600
22,016
27,813
2020
$’000
159
5,300
15,968
21,427
2021
$’000
191
5,000
17,952
23,143
2020
$’000
153
5,000
13,363
18,516
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 six months or less that are
readily convertible to known amounts of cash and which are subject to an insignificant risk of
changes in value. Deposits at call earn interest at a higher rate than cash at bank which are low
interest earning transactional accounts.
70
Australian Ethical Investment Limited and its Controlled Entities NOTES TO THE FINANCIAL STATEMENTSFor the year ended 30 June 2021ANNUAL REPORT 2021 NOTE 19. CURRENT ASSETS – TRADE AND OTHER RECEIVABLES
Trade receivables
Receivable from subsidiary
Performance fee receivable
Consolidated
Parent
2021
$’000
1,322
–
2,895
4,217
2020
$’000
1,131
–
3,640
4,771
2021
$’000
727
2,678
2,895
6,300
2020
$’000
475
2,095
3,640
6,210
Recognition and measurement
Trade receivables are initially recognised when they are originated and are measured at the
transaction price. Subsequently, trade receivables are measured at amortised cost.
Specific consideration has been given to the impact of COVID-19 on the ability of customers to pay
their debts when assessing the recoverability of trade receivables. Expected credit losses on trade
and other receivables are estimated to be nil as there are currently no past due receivables as at
30 June 2021 (2020: nil) and management have not identified any additional concerns regarding
collectability of the receivables. The performance fees were received on 7 July 2021.
NOTE 20. LEASES
Operating leases relate to leases of office premises, a lease for printing and copying equipment for
the office, and a lease over IT hardware and infrastructure.
The group entered a long-term operating lease for its Sydney office for a period of 7 years on
1 July 2016. The Group does not have an option to purchase the premises at the expiry of the lease
period. A bank guarantee of $504,000 has been provided by the Group to the property owners over
the rental of building premises at 130 Pitt Street, Sydney. A right-of-use asset and a lease liability
have been recognised in the Statement of Financial Position in relation to this lease including the
remaining unamortised lease incentive.
The Group renewed its lease commitment with Harbour IT for the provision of IT hardware, software
and support in April 2021 for a period of 3 years. A right-of-use asset and a lease liability have been
recognised in the Statement of Financial Position in relation to this lease.
The Group entered a new lease for printing and copying equipment for the office in February 2021 for
a period of 5 years. A right-of-use asset and a lease liability have been recognised in the Statement of
Finance Position in relation to this lease.
Consolidated & Parent
Right-of-use assets
Balance at 1 July 2019
Additions
Depreciation
Balance at 30 June 2021
Comprising of:
Current
Non-current
Office
premises
$’000
IT hardware &
infrastructure
$’000
1,682
–
(421)
1,261
421
840
1,261
–
60
(24)
36
29
7
36
Total
$’000
1,682
60
(445)
1,297
450
847
1,297
71
NOTE 20. LEASES (CONTINUED)
Consolidated & Parent
Right-of-use assets
Balance at 1 July 2020
Additions
Depreciation
Balance at 30 June 2021
Comprising of:
Current
Non-current
Amounts recognised in profit or loss
Interest on lease liabilities
Expenses relating to leases of low-value
assets and variable lease components
Office
premises
$’000
IT hardware &
infrastructure
$’000
1,261
479
(580)
1,160
580
580
1,160
36
137
(35)
138
46
92
138
Total
$’000
1,297
616
(615)
1,298
626
672
1,298
Consolidated
2021
$’000
2020
$’000
Parent
2021
$’000
2020
$’000
57
559
58
406
57
559
58
406
Consolidated
2021
$’000
2020
$’000
Parent
2021
$’000
2020
$’000
Amounts recognised in statement of cash flows
Total cash outflow for leases
740
569
740
569
Accounting policy for right-of-use assets
A right-of-use asset is recognised at the commencement date of a lease. The right-of-use asset is
measured at cost, which comprises the initial amount of the lease liability, adjusted for, as applicable,
any lease payments made at or before the commencement date net of any lease incentives
received, any initial direct costs incurred, and an estimate of costs expected to be incurred for
dismantling and removing the underlying asset, and restoring the site or asset.
Right-of-use assets are depreciated on a straight-line basis over the unexpired period of the lease
or the estimated useful life of the asset, whichever is the shorter. Where the Group expects to obtain
ownership of the leased asset at the end of the lease term, the depreciation is over its estimated
useful life. Right-of use assets are subject to impairment or adjusted for any remeasurement of lease
liabilities.
The Group has elected not to recognise a right-of-use asset and corresponding lease liability for
short-term leases with terms of 12 months or less and leases of low-value assets. Lease payments on
these assets are expensed to profit or loss as incurred.
72
Australian Ethical Investment Limited and its Controlled Entities NOTES TO THE FINANCIAL STATEMENTSFor the year ended 30 June 2021ANNUAL REPORT 2021 NOTE 20. LEASES (CONTINUED)
Consolidated & Parent
Lease liabilities
Balance at 1 July 2019
Additions
Payments
Interest on lease liabilities
Balance at 30 June 2020
Comprising of:
Current
Non-current
Balance at 1 July 2020
Additions
Payments
Interest on lease liabilities
Balance at 30 June 2021
Comprising of:
Current
Non-current
Office
building
$’000
IT hardware &
infrastructure
$’000
2,091
–
(541)
57
1,607
500
1,107
1,607
1,607
477
(705)
56
1,435
694
741
1,435
–
60
(27)
1
34
29
5
34
34
139
(35)
1
139
46
93
139
Total
$’000
2,091
60
(568)
58
1,641
529
1,112
1,641
1,641
616
(740)
57
1,574
740
834
1,574
Accounting policy for lease liabilities
A lease liability is recognised at the commencement date of a lease. The lease liability is initially
recognised at the present value of the lease payments to be made over the term of the lease,
discounted using the interest rate implicit in the lease or, if that rate cannot be readily determined,
the Group’s incremental borrowing rate. Lease payments comprise of fixed payments less any lease
incentives receivable, variable lease payments that depend on an index or a rate, amounts expected
to be paid under residual value guarantees, exercise price of a purchase option when the exercise
of the option is reasonably certain to occur, and any anticipated termination penalties. The variable
lease payments that do not depend on an index or a rate are expensed in the period in which they are
incurred.
Lease liabilities are measured at amortised cost using the effective interest method. The carrying
amounts are remeasured if there is a change in the following: future lease payments arising from
a change in an index or a market review; residual guarantee; lease term; certainty of a purchase
option and termination penalties. When a lease liability is remeasured, an adjustment is made to the
corresponding right-of use asset, or to profit or loss if the carrying amount of the right-of-use asset is
fully written down.
73
NOTE 21. CURRENT ASSETS – OTHER RECEIVABLE
Consolidated
Other receivable
2021
$’000
465
2020
$’000
Parent
2021
$’000
–
465
2020
$’000
–
The balance relates to the discounted present value of the receivable on settlement of the fourth unit
within the Canberra Property (Trevor Pearcey House) sold in June 2020. The property is due to settle
in June 2022 and the value represents the sale price less disposal and holding costs.
NOTE 22. NON-CURRENT ASSETS – PROPERTY, PLANT AND EQUIPMENT
Consolidated
Parent
Leasehold improvements – at cost
Less: Accumulated depreciation
Plant and equipment – at cost
Less: Accumulated depreciation
Platform development – at cost
Less: Accumulated depreciation
2021
$’000
2,294
(1,531)
763
309
(187)
122
477
(143)
334
1,219
2020
$’000
2,286
(1,146)
1,140
234
(121)
113
685
–
685
1,938
2021
$’000
2,294
(1,531)
763
309
(187)
122
477
(143)
334
1,219
2020
$’000
2,286
(1,146)
1,140
234
(121)
113
685
–
685
1,938
Reconciliations
Reconciliations of the written down values at the beginning and end of the current and previous
financial year are set out below:
Consolidated
Balance at 1 July 2019
Additions
Reclassified to Right of use assets on
transition to AASB 16
Depreciation expense
Amortisation expense
Balance at 30 June 2020
Net adjustment to write down intangible
assets under IFRIC guidance on AASB 138
Restated balance at 1 July 2020
Additions
Disposals
Depreciation expense
Amortisation expense
Balance at 30 June 2021
Leasehold
improvements
$’000
Plant and
equipment
$’000
Platform
development
$’000
1,364
234
(127)
(331)
–
1,140
–
1,140
8
–
(385)
–
763
76
100
–
(63)
–
113
–
113
84
(1)
(74)
–
122
313
430
–
–
(58)
685
(256)
429
–
–
–
(95)
334
Total
$’000
1,753
764
(127)
(394)
(58)
1,938
(256)
1,682
92
(1)
(459)
(95)
1,219
74
Australian Ethical Investment Limited and its Controlled Entities NOTES TO THE FINANCIAL STATEMENTSFor the year ended 30 June 2021ANNUAL REPORT 2021 NOTE 22. NON-CURRENT ASSETS – PROPERTY, PLANT AND EQUIPMENT (CONTINUED)
During the 2019 financial year, AEI initiated a strategic project to internally develop a new Integrated
Customer Experience Platform (the Platform) comprising web-based marketing automation, web
CMS, data warehouse, and an integrated client relationship management (CRM) system. The project
was aimed at enriching customer experiences by personalising the website to dynamically deliver
relevant, engaging and inspiring content, and improve customer retention and attract new customers.
Costs in relation to the development of this platform were capitalised as an intangible asset and to be
depreciated over its useful life. However in accordance with the IFRIC guidance on AASB 138 cloud-
based software development is to expensed as incurred. Accordingly, the costs in relation to the data
warehouse and CRM are no longer capitalised as an intangible asset.
Recognition and measurement
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 excess of the recoverable amount. Historical cost includes expenditure that is
directly attributable to the acquisition of the items.
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.
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 and amortisation
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. Amortisation is calculated
to write off the cost of intangible assets less their estimated residual values using the straight-line
method over their estimated useful lives. The estimated useful lives for current and comparative
periods are as follows:
Leasehold improvements
Plant and equipment
Platform development
the lesser of unexpired lease term or useful life, 2-7 years
2-7 years
5 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.
NOTE 23. NON-CURRENT ASSETS – TERM DEPOSIT
Long term deposit
Consolidated
Parent
2021
$’000
504
2020
$’000
504
2021
$’000
504
2020
$’000
504
The long term deposit is held with National Australia Bank on a rolling 6-month term as security for a
bank guarantee over the Company’s Sydney office property lease. The intention is that the deposit
will be held for the term of the lease.
75
NOTE 24. NON-CURRENT ASSETS – INVESTMENTS IN SUBSIDIARY
Investment in Australian Ethical
Superannuation Pty Limited (as trustee of the
Australian Ethical Retail Superannuation Fund)
Consolidated
Parent
2021
$’000
2020
$’000
2021
$’000
2020
$’000
–
–
316
316
NOTE 25. NON-CURRENT ASSETS – FINANCIAL ASSETS THROUGH OTHER
COMPREHENSIVE INCOME
The Foundation holds an investment in the Social Ventures Australia (SVA)’s Diversified Impact Fund
(DIF) unit trust, in line with the Australian Ethical Charter and the Objectives of the Foundation.
SVA is a social purpose organisation that works with partners to improve the lives of people in need.
They offer funding, investment and advice services to social impact organisations. The Foundation
has committed to an overall investment of $200,000 in the SVA DIF, of which $140,000 has been
called. The investment is revalued to fair value based on the Net Asset Value (NAV) unit price.
The Group also purchased nominal holdings of shares in listed entities that the Group would not
normally invest in, in order to advocate change in these companies as a shareholder.
Investment in Social Impact programs
Listed shares in Advocacy program
Reconciliation
Reconciliation of the fair values at the
beginning and end of the current and
previous financial year are set out below:
Opening fair value
Additions
Revaluation increments/(decrements)
Closing fair value
Consolidated
Parent
2021
$’000
139
2
141
133
–
8
141
2020
$’000
131
2
133
76
60
(3)
133
2021
$’000
2020
$’000
–
2
2
2
–
–
2
–
2
2
2
–
–
2
Refer to Note 34 for further information on fair value measurement.
Recognition and measurement
Financial assets at fair value through other comprehensive income (FVOCI) comprise:
• Unlisted unit trusts acquired by the Group’s Foundation; and
• Equity securities acquired by the Group for advocacy purposes, which are not held for trading, and
which the group has irrevocably elected at initial recognition to recognise in this category. These
are strategic investments and the Group considered this classification to be more relevant.
On disposal of these equity investments, any related balance within the FVOCI reserve is reclassified
to retained earnings.
76
Australian Ethical Investment Limited and its Controlled Entities NOTES TO THE FINANCIAL STATEMENTSFor the year ended 30 June 2021ANNUAL REPORT 2021
NOTE 26. CURRENT LIABILITIES – TRADE AND OTHER PAYABLES
Trade payables and accruals
Payable to subsidiary
Community grant payable
Consolidated
Parent
2021
$’000
5,590
–
1,660
7,250
2020
$’000
4,882
–
1,231
6,113
2021
$’000
4,464
5
1,519
5,988
2020
$’000
2,858
1,474
1,300
5,632
Refer to Note 33 for further information on financial instruments.
Recognition and measurement
Trade payables and accruals represent liabilities for goods and services provided to the consolidated
entity 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 an invoice being rendered.
NOTE 27. CURRENT LIABILITIES – EMPLOYEE BENEFITS
Annual leave
Long service leave
Employee benefits
Consolidated
Parent
2021
$’000
842
777
2,974
4,593
2020
$’000
752
492
2,605
3,849
2021
$’000
829
770
2,938
4,537
2020
$’000
744
492
2,595
3,831
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.
Liabilities for wages and salaries, including employee short term incentive compensation, 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.
NOTE 28. NON-CURRENT LIABILITIES – EMPLOYEE BENEFITS
Long service leave
Consolidated
Parent
2021
$’000
218
2020
$’000
273
2021
$’000
218
2020
$’000
271
Recognition and measurement
The liability for annual leave and 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. 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 corporate bonds with
terms to maturity that match, as closely as possible, the estimated future cash outflows.
77
NOTE 29. NON-CURRENT LIABILITIES – PROVISIONS
Lease make-good
Consolidated
Parent
2021
$’000
252
2020
$’000
246
2021
$’000
252
2020
$’000
246
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 maturity of the lease. 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 are recognised in the statement of
financial position by adjusting the asset and the provision. Reductions in the provision due to
exceeding the carrying amount of the asset will be recognised in profit or loss.
NOTE 30. EQUITY – ISSUED CAPITAL
Consolidated
Ordinary shares – fully paid
112,387,138
112,387,138
2021
$’000
2020
$’000
2021
$’000
10,676
2020
$’000
11,191
Movements in ordinary share capital
Details
Balance
Vesting of deferred shares in the
Employee Share Trust (43,466 shares)
Vesting of deferred shares in the
Employee Share Trust (14,768 shares)
Vesting of deferred shares in the
Employee Share Trust (109,800 shares)
Vesting of deferred shares in the
Employee Share Trust (893,900 shares)
Vesting of deferred shares in the
Employee Share Trust (34,473 shares)
Purchase of deferred shares in the
Employee share plan – on-market
Vesting of deferred shares in the
Employee Share Trust (21,935 shares)
Vesting of deferred shares in the
Employee Share Trust (12,310 shares)
Vesting of deferred shares in the
Employee Share Trust (1,494 shares)
Vesting of deferred shares in the
Employee Share Trust (2,627 shares)
Vesting of deferred shares in the
Employee Share Trust (13,419 shares)
Date
Shares
Issue price
$’000
1 July 2020
112,387,138
11,191
17 August 2020
17 August 2020
17 August 2020
1 September 2020
7 September 2020
7 September to
6 October 2020
22 February 2021
22 February 2021
22 February 2021
3 March 2021
3 March 2021
–
–
–
–
–
–
–
–
–
–
–
$1.32
$2.15
$0.88
57
32
97
$0.88
793
$1.32
46
$4.53
(1,635)
$1.32
$2.15
$4.53
$1.32
29
27
7
3
$2.15
29
Balance
30 June 2021
112,387,138
10,676
78
Australian Ethical Investment Limited and its Controlled Entities NOTES TO THE FINANCIAL STATEMENTSFor the year ended 30 June 2021ANNUAL REPORT 2021
NOTE 30. EQUITY – ISSUED CAPITAL (CONTINUED)
On 1 September 2020, 893,000 shares that were granted to employees on 1 September 2017 vested to
employees as the performance hurdle had been met. On 17 August and 7 September 2020 and 22 February and
3 March 2021, additional shares were vested to employees impacted by staff restructuring in proportion to the
period of employment.
From 1 September 2020, the Company changed its approach to measuring deferred shares from 90-day VWAP
price to the price at which the shares were purchased on-market. At the same time, the Company changed its
accounting policy to recognise these share purchases as a reduction in Issued Capital as opposed to through
the Share-based payment reserve.
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, including deferred shares.
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 Group’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.
The capital risk management policy remained 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 historical 3-year 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 shareholders, which is in line with the historical dividend range paid to shareholders. In certain
circumstances, the Board may declare a dividend outside that range. Refer also to Note 12 which discusses
the provisioning of staff incentive payments and community grants prior to recommending or declaring a
dividend under the Group’s constitution.
79
NOTE 31. EQUITY – RESERVES
Share-based payment reserve
Fair value through other comprehensive
income (‘FVOCI’) reserve
Consolidated
Parent
2021
$’000
1,033
1
1,034
2020
$’000
791
(7)
784
2021
$’000
1,033
–
1,033
2020
$’000
791
–
791
Share-based payment reserve
This reserve relates to shares granted by the Group to its employees under its share-based payment arrangement.
Further information about share-based payments to employees is set out in Note 42.
Financial assets at FVOCI reserve
The Group has elected to recognise changes in the fair value of certain investments in equity financial instruments in
OCI (refer to Note 2). These include listed shares held in the advocacy program and investment in the SVA unit trusts
held by The Foundation. These changes are accumulated within the FVOCI reserve within Equity. The Group
transfers amounts from this reserve to retained earnings when the relevant equity securities are derecognised.
Movements in reserves
Movements in each class of reserve during the current and previous financial year are set out below:
Consolidated
Balance at 30 June 2019
Shares vested under deferred share plan during the year
Employee share plan – shares purchased on market
Employee share plan – deferred shares
Revaluation of investments
Balance at 30 June 2020
Shares vested under deferred share plan during the year
Employee share plan – deferred shares
Revaluation of investments
Balance at 30 June 2021
Parent
Balance at 30 June 2019
Shares vested under deferred share plan during the year
Employee share plan – shares purchased on market
Employee share plan – deferred shares
Balance at 30 June 2020
Shares vested under deferred share plan during the year
Employee share plan – deferred shares
Balance at 30 June 2021
Share-based
payment
reserve
$’000
FVOCI
reserve
$’000
792
(557)
(632)
1,188
–
791
(1,120)
1,362
–
1,033
(4)
–
–
–
(3)
(7)
–
–
8
1
Share-based
payment
reserve
$’000
FVOCI
reserve
$’000
792
(557)
(632)
1,188
791
(1,120)
1,362
1,033
–
–
–
–
–
–
–
–
Total
$’000
788
(557)
(632)
1,188
(3)
784
(1,120)
1,362
8
1,034
Total
$’000
792
(557)
(632)
1,188
791
(1,120)
1,362
1,033
80
Australian Ethical Investment Limited and its Controlled Entities NOTES TO THE FINANCIAL STATEMENTSFor the year ended 30 June 2021ANNUAL REPORT 2021 NOTE 32. EQUITY – DIVIDENDS
Dividends
Dividends paid during the financial year were as follows:
Final dividend for the year ended 30 June 2020 of 2.50 cents
(2019: 3.00 cents) per ordinary share – fully franked
Special performance dividend for the year ended 30 June 2020
of 1.00 cents (2019: nil) per ordinary share
Interim dividend for the year ended 30 June 2021 of 3.00 cents
(2020: 2.50 cents) per ordinary share – fully franked
2021
$’000
2020
$’000
2,810
3,362
1,124
3,371
7,305
2,810
6,172
Since year end the Directors have declared a final dividend of 4.00 cents per fully paid ordinary share
(2020: 2.50 cents) and special performance fee dividend of 1.00 cents per fully paid ordinary share
(2020: 1.00 cents). The aggregate amount of the declared dividend expected to be paid on
16 September 2021 out of profits for the year ended 30 June 2021, but not recognised as a liability at
year end, is $5,619,000 (2020: $3,934,000). All dividends paid during the year were fully franked based
on tax paid at 27.5%. The final dividend to be paid in September 2021 will be fully franked at 30.0%.
Franking credits
Dividends paid during the financial year were as follows:
Franking credits available for subsequent financial years based
on a tax rate of 30% (2020: 26%)
2021
$’000
2020
$’000
5,982
6,662
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.
NOTE 33. 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 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, Risk & Compliance
81
NOTE 33. FINANCIAL INSTRUMENTS (CONTINUED)
Committee (ARC). The Board regularly monitors the overall risk profile of the Group and sets the risk
appetite, usually in conjunction with the annual strategy and 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 ARC. One of the main
functions of the Committee is to identify emerging risks and determine treatment and monitoring of
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 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 dependent on Funds Under Management (FUM) which is influenced by equity
market movements. Management calculates that a 10% movement in FUM linked to equity markets
would change annualised revenue by approximately $4,593,000 (2020: $3,173,000).
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 S&P’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.
Generally, trade receivables are written off when there is no reasonable expectation of recovery.
Indicators of this include the failure of a debtor to engage in a repayment plan, no active enforcement
activity and a failure to make contractual payments for a period greater than 1 year.
Liquidity risk
Vigilant liquidity risk management requires the Group to maintain sufficient liquid assets (mainly cash
and cash equivalents).
The consolidated entity manages liquidity risk by maintaining adequate cash reserves 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 rolling forecast of liquid assets, cash flows and
balance sheet are reviewed by the Board quarterly to ensure there is sufficient liquidity within the
Group.
Remaining contractual maturities
The following tables detail the 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.
82
Australian Ethical Investment Limited and its Controlled Entities NOTES TO THE FINANCIAL STATEMENTSFor the year ended 30 June 2021ANNUAL REPORT 2021 NOTE 33. FINANCIAL INSTRUMENTS (CONTINUED)
1 year or less
$’000
Between 1
and 2 years
$’000
Between 2
and 5 years
$’000
Over
5 years
$’000
Remaining
contractual
maturities
$’000
Consolidated – 2021
Non-derivatives
Non-interest bearing
Trade payables and accruals
Income tax payable
Total non-derivatives
Consolidated – 2020
Non-derivatives
Non-interest bearing
Trade payables and accruals
Income tax payable
Total non-derivatives
Parent – 2021
Non-derivatives
Non-interest bearing
Trade payables and accruals
Income tax payable
Total non-derivatives
Parent – 2020
Non-derivatives
Non-interest bearing
Trade payables and accruals
Income tax payable
Total non-derivatives
10,926
1,364
12,290
–
–
–
–
–
–
–
–
–
10,926
1,364
12,290
1 year or less
$’000
Between 1
and 2 years
$’000
Between 2
and 5 years
$’000
Over
5 years
$’000
Remaining
contractual
maturities
$’000
9,469
852
10,321
–
–
–
–
–
–
–
–
–
9,469
852
10,321
1 year or less
$’000
Between 1
and 2 years
$’000
Between 2
and 5 years
$’000
Over
5 years
$’000
Remaining
contractual
maturities
$’000
9,757
1,364
11,121
–
–
–
–
–
–
–
–
–
9,757
1,364
11,121
1 year or less
$’000
Between 1
and 2 years
$’000
Between 2
and 5 years
$’000
Over
5 years
$’000
Remaining
contractual
maturities
$’000
7,497
2,326
9,823
–
–
–
–
–
–
–
–
–
7,497
2,326
9,823
Fair value of financial instruments
Unless otherwise stated, the carrying amounts of financial instruments reflect their fair value.
83
NOTE 34. FAIR VALUE MEASUREMENT
Recognition and 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.
This note provides an update on the judgements and estimates made by the Group in determining
the fair values of the financial instruments since the last annual financial report.
The following tables detail the group’s assets measured or disclosed at fair value, using a three level
hierarchy, based on the lowest level of input that is significant to the entire fair value measurement,
being:
Level 1: Quoted prices (unadjusted) in active markets for identical assets or liabilities that the entity
can access at the measurement date.
Level 2: Fair value measurements derived from inputs other than quoted prices included within Level
1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived
from prices). The fair value of financial assets that are not traded in an active market is determined
using valuation techniques. These include the use of recent arm’s length market transactions,
referenced to the current fair value of a substantially similar other instrument or any other valuation
technique that provides a reliable estimate of prices obtained in actual market transactions.
Level 3: Fair value measurements are those derived from valuation techniques that include inputs for
the asset or liability that are not based on observable market data (unobservable inputs).
Consolidated – 2021
Financial assets measured at fair value
Investments
Total assets
Consolidated – 2020
Financial assets measured at fair value
Investments
Total assets
Level 1
$’000
Level 2
$’000
Level 3
$’000
Total
$’000
2
2
139
139
–
–
141
141
Level 1
$’000
Level 2
$’000
Level 3
$’000
Total
$’000
2
2
131
131
–
–
133
133
84
Australian Ethical Investment Limited and its Controlled Entities NOTES TO THE FINANCIAL STATEMENTSFor the year ended 30 June 2021ANNUAL REPORT 2021 NOTE 34. FAIR VALUE MEASUREMENT (CONTINUED)
Parent – 2021
Financial assets measured at fair value
Investments
Total assets
Parent – 2020
Financial assets measured at fair value
Investments
Total assets
Level 1
$’000
Level 2
$’000
Level 3
$’000
Total
$’000
2
2
–
–
–
–
2
2
Level 1
$’000
Level 2
$’000
Level 3
$’000
Total
$’000
2
2
–
–
–
–
2
2
Assets and liabilities held for sale are measured at fair value on a non-recurring basis. There were no
transfers between levels during the financial year.
NOTE 35. KEY MANAGEMENT PERSONNEL DISCLOSURES
Compensation
The aggregate compensation made to Directors and other members of key management personnel
of the Group is set out below:
Consolidated
Parent
2021
$
2020
$
2021
$
2020
$
Short-term employee benefits
4,432,079
3,960,767
4,276,365
3,830,608
Post-employment benefits
Long-term benefits
Share-based payments
244,708
503,395
229,915
491,030
73,937
65,873
73,937
65,873
389,926
316,385
389,926
316,385
5,140,651
4,846,420
4,970,144
4,703,896
Information regarding key management personnel’s remuneration and shares held in Australian
Ethical Investment Limited is provided in the Remuneration Report.
85
NOTE 36. REMUNERATION OF AUDITORS
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
2021
$
2020
$
2021
$
2020
$
Audit services – KPMG
Audit or review of the financial statements
88,884
94,600
63,735
69,700
Other services – KPMG
Audit services in accordance with regulatory
requirements
Assurance services in relation to the
Sustainability Report
Tax compliance and advisory services
Other consulting advice
42,312
41,893
42,312
41,893
25,624
25,625
25,625
25,625
69,664
40,632
178,232
267,116
88,091
90,425
246,034
340,634
45,920
40,632
52,347
90,425
154,489
210,290
218,224
279,990
Audit Services for the non-consolidated trusts and superannuation fund* – KPMG
Audit and review of managed funds for which
the Company acts as Responsible Entity
Audit of superannuation fund for which
the subsidiary entity acts as Responsible
Superannuation Entity
Audit services in accordance with regulatory
requirements
Total remuneration of KPMG
149,127
147,651
149,127
147,651
35,199
34,850
65,330
58,088
–
–
–
–
249,656
240,589
516,772
581,223
149,127
367,351
147,651
427,641
* These fees are incurred by the Company and are effectively recovered from the funds via
administration or management fees.
The Board considered the non-audit services provided by the auditor and is satisfied that the
provision of the non-audit services 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.
86
Australian Ethical Investment Limited and its Controlled Entities NOTES TO THE FINANCIAL STATEMENTSFor the year ended 30 June 2021ANNUAL REPORT 2021 NOTE 37. COMMITMENTS
The group entered a long-term operating lease for its Sydney office for a period of 7 years on 1 July
2016. The Group does not have an option to purchase the premises at the expiry of the lease period.
A bank guarantee of $504,000 has been provided by the Group to the property owners over the
rental of building premises at 130 Pitt Street, Sydney. A right-of-use asset and lease liability has been
recognised in the Statement of Financial Position in relation to this lease.
The Group renewed its lease commitment with Harbour IT for the provision of IT hardware, software
and support for a further period of 2 years on 1 April 2021. A right-of-use asset and lease liability has
been recognised in the Statement of Financial Position in relation to this lease arrangement.
NOTE 38. RELATED PARTY TRANSACTIONS
Parent entity
Australian Ethical Investments Limited is the parent entity.
Subsidiaries
Interests in subsidiaries are set out in Note 39.
KMP remuneration
Disclosures relating to key management personnel are set out in Note 35 and the remuneration report
included in the Directors’ report.
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
• Australian Ethical Fixed Interest Fund
• Australian Ethical International Shares Fund
• Australian Ethical Advocacy Fund
• Australian Ethical Emerging Companies Fund
• Australian Ethical Balanced Fund
The Funds listed above are considered structured entities that have not been consolidated by
the Group, as the Group does not have control over these entities. The table below sets out the
transactions that occurred during the year between the Group and these entities.
Australian Ethical Employee Share Trusts (EST) acts as trustee for the employee deferred share plan.
Pacific Custodian Pty Limited acts as trustee to the trust.
On 17 December 2020, the Parent entity acquired 100% ownership of August Investment Pty Limited
for $27,501. This acquisition prevents the brand being acquired by a third party. As the entity owned
no other assets or liabilities, the investment was recognised as goodwill and amortised to nil after the
acquisition was completed.
87
NOTE 38. RELATED PARTY TRANSACTIONS (CONTINUED)
Transactions with related parties
The following transactions occurred with related parties:
Receipts from Australian Ethical Superannuation Pty Limited:
Consolidated
Parent
2021
$
2020
$
2021
$
2020
$
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 fees reimbursed by the subsidiary
Receipt from the Australian Ethical Trusts:
Provision of investment management
services to the AETs as identified above in
accordance with the Constitution and PDS
–
–
–
–
–
–
–
–
–
–
6,637,628
8,089,092
20,645,569
16,077,545
1,001,705
629,991
1,721,210
4,016,158
–
55,142
15,897,398
12,267,475
15,897,398
12,267,475
Performance fee
2,894,953
3,639,560
2,894,953
3,639,560
Receipts from Australian Ethical Retail Superannuation Fund:
Provision of investment management /
administration services to AERSF
Provision of member administration services
to AERSF
34,391,528
29,433,651
4,143,696
3,230,066
–
–
–
–
Payments to Australian Ethical Foundation Limited:
Community grants paid to The Foundation
–
–
1,299,759
936,756
Government grant paid to The Foundation
100,000
–
Receivable from and payable to related parties
The following balances are outstanding at the reporting date in relation to transactions with related parties:
Consolidated
2021
$
2020
$
Parent
2021
$
2020
$
Current receivables:
Amounts receivable from the AETs
307,096
173,280
307,096
173,280
Amounts receivable from the AETs
– performance fee
Amounts receivable from AES
2,894,953
3,639,560
2,894,953
3,639,560
–
–
1,397,761
2,094,721
Amounts receivable from AERSF
594,026
655,622
–
–
Current payables:
Amounts payable to AES
(5,275)
(1,474,088)
Amounts payable to The Foundation
–
–
(1,519,353)
(1,299,759)
Terms and conditions
All transactions were made on normal commercial terms and conditions and at market rates.
88
Australian Ethical Investment Limited and its Controlled Entities NOTES TO THE FINANCIAL STATEMENTSFor the year ended 30 June 2021ANNUAL REPORT 2021 NOTE 39. 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
August Investment Pty Limited
Principal place of business /
Country of incorporation
Ownership interest
2020
%
2021
%
Level 8, 130 Pitt Street Sydney
NSW 2000 Australia
100%
100%
Level 8, 130 Pitt Street Sydney
NSW 2000 Australia
Level 8, 130 Pitt Street Sydney
NSW 2000 Australia
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 strategic and community grants
and for the creation of a corpus for long-term impact investing in 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. Refer to Note 43 for further details about the Foundation’s activities.
NOTE 40. RECONCILIATION OF PROFIT AFTER INCOME TAX TO NET CASH FROM OPERATING ACTIVITIES
Profit after income tax expense for the year
Adjustments for:
Depreciation and amortisation
Non-cash employee benefits expense -
deferred shares
Reclassification of PPE from investing
activities
Gain on disposal of investment property
held for sale
Dividend received from subsidiary
Change in operating assets and liabilities:
(Increase)/Decrease in trade and other
receivables
Increase in lease assets
(Increase)/Decrease in prepayments
Increase in deferred tax assets
(Increase) in other in current receivable
(Increase) in other non-current receivable
Increase in trade and other payables
Increase/(Decrease) in lease liabilities
Increase in employee benefits
Increase in other provisions
Increase in current tax liability
Increase in deferred tax liability
Consolidated
2021
$’000
11,118
1,169
1,157
(253)
–
–
2020
$’000
9,457
898
1,134
Parent
2021
$’000
10,602
1,169
1,157
2020
$’000
11,830
898
1,134
–
(253)
–
(178)
–
–
(178)
(1,721)
(4,016)
554
(2,396)
(90)
(4,335)
(1)
263
(766)
(25)
–
1,137
(67)
689
6
512
10
(1,297)
(725)
(329)
–
(440)
769
1,641
242
6
44
25
(1)
280
(565)
(25)
–
356
(67)
653
6
512
10
(1,297)
(681)
(316)
–
(440)
1,752
1,641
222
6
44
25
Net cash from operating activities
15,503
8,851
12,023
6,289
89
NOTE 41. EARNINGS PER SHARE
Profit after income tax attributable to the owners of Australian
Ethical Investment Limited and its Controlled Entities
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:
Deferred shares
Weighted average number of ordinary shares used in calculating
diluted earnings per share
Consolidated
2021
$’000
2020
$’000
11,118
9,457
Cents
10.06
9.90
Cents
8.62
8.42
Number
Number
110,485,465 109,725,643
1,857,910
2,577,353
112,343,375 112,302,996
Recognition and measurement
Basic earnings per share
Basic earnings per share is calculated by dividing the profit attributable to the owners of Australian Ethical
Investment Limited and its Controlled Entities, 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,
which relate to deferred shares issued as part of the Company’s long term employee benefits.
NOTE 42. SHARE-BASED PAYMENTS
The following share-based payment arrangements existed as at 30 June 2021.
Deferred Shares
Under the employee long term employee share plan, 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 over the vesting period. For certain employees a portion of their short term incentive
is also paid in deferred shares which vest subject to meeting service conditions. Refer to the
Remuneration Report for further details of these employee incentive plans.
In the current year, $1,635,000 (2020: $633,000) was paid to purchase deferred shares granted to
employees. The Board continues to retain discretion to issue new shares if required.
Included under employee benefits expense in the Consolidated Statement of Comprehensive
Income is $1,054,000 (2020: $1,071,000) relating to the deferred shares granted under the long term
employee share plan, and $163,000 (2020: $64,000) relating to the deferred portion of the short term
incentive plan.
As at 30 June 2021, the Employee Share Trust holds 1,808,695 shares (30 June 2020: 2,596,158
shares) on behalf of employees until vesting conditions are met.
90
Australian Ethical Investment Limited and its Controlled Entities NOTES TO THE FINANCIAL STATEMENTSFor the year ended 30 June 2021ANNUAL REPORT 2021 NOTE 42. SHARE-BASED PAYMENTS (CONTINUED)
2021
Grant date
Vesting date
Balance at
the start of
the year
01/09/2017
31/08/2020
1,003,700
01/09/2018
31/08/2021
01/09/2019
31/08/2022
01/09/2020
31/08/2023
837,365
695,380
–
2,536,445
Unallocated treasury shares
Total deferred shares in the Employee Share Trust
2020
Grant date
Vesting date
01/09/2016
31/08/2019
03/01/2017
01/09/2017
30/11/2019
31/08/2020
Balance at
the start of
the year
747,300
46,500
1,004,900
28,500
01/09/2018
31/08/2021
880,100
01/09/2019
31/08/2022
–
2,678,800
–
727,346
755,846
Unallocated treasury shares
Total deferred shares in the Employee Share Trust
Granted
Vested
Forfeited
Balance at
the end of
the year
–
–
–
418,610
418,610
(1,003,700)
(102,500)
(40,497)
(1,494)
–
–
(4,665)
(18,645)
(10,420)
730,200
636,238
406,696
(1,148,191)
(33,730)
1,773,134
35,561
1,808,695
Balance at
the end of
the year
Granted
Vested
Forfeited
–
–
(747,300)
(46,500)
(4,050)
(1,875)
–
–
–
–
(25,650)
1,003,700
(40,860)
837,365
–
(31,966)
695,380
(799,725)
(98,476)
2,536,445
59,713
2,596,158
Recognition and measurement
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 over
the vesting period with a corresponding increase in Share based payment reserve. Upon vesting, the
employees become unconditionally entitled to the awards and the shares are transferred from the
Share based payment reserve to Contributed equity.
The amount recognised as an expense is adjusted to reflect the number of awards for which the
related performance and service conditions are expected to be met at the vesting date.
91
NOTE 43. 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 2021, the impact of The Foundation before intercompany
eliminations is noted below:
Statement of comprehensive income
Revenue from parent entity
Interest income
Community grants expense
Audit fees and other operating expenses
Profit for the year
Other comprehensive income
Fair value adjustment of investment
Total comprehensive income for the year
Statement of financial position
Assets:
Cash and cash equivalents
Receivables from parent entity
Other receivables
Financial assets at fair value through profit or loss
Liabilities:
Payables
Net assets
Equity:
Retained earnings
FVOCI reserve
Total Equity
2021
$’000
2020
$’000
1,619
3
(1,750)
(15)
(143)
6
(137)
1,300
5
(1,291)
(14)
–
(3)
(3)
2021
$’000
2020
$’000
534
1,519
1
139
468
1,300
–
133
(1,674)
519
(1,245)
656
520
(1)
519
663
(7)
656
NOTE 44. EVENTS AFTER THE REPORTING PERIOD
Apart from the dividend declared as disclosed in Note 32, no other matter or circumstance has arisen
since 30 June 2021 that has significantly affected, or may significantly affect the Group’s operations,
the results of those operations, or the Group’s state of affairs in future financial years. Management
have considered the impact of the ongoing COVID-19 pandemic in Australia and assessed there are
no changes required to the financial statements subsequent to the end of the financial year.
92
Australian Ethical Investment Limited and its Controlled Entities NOTES TO THE FINANCIAL STATEMENTSFor the year ended 30 June 2021ANNUAL REPORT 2021 Directors’ 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 Group’s
financial position as at 30 June 2021 and of their performance for the financial year ended on that
date; and
• there are reasonable grounds to believe that the Company 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
JOHN MCMURDO
Managing Director and Chief Executive Officer
25 August 2021
Sydney
93
This is the original version of the audit report over the financial statements signed by the directors on 25 August 2021.
Page references should be read as follows to reflect the correct references now that the financial statements have
been presented in the content of the annual report in its entirety:
The Audited Remuneration Report is set out on pages 36 to 53, as opposed to pages 22 to 39 as outlined below.
Independent Auditor’s Report
Independent Auditor’s Report
To the shareholders of Australian Ethical Investment Limited
To the shareholders of Australian Ethical Investment Limited
Report on the audit of the Financial Report
Report on the audit of the Financial Report
Opinion
The respective Financial Reports of the Group and the
Company comprise:
• Statements of financial position as at 30 June 2021;
The respective Financial Reports of the Group and the
• Statements comprehensive income,
Company comprise:
Statements of changes in equity, and
• Statements of financial position as at 30 June 2021;
Statements of cash flows for the year then ended;
• Statements comprehensive income,
• Notes including a summary of significant accounting
Statements of changes in equity, and
policies; and
Statements of cash flows for the year then ended;
policies; and
• Directors’ Declarations.
• Notes including a summary of significant accounting
The Group consists of Australian Ethical Investment
Limited (the Company) and the entities it controlled at the
• Directors’ Declarations.
year-end or from time to time during the financial year.
The Group consists of Australian Ethical Investment
Limited (the Company) and the entities it controlled at the
year-end or from time to time during the financial year.
We have audited the Financial Report of
Opinion
Australian Ethical Investment Limited (the
Group Financial Report). We have also
We have audited the Financial Report of
audited the Financial Report of Australian
Australian Ethical Investment Limited (the
Ethical Investment Limited (the Company
Group Financial Report). We have also
Financial Report)
audited the Financial Report of Australian
In our opinion, each of the accompanying
Ethical Investment Limited (the Company
Group Financial Report and Company
Financial Report)
Financial Report are in accordance with
In our opinion, each of the accompanying
the Corporations Act 2001, including:
Group Financial Report and Company
• giving a true and fair view of the
Financial Report are in accordance with
Group’s and the Company’s financial
the Corporations Act 2001, including:
position as at 30 June 2021 and of
• giving a true and fair view of the
their financial performance for the
Group’s and the Company’s financial
year ended on that date; and
position as at 30 June 2021 and of
complying with Australian Accounting
their financial performance for the
Standards and the Corporations
year ended on that date; and
Regulations 2001.
complying with Australian Accounting
Standards and the Corporations
Regulations 2001.
Basis for opinion
•
•
We conducted our audit in accordance with Australian Auditing Standards. We believe that the audit
Basis for opinion
evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
Our responsibilities under those standards are further described in the Auditor’s responsibilities for the
We conducted our audit in accordance with Australian Auditing Standards. We believe that the audit
audit of the Financial Reports section of our report.
evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
We are independent of the Group and Company in accordance with the Corporations Act 2001 and the
Our responsibilities under those standards are further described in the Auditor’s responsibilities for the
ethical requirements of the Accounting Professional and Ethical Standards Board’s APES 110 Code of
audit of the Financial Reports section of our report.
Ethics for Professional Accountants (including Independence Standards) (the Code) that are relevant to
We are independent of the Group and Company in accordance with the Corporations Act 2001 and the
our audit of the Financial Reports in Australia. We have fulfilled our other ethical responsibilities in
ethical requirements of the Accounting Professional and Ethical Standards Board’s APES 110 Code of
accordance with the Code.
Ethics for Professional Accountants (including Independence Standards) (the Code) that are relevant to
our audit of the Financial Reports in Australia. We have fulfilled our other ethical responsibilities in
accordance with the Code.
80
KPMG, an Australian partnership and a member firm of the KPMG global organisation of independent member firms affiliated
with KPMG International Limited, a private English company limited by guarantee. All rights reserved. The KPMG name and
80
logo are trademarks used under license by the independent member firms of the KPMG global organisation. Liability limited by
KPMG, an Australian partnership and a member firm of the KPMG global organisation of independent member firms affiliated
a scheme approved under Professional Standards Legislation.
with KPMG International Limited, a private English company limited by guarantee. All rights reserved. The KPMG name and
logo are trademarks used under license by the independent member firms of the KPMG global organisation. Liability limited by
94
a scheme approved under Professional Standards Legislation.
The Key Audit Matter we identified is:
Key Audit Matters are those matters that, in our
Key Audit Matters
• Management, Performance and
Administration fees.
professional judgement, were of most significance in our
audits of the Financial Reports of the current period.
These matters were addressed in the context of our audit
of the Financial Reports as a whole, and in forming our
opinion thereon, and we do not provide a separate opinion
on these matters.
Management Fees – ($43.2m), Performance Fees – ($2.9m) and Administration fees ($8.4m) –
Group and Company
Refer to Note 5 to the Group Financial Report and Company Financial Report
The key audit matter
How the matter was addressed in our audit
Management, Performance and
Administration fees were a key audit
matter due to the:
•
individual fee arrangements in place
for each of the managed funds and
the Australian Ethical Retail
Superannuation Fund (the
superannuation fund) which
necessitated considerable audit
effort; and
•
significance of the revenue to the
Group and Company, constituting
93% and 96% of total revenue,
respectively.
Our procedures included:
• We read and understood the individual Management,
Performance and Administration fee arrangements in the
Product Disclosure Statements ("PDS") of each of the
funds and the superannuation fund;
• We performed a recalculation of Management,
Performance and Administration fees charged using the
fee percentages and funds under management, obtained
from each of the Product Disclosure Statements and
underlying fund financial records respectively. We
compared the independently calculated fee revenue to
those of the Group and Company and investigated
significant differences;
• We assessed funds under management (“FUM”) by:
- testing key controls over the input of valuation data into
the Group's system such as daily price movement
checks performed by management;
- checking the data output of the Group's system by
selecting a sample of balances and comparing to source
documentation;
- checking the quantity of assets held to external custodian
service provider reports at balance date; and
- using valuation specialists, we tested the fair value of a
sample of investments by comparing the value to market
data such as global and domestic equity prices.
• We read and understood the Management and
Administration fee arrangements in the Investment
Management and Trustee Service Agreements between
the Company and its subsidiary, Australian Ethical
Superannuation Limited (AES); and
81
ANNUAL REPORT 2021
Key Audit Matters
The Key Audit Matter we identified is:
• Management, Performance and
Administration fees.
Key Audit Matters are those matters that, in our
professional judgement, were of most significance in our
audits of the Financial Reports of the current period.
These matters were addressed in the context of our audit
of the Financial Reports as a whole, and in forming our
opinion thereon, and we do not provide a separate opinion
on these matters.
Management Fees – ($43.2m), Performance Fees – ($2.9m) and Administration fees ($8.4m) –
Group and Company
Refer to Note 5 to the Group Financial Report and Company Financial Report
The key audit matter
How the matter was addressed in our audit
Management, Performance and
Administration fees were a key audit
matter due to the:
•
•
individual fee arrangements in place
for each of the managed funds and
the Australian Ethical Retail
Superannuation Fund (the
superannuation fund) which
necessitated considerable audit
effort; and
significance of the revenue to the
Group and Company, constituting
93% and 96% of total revenue,
respectively.
Our procedures included:
• We read and understood the individual Management,
Performance and Administration fee arrangements in the
Product Disclosure Statements ("PDS") of each of the
funds and the superannuation fund;
• We performed a recalculation of Management,
Performance and Administration fees charged using the
fee percentages and funds under management, obtained
from each of the Product Disclosure Statements and
underlying fund financial records respectively. We
compared the independently calculated fee revenue to
those of the Group and Company and investigated
significant differences;
• We assessed funds under management (“FUM”) by:
- testing key controls over the input of valuation data into
the Group's system such as daily price movement
checks performed by management;
- checking the data output of the Group's system by
selecting a sample of balances and comparing to source
documentation;
- checking the quantity of assets held to external custodian
service provider reports at balance date; and
- using valuation specialists, we tested the fair value of a
sample of investments by comparing the value to market
data such as global and domestic equity prices.
• We read and understood the Management and
Administration fee arrangements in the Investment
Management and Trustee Service Agreements between
the Company and its subsidiary, Australian Ethical
Superannuation Limited (AES); and
81
95
• We performed a recalculation of the Management and
Administration fee between the Company and AES using
the fee percentages obtained from the Investment
Management and Trustee Service Agreements and the
FUM. We compared the independently calculated fee
revenue to the fee revenue recorded by the Company
and investigated significant differences.
Other Information
Other Information is financial and non-financial information in Australian Ethical Investment Limited’s
annual reporting which is provided in addition to the Financial Reports and the Auditor’s Report. The
Directors are responsible for the Other Information.
The Other Information we obtained prior to the date of this Auditor’s Report was the Directors' Report
and the Remuneration Report. Message from the CEO, Message from the Chair, Strategic update,
Highlights, Financial performance, Our products, Investment report and Memberships and certifications
and Shareholder Information sections of the annual report are expected to be made available to us after
the date of the Auditor's Report.
Our opinions on the Financial Reports do not cover the Other Information and, accordingly, we do not
and will not express an audit opinion or any form of assurance conclusion thereon, with the exception of
the Remuneration Report and our related assurance opinion. In connection with our audits of the
Financial Reports, our responsibility is to read the Other Information. In doing so, we consider whether
the Other Information is materially inconsistent with the Financial Reports or our knowledge obtained in
the audits, or otherwise appears to be materially misstated.
We are required to report if we conclude that there is a material misstatement of this Other Information,
and based on the work we have performed on the Other Information that we obtained prior to the date
of this Auditor’s Report we have nothing to report.
Responsibilities of the Directors for the Financial Reports
The Directors are responsible for:
• preparing Financial Reports that give a true and fair view in accordance with Australian Accounting
Standards the Corporations Act 2001;
•
implementing necessary internal control to enable the preparation of Financial Reports that give a
true and fair view and are free from material misstatement, whether due to fraud or error; and
• assessing the Group and Company’s ability to continue as a going concern and whether the use of
the going concern basis of accounting is appropriate. This includes disclosing, as applicable, matters
related to going concern and using the going concern basis of accounting unless they either intend
to liquidate the Group and Company or to cease operations, or have no realistic alternative but to do
so.
96
82
ANNUAL REPORT 2021
Auditor’s responsibilities for the audit of the Financial Reports
Our objective is:
•
•
to obtain reasonable assurance about whether the Financial Reports as a whole are free from
material misstatement, whether due to fraud or error; and
to issue an Auditor’s Report that includes our opinion.
Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in
accordance with Australian Auditing Standards will always detect a material misstatement when it
exists.
Misstatements can arise from fraud or error. They are considered material if, individually or in the
aggregate, they could reasonably be expected to influence the economic decisions of users taken on the
basis of the Financial Reports.
A further description of our responsibilities for the audit of the Financial Reports is located at the
Auditing and Assurance Standards Board website at:
https://www.auasb.gov.au/admin/file/content102/c3/ar1_2020.pdf This description forms part of our
Auditor’s Report.
Report on the Remuneration Report
Opinion
Directors’ responsibilities
In our opinion, the Remuneration Report
of Australian Ethical Investment Limited
for the year ended 30 June 2021 complies
with Section 300A of the Corporations Act
2001.
The Directors of the Company are responsible for the
preparation and presentation of the Remuneration Report
in accordance with Section 300A of the Corporations Act
2001.
Our responsibilities
We have audited the Remuneration Report included in
pages 22 to 39 in the Directors’ report for the year ended
30 June 2021.
Our responsibility is to express an opinion on the
Remuneration Report, based on our audit conducted in
accordance with Australian Auditing Standards.
KPMG
Karen Hopkins
Partner
Sydney
25 August 2021
83
97
Shareholder information
Shareholder information as at 31 August 2021
Security
Number of holders Number on issue
Voting rights
Fully paid ordinary shares
14,413
112,387,138
One vote per share
Top 20 shareholders of fully paid ordinary shares
Shareholders
J P Morgan Nominees Australia Pty Limited
HSBC Custody Nominees (Australia) Limited
James Andrew Thier
Ms Caroline Le Couteur
National Nominees Limited
Mr Eric Yin Wang Tse & Mrs Patty Bik Yuk Tse
Mrs Judith Margaret Boag
Mr Trevor Roland Lee
Mr Howard Pender
Mrs Ann Marion McGregor & Mr Bruce Allan McGregor
HB Sarjeant & Assoc Pty Ltd
Pacific Custodians Pty Limited
Citicorp Nominees Pty Limited
Daisy Thier
Mr Anthony Scott Cook
Mr Phillip Andrew Vernon
Mr Michel Beuchat & Mrs Ann Beuchat
Dr Judith Ingrouille Ajani
BNP Paribas Nominees Pty Ltd Hub24 Custodial Serv Ltd
BNP Paribas Nominees Pty Ltd
Total
Balance of register
Grand total
Distribution of Holdings
Range
100,001 and Over
10,001 to 100,000
5,001 to 10,000
1,001 to 5,000
1 to 1,000
Total
On Monday, 31 August 2021:
• AEF shares closed at $10.69
Balance
8,546,032
6,961,148
5,066,920
4,272,623
3,039,954
2,699,500
2,554,778
2,400,000
2,082,550
2,039,827
2,014,000
1,808,695
1,559,480
1,529,700
1,288,400
1,135,800
966,700
964,654
644,649
639,244
52,214,654
60,172,484
112,387,138
Securities
69,907,203
949,452
5,193,270
8,816,085
3,521,128
%
62.2
22.20
4.62
7.84
3.13
112,387,138
100.00
%
7.60
6.19
4.51
3.80
2.70
2.40
2.27
2.14
1.85
1.82
1.79
1.61
1.39
1.36
1.15
1.01
0.86
0.86
0.57
0.57
46.46
53.54
100.00
Holders
91
887
702
3,856
8,877
14,413
• Accordingly, 47 or more shares constituted a marketable parcel
• The Company had 79 shareholders whose holding was not a marketable parcel, these 79 shareholders owned
a total of 861 shares
98
ANNUAL REPORT 2021
Company directory
AEI Group
Directors
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
AFSL Number 526055
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 Centre Sydney
GPO Box 8, Sydney 2001
Phone +61 1800 021 227
Email enquiries@australianethical.com.au
australianethical.com.au
Share Registry
Steve Gibbs (Chair)
Mara Bûn (Non-Executive Director)
Kate Greenhill (Non-Executive Director)
Michael Monaghan (Non-Executive Director)
Julie Orr (Non-Executive Director)
John McMurdo (MD & CEO)
Company Secretaries
Karen Hughes
Tom May
Banker and custodian
National Australia Bank Limited
Level 3, 255 George Street
Sydney NSW 2000
Administrator
For superannuation
Mercer Outsourcing (Australia) Pty Ltd
Collins Square
727 Collins Street
Melbourne VIC Australia 3008
Locked Bag 20013, Melbourne VIC 3001
For managed funds
Boardroom Pty Ltd
GPO Box 3993
Sydney NSW 2001
Auditors and taxation
KPMG Australia
International Towers
300 Barangaroo Avenue
Sydney NSW 2000
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
linkmarketservices.com.au
Media enquiries
Third Hemisphere
36 Osborne Road
Manly NSW 2095
Contact us
Security Exchange Listing
Australian Ethical Investment Limited
is listed on the Australian Securities
Exchange ASX Code: AEF
Phone 1800 021 227
Email enquiries@australianethical.com.au
Reply Paid
GPO Box Centre Sydney
GPO Box 8, Sydney NSW 2001
australianethical.com.au
99
More information
Investment exclusions
Our investment exclusions include some exceptions
and tolerances. For more information on our ethical
criteria including examples of revenue tolerances, visit:
www.australianethical.com.au/why-ae/ethics/ethical-
criteria/
Carbon intensity of our share investments
Carbon intensity (tonnes CO2e per $ revenue) of
Australia Ethical share investments compared to
blended benchmark of S&P ASX 200 Index (for
Australian and NZ shareholdings) and MSCI World
ex Australia Index (for international shareholdings).
Shareholdings as at 30 June 2021. Data and analysis
tools provided by external sources (see below for more
information).
Calculation of Sustainable Development Goals
(SDGs) impact
The Benchmark is a Blended benchmark of S&P
ASX 200 Index (for Australian and NZ shareholdings)
and MSCI World ex Australia Index (for international
shareholdings). Data and analysis tools provided by
external sources (see below for more information).
Comparison based on listed shares in those companies
for which the relevant external parties provide the
applicable data (80% to 90% of the companies we
invest in); and using links we have determined between
external categories of sustainable impact solutions and
selected SDGs.
External tool and data providers
MSCI ESG Research LLC
We have used data and tools provided by MSCI ESG
Research when calculating the impact information in
this report about sustainable impact revenue, carbon
intensity and carbon footprint. We used the MSCI tools
and data for our calculations on 14 and 19 July 2021.
More information on MSCI carbon footprinting
methodology and metrics is available here:
https://www.msci.com/documents/10199/2043ba37-
c8e1-4773-8672-fae43e9e3fd0
The information relating to ‘SDG impact’ is based on
links between MSCI’s categories of sustainable impact
solutions and selected Sustainable Development
Goals (SDGs). We have determined these links based
on our own assessment of how MSCI’s criteria for their
Sustainable Impact Solutions relates to SDGs. There is
more information here:
https://www.msci.com/documents/1296102/1636401/
ESG_ImpactMetrics-2016.pdf/0902a64f-af8d-4296-
beaa-d105b7d74dc3
MSCI ESG Research is not responsible for the impact
information or the way we have used their data and
tools. MSCI ESG Research (1) retains copyright in all its
data; (2) does not warrant or guarantee the originality,
accuracy and/or completeness of their data; (3) makes
no express or implied warranties of any kind, and
disclaims all warranties of merchantability and fitness
for a particular purpose; (4) has no liability for any errors
or omissions in connection with their data or for our
reporting and use of their data; and (5) without limiting
any of the foregoing, has no liability for any direct,
indirect, special, punitive, consequential or any other
damages (including lost profits) even if notified of the
possibility of such damages.
Paris Agreement Capital Transition Assessment
(PACTA) developed by 2° Investing Initiative
We have used the Paris Agreement Capital Transition
Assessment (PACTA) when calculating the impact
information in this statement about investment in
renewable energy generation. PACTA is a free online
tool developed by 2° Investing Initiative (2DII) allowing
investors to upload their investment portfolios (https://
platform.transitionmonitor.com/). For the renewable
energy information in this statement we uploaded
portfolios on 19 July 2021. 2DII is not responsible for
the impact information or the way we have used their
data and tools. 2DII have no liability for any errors or
omissions in connection with our reporting or our use
of their data and tool.
Carbon footprinting and impact
measurement limitations
Investment carbon footprint metrics need to be used
with caution. Company carbon data often includes
estimates or is incomplete, and may include errors.
Companies make different decisions about what they
do and don’t include when measuring and reporting
their operational footprints. MSCI uses estimates for
some companies. There are also different portfolio
measurement methodologies, and different carbon
metrics which can be used to assess carbon footprint,
each with different strengths and weaknesses.
Similar limitations apply to measurement of other types
of impact of companies. Company reporting of the
revenue they earn from different products and services
may be inaccurate or incomplete, and MSCI may make
estimates in breaking down and categorising company
revenue. There are different methodologies and
frameworks for classifying sustainable products and
services and for taking account of negative impacts of a
company’s operations.
Currency conversion for impact
information
Some of the impact data we use is provided in US$
terms, and some of this data has been converted to US$
using exchange rates selected by the data provider.
Where we report impact information in A$ terms, we
have used an average exchange rate as published by
the Australian Taxation Office for the 2021 financial year.
This ‘impact’ data is not the only basis upon which
you should make an investment decision and this
information should not be taken as a recommendation
to buy, sell or hold a particular financial product. This
information is of a general nature and is not intended to
provide you with financial advice or take into account
your personal objectives, financial situation or needs.
Past performance is not a reliable indicator of future
performance. Before acting on the information, consider
its appropriateness to your circumstances and read the
financial services guide (FSG) and product disclosure
statement (PDS) on our website.
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ANNUAL REPORT 2021 Photography credits
Cover – Erik McClean on Unsplash
Page 1 – Felix Lam on Unsplash
Page 3 – Manuel Meurisse on Unsplash
Page 9 – Markus Spiske, Pexels
Page 13 – Fox, Pexels
Page 15 – Deborah Diem on Unsplash
Page 16 – not credited on Unsplash
Page 19 – Christian Weiss on Unsplash
Page 99 – Pat Whelen on Unsplash
Page 101 – Josh Withers on Unsplash
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For over three decades we have run our business with
purpose at its core. The true power of that head start lies in
how we now build on it to deliver even greater impact.
Find out more
Phone:
Email:
Website: australianethical.com.au
1800 021 227
enquiries@australianethical.com.au
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Unless otherwise indicated, the photographs and drawings of assets in the report are not real assets connected to the Australian Ethical
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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
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