2022
Annual
Report
About the report
Welcome to the Australian Ethical Investment Limited
(Australian Ethical) Annual Report for 2022.
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 2021 to 30 June 2022 (FY22) in
this report.
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 2022 Contents
Message from the CEO
Message from the Chair
Highlights
Investment report
Investment performance
Our senior leadership team
Financial report
Shareholder information
Company directory
2
4
6
8
10
12
15
106
107
1
Message from the CEO
John McMurdo, Chief Executive Officer & Managing Director
A global pandemic, war, energy security crisis, food shortages,
heatwaves, wildfires, melting glaciers, displaced people,
mudslides, floods...
If ever we needed a reminder of why Australian
Ethical exists to invest for a better world, then
the first six months of 2022 have more than
delivered.
It’s human nature to prioritise the near term over
the future; to care about what’s close rather
than what’s far away. But for how much longer I
wonder? As consecutive ‘once-in-a-generation’
natural disasters continue to impact around the
world, previously abstract warnings about the
climate crisis have become all too real. What
was once far away has in fact become closer
than ever.
Of course, this isn’t new news. For more than
30 years, climate change and the future of the
planet have been making headlines. And yet,
humanity’s collective emissions have been
going up steadily every year.
It’s easy to feel overwhelmed. And no doubt,
some people do. But we see many reasons to
be hopeful. That’s because rather than giving
up, Australians are instead thinking bolder and
acting braver than ever before. For example, in
a warning to slow moving governments around
the world, Australians are showing how climate
investor activists are taking matters into their
own hands. We saw that in the Federal election,
when a group of independents helped oust
a coal-friendly government. Or when Mike
Cannon-Brookes upended AGL Energy, one
of the country’s oldest and biggest carbon
emitters.
Everyday Australians are showing the same
climate ambition too, looking to make their
money matter and turning to Australian Ethical
to do so. In contrast to industry-wide trends
of outflows and negative growth, we’ve seen
another year of strong growth at Australian
Ethical. New customer joins and retail and
wholesale net inflows are up. We remain
Australia’s fastest growing super fund, boast
industry leading net promoter scores (NPS)
and customer satisfaction scores1 and have a
received a string of awards and accreditations.
And if I look beyond the immediate footprint
of our business, I see an external regulatory
environment that has never been so supportive
of what we do. In fact, at time of writing,
Australia’s new Federal government has just
passed a bill in the lower house of parliament
to bind the country to reducing greenhouse
gas emissions by 43% from 2005 levels by
2030. Meanwhile, new legislation in Europe has
come into force that requires financial advisers
to consult investors on their sustainability
preferences and in the US the Inflation Reduction
Act2 could bring the country to within shouting
distance of its emissions reduction targets.
Scientific data continues to demonstrate that
climate change is urgent and alarming. At
Australian Ethical we take action through our
advocacy, by growing our investments in a low
carbon future and by supporting the passionate
people taking action.
There was once a time when few people would
have been concerned about whether their
money was indirectly fueling the climate crisis.
But that time has passed. Today the morality of
money – what we spend it on, what we invest
in – has never been so important. The ability to
divorce our financial decisions from our values
belongs to a bygone era.
Today, the future of investing is ethical.
John.
1 Number 1 for NPS, Investment Trends Super Member Engagement Report 2022 – Independent research with 23 major
super funds surveying over 7,500 Australians. Number 1 NPS for High Net Worth (HNW) managed fund investors,
Investment Trends High Net Worth Investor Report – November 2021.
2 americanprogress.org/article/5-major-benefits-of-the-inflation-reduction-acts-climate-investments/
2
ANNUAL REPORT 2022 As consecutive
‘once-in-a-generation’
natural disasters continue
to impact around the
world, previously
abstract warnings about
the climate crisis have
become all too real.
3
3
Message from the Chair
Steve Gibbs, Chair
How times change. Just a year ago, investment managers
around the world were trumpeting the qualities of their
environmental, social and governance (ESG) funds supported
by performance data which showed they had beaten their
conventional equivalents over several periods.
Today they have toned down their rhetoric
after months of disappointing performance
and negative stories about the exaggerated
benefits of ESG. Russia’s invasion of Ukraine has
emboldened critics, who – rightly – questioned
why so many ESG funds were invested in
Russian assets in the first place. In fact, for the
many investment managers who until recently
prided themselves on doing the right thing,
events this year have exposed fundamental and
potentially long-lasting flaws.
ESG has been thrust into the spotlight in recent
years. However, its growth has had a dangerous
side-effect: greenwashing. And as funds rebrand
to include the phrase ‘sustainable’ or ‘ESG’ in
their name, it’s raising suspicions about the
potential for greenwashing – not the kind of
recycling that climate crisis campaigners had
in mind.
With so many funds rebranding, it’s difficult to
identify what funds are trying to achieve and how
their investment strategies have been altered
in line with adding an ESG or sustainable tag to
the fund. All of this is unlikely to help the average
retail investor feel more confident investing
sustainably.
As chair of the Australian Ethical Board, I can’t
help but think all this presents an enormous
opportunity for our business: an opportunity to
educate investors about the difference between
ESG and ethical investing; an opportunity to
champion our pedigree and authenticity; and
an opportunity to accelerate the movement of
capital towards genuine ethical investments.
In my opinion, critics are right to note that ESG
has created a gravy train which has undermined
the responsible investment movement. Those
fund managers - and there are many – that have
been using ESG as a marketing, sales, PR or a
‘we-have-it-all’ thing will have a much harder
time now. In fact, for those who have been
selling ESG products that are process rather than
results oriented, and who can’t show how it’s
done, tracked, and measured and what results
they achieve, well, maybe now is the time for
them to throw in the towel.
Unfortunately, there will always be those that
put profit ahead of principles. But for them, the
message became clear this year: you can run,
but you can’t hide.
The combination of regulatory and technological
changes, the impact of the climate crisis and
evolving social norms are making ethical
investing even more important going forward.
The very fact that some firms feel they must
pretend to be ethical shows just how much
attitudes have changed.
Greenwashing may well be the current headline,
but I see a better future for the integration of
sustainability, values and finance. It’s the future
Australian Ethical has been investing for since 1986.
Steve.
4
ANNUAL REPORT 2022 Greenwashing may well
be the current headline,
but I see a better future
for the integration of
sustainability, values
and finance. It’s the
future Australian Ethical
has been investing for
since 1986.
5
5
Financial year 2022 highlights
$6.2 billion in funds under management
$0.9 billion in positive net flows
Underlying profit of $10.3 million3
down 7% (underlying profit pre-performance fees up 10%)
Diluted EPS 3-year CAGR of 14%
Performance fee on Emerging
Companies Fund (ECF)4 of
$0.4 million
Adviser channel net flows growth of 46%
Increase in funded customer5 numbers
by 17%
2 new products launched including our
first ETF
Launch of our first mobile app
Money Magazine Best of the Best 2022
– Best Australian Equities ESG Fund for
Diversified Shares
Winner SuperRatings Infinity Award – Best
sustainable super fund (3rd time awarded)
#1 NPS for super6
#1 NPS for customer advocacy6
#1 NPS for HNW managed fund investors7
We remain the fastest growing super fund
over 5 years by members8
Top quartile employee engagement of 79%9
$1.6 million
allocated for impact initiatives via the Foundation
$8 million
allocated to not-for-profits since inception
3 Attributable to shareholders.
4 Australian Ethical’s Emerging Companies fund (wholesale) outperformed its benchmark, the S&P/ASX Small
Industrials for the 12 months to 30 June 2022.
5 Includes both funded super fund members and managed fund investors.
6 Investment Trends Super Member Engagement Report 2022 – Independent research with 23 major super funds
surveying over 7,500 Australians.
7 Investment Trends High Net Worth Investor Report – November 2021.
8 KPMG 2022 Super Insights Report, published May 2022, using statistics from APRA and ATO as at 30 June 2021.
9 Top quartile Australian Financial Services Benchmark (Culture Amp, June 2022).
6
ANNUAL REPORT 2022
77% lower CO2 intensity for listed companies in
our portfolio compared to benchmark10
5.6 x more investment in renewables and energy
solutions than benchmark11
1.8 x more revenue from sustainable impact solutions12
3.7 x more revenue from sustainable water and agriculture &
pollution prevention12
Nil investment in fossil fuel companies, nuclear,
tobacco, gambling companies13,14
450+ companies engaged with for people, planet & animals15
Best for the World for customer & governance by BCorp16
10 Carbon intensity (measured as tonnes CO2e per $ revenue) of Australia Ethical share investments compared to
a blended benchmark of S&P ASX 200 Index (for Australian and NZ shareholdings) and MSCI World ex Australia
Index (for international shareholdings). Comparisons based on shareholdings at 30 June 2022 and analysis tools
provided by external sources which cover 88% of the listed companies we hold shares in by value.
11 Proportion of our share investments in renewables and energy solutions compared to the blended benchmark
of S&P ASX 200 Index (for Australian and NZ shareholdings) and MSCI World ex Australia Index (for international
shareholdings). Comparisons based on shareholdings at 30 June 2022 and analysis tools provided by external
sources which cover 88% of the listed companies we hold shares in by value.
12 Revenue from impact solutions compared to a blended benchmark of S&P ASX 200 Index (for Australian and
NZ shareholdings) and MSCI World ex Australia Index (for international shareholdings). Comparisons based on
shareholdings at 30 June 2022 and analysis tools provided by external sources which cover 88% of the listed
companies we hold shares in by value.
13 We don’t invest in companies whose main business is fossil fuels, or in diversified companies that earn some
fossil fuel revenue and aren’t creating positive impact with their other activities. We may invest in a diversified
company which is having a positive impact in other ways such as producing renewable energy, providing its
negative revenue is sufficiently low (a maximum of 5% to 33% depending on the activity).
14 We have never invested in tobacco and support Tobacco Free Portfolios. For more information on our Ethical
Criteria, visit: australianethical.com.au/why-ae/ethics/ethical-criteria
15 Total includes lending our voice to support others’ initiatives, engaging with companies, the investment
community or government directly (on our own or with others), and filing and voting on shareholder resolutions.
Represents FY22 activity.
16 BCorp ‘Best for the World Honouree’ Customer 2022 and BCorp ‘Best for the World Honouree’ Governance 2022.
The Best for the World Honourees’ are BCorps whose score in the top 5% of all 3,500+ BCorps worldwide. This
relates to the Australian Ethical entity, not the investment portfolio.
7
Investment report
David Macri, CFA, Chief Investment Officer
The slide in global share markets over the six months to
June 2022 has been dramatic and intense.
During the period we’ve seen underlying market
concern switch from focusing on the impact
of the global pandemic to gauging the impact
of geopolitical tensions and inflation. Facing
into a troubling trio of rising inflation, higher
interest rates and the war in Ukraine has been
challenging for investors around the world.
Over the last six months of FY22, the largest
500 companies in the US as measured by
the S&P 500 Index declined 20%, while the
technology focused Nasdaq 100 fell 29%.
Europe’s STOXX50 and Germany’s DAX indices
recorded similar falls of 20%. Australian shares
as measured by the S&P/ASX 300 declined by
6.5% for the financial year. The sharpest annual
falls were in the Information Technology (-38%)
and Consumer Discretionary (-21%) sectors as
investors cut their growth expectations. It was
also a tough year in bond markets amid the
aggressive interest rate hike signals from central
banks around the world.
And while at Australian Ethical we continue to
be pleased with the long-term performance
of our investment strategies; our short-term
performance has not been immune to the
broader market pressure.
Many of the better performing ASX companies
over the financial year were in the carbon-
intensive resource sector in which we are heavily
underweight. The current supply and demand
dynamics in global energy markets is delivering
windfall profits for fossil fuel companies in the
short-term, where we don’t invest. Meanwhile
our long-term overweight allocation to smaller
innovative ASX companies has detracted
from recent returns. These earlier stage, small,
growth-orientated industrial companies have
underperformed in the rising interest rate
environment, although we remain confident in
their long-term growth prospects.
When markets are falling, it’s easy to become
reactive and drift from established principles
and processes in response to short-term market
conditions. But having a singular focus on ethical
investing, guided by our Ethical Charter, provides
a stable lens through which to view the world.
Long-term focus
We believe the outlook for the long-term
performance of our funds remains strong.
Current geopolitical events and natural disasters
only serve to underscore the importance of
energy security and tackling climate change.
Our ethical investment philosophy has a long-
term and strategic focus on future-building
companies that will thrive in a low-carbon
economy. We also take comfort in our years of
experience, long-term performance figures and
an investment approach that has been tested
and proven over multiple cycles.
Times like these are difficult, but we expect
heightened volatility to lead to a renewed focus
on solving urgent global problems, together with
opportunities to invest wisely for the long term.
Investment team update
If an investor’s primary job is to contemplate the
future and how their investments will perform
over time, then a year of floods, fires, war and
dealing with the consequences of a global
pandemic has reminded us of what a complex
task this is. We may all be familiar with the adage
of having eggs in different baskets, but rarely do
we recognise the possibility that even eggs in
different baskets can still all break at once!
And yet in today’s world, thinking about multiple
scenarios is vital for considering the different
ways the future can play out. In today’s world,
portfolio resilience must be more than a
defensive reaction to market volatility.
8
ANNUAL REPORT 2022 During the past financial year, we have been
taking further steps in our journey to bolster
the resilience of our investment portfolios. We
believe truly resilient portfolios are those that
can stand the test of time, managing short-term
shocks while navigating long-term trends to
maximise returns across market cycles.
But for a business as unique as Australian Ethical,
portfolio resilience must be tailored to suit our
specific requirements. It’s not as simple as
outsourcing our asset allocation framework to a
peer-group benchmark or third-party provider.
Instead, it’s a layered, multi-pronged approach
that will help us leverage our existing strengths
as a global leader in responsible investing so
we can realise our purpose of investing for a
better world.
As such, in addition to improving our investment
strategies and processes to make them more
robust and repeatable, we have also focused on
enhancing our asset allocation and governance
frameworks.
Asset allocation
Last financial year we hired a new head of asset
allocation, John Woods, CFA. This financial year
he has been responsible for reaching some
key milestones in our asset allocation strategy,
strengthening the resilience of existing portfolios
and preparing them for growth.
As a multi-asset fund manager, our asset
allocation follows a systemised and evidence-
led approach to understand the opportunities
and risks across different asset classes. It is
a complex offering which requires a tailored
understanding of the distributions of returns
relevant to achieving the goals of our ethical
portfolios.
By identifying diversifying exposures and
managing meaningful risks, we have already
improved portfolio risk and our ability to take
better advantage of our long-term investment
horizon and liquidity. Milestones reached during
the period include:
• Investments in two new alternatives managers
(Generation and Main Sequence)
• New domestic equities product launched (High
Conviction Fund)
• Advocacy Fund relaunched as a multi-asset
High Growth Fund
• Paved the way for an exposure to a new asset
class for AE via a mandate for global credit
securities
• Improved risk management
• Introduction and deployment of asset
allocation model for scenario analysis
• Acquired new data, risk tools and research
resources
Governance
Of course, true resilience goes beyond
diversification and focuses on resilience no
matter what the economic environment.
Good governance lives at the heart of what
we do. We have strengthened policies and
procedures to ensure any possible conflicts of
interest and risks are monitored and managed
accordingly. We also added three independent
members to our Investment Committee: Sean
Henaghan, Sandra McCullagh and Steve
Rankine.
Sean Henaghan is the current CIO of Aurora
Capital and former CIO of AMP Capital Multi-
Asset Group and has proven leadership of a
substantial investment business with over $100
billion of assets across a range of multi-asset
investments.
Sandra McCullagh is a current non-executive
director (NED) of the Investor Group on Climate
Change (IGCC), a former NED of QSuper, and
established the ESG equities research capability
at Credit Suisse Australia.
Steve Rankine is the former Head of Asset
Management at Hastings Funds Management
and, prior to that, MD of Debt Capital Markets
at Westpac Institutional Bank. He now sits on
several investment committees and boards
across funds management, infrastructure, and
insurance.
These appointments complement the skillsets of
our existing committee members, bringing the
total of the committee to seven.
9
Investment performance
Managed Funds returns to 30 June 2022#
Our Emerging Companies fund achieved above benchmark results for all periods, while our Australian
Shares Fund remained above benchmark for all periods of three years or greater.
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
High Growth
Benchmark3
High Growth (Wholesale)
Benchmark3
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
(0.3)
0.1
(0.3)
0.1
(11.1)
(10.5)
(10.9)
(10.5)
(7.7)
(5.0)
(7.1)
(5.0)
(9.5)
(5.3)
(9.0)
(5.3)
(11.5)
(6.3)
(11.1)
(6.3)
(8.3)
(6.5)
(8.0)
(6.5)
(17.8)
(6.8)
(17.3)
(6.8)
(23.1)
(24.0)
(22.8)
(24.0)
0.0
0.1
0.1
0.1
(6.4)
(5.8)
(6.2)
(5.8)
4.5
5.2
5.3
5.2
8.6
10.0
9.4
10.0
7.4
9.4
8.1
9.4
7.9
9.2
8.7
9.2
8.0
9.4
8.8
9.4
7.5
0.5
8.0
0.5
0.3
0.3
0.4
0.3
(3.3)
(2.6)
(3.0)
(2.6)
3.5
3.7
4.3
3.7
3.9
5.3
4.7
5.3
3.1
5.0
3.9
5.0
5.9
7.8
6.7
7.8
6.0
3.4
6.8
3.4
9.4
(2.2)
9.9
(2.2)
0.9
0.9
1.1
0.9
(0.1)
0.9
0.4
0.9
5.4
5.9
n/a
n/a
6.7
7.3
7.7
7.3
6.2
7.1
7.2
7.1
7.7
10.1
8.7
10.1
6.9
6.8
7.9
6.8
11.3
3.3
12.0
3.3
1.1
1.2
1.4
1.2
0.5
1.6
1.1
1.6
5.6
6.2
n/a
n/a
7.0
7.4
8.1
7.4
6.7
7.2
7.8
7.2
7.5
9.3
8.5
9.3
8.3
7.8
9.6
7.8
12.1
5.3
12.9
5.3
1.7
1.7
n/a
n/a
1.7
2.6
n/a
n/a
7.5
8.5
n/a
n/a
10.4
10.6
11.6
10.6
10.5
11.5
11.8
11.5
12.1
14.3
n/a
n/a
11.3
9.1
12.7
9.1
n/a
n/a
n/a
n/a
2.7
2.9
n/a
n/a
n/a
n/a
n/a
n/a
4.4
5.6
n/a
n/a
n/a
n/a
n/a
n/a
4.6
5.8
n/a
n/a
3.7
6.9
n/a
n/a
7.0
2.6
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.
Note: We launched a new High Conviction Fund and ETF in FY22
3.3
3.6
n/a
n/a
n/a
n/a
n/a
n/a
6.0
6.6
n/a
n/a
n/a
n/a
n/a
n/a
7.3
7.5
n/a
n/a
n/a
n/a
n/a
n/a
9.5
7.1
n/a
n/a
n/a
n/a
n/a
n/a
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 2022 Super and pension returns to 30 June 2022**
Our MySuper option (Balanced Accumulation) remained above benchmark for all periods of three years or
greater, while our Australian Shares Accumulation option remained above benchmark for periods of two
years or greater.
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.
(0.4)
(0.2)
(1.6)
2.4
(6.3)
(0.7)
(0.2)
(7.2)
(2.5)
Accumulation options performance
Defensive
Benchmark1 ~
Conservative
Benchmark8
Balanced
(accumulation)
Benchmark9
Growth
Benchmark10
Australian Shares
Benchmark6 ~
International Shares
Benchmark5 ~
High Growth
Benchmark11 ^
(3.4)
(5.9)
(4.5)
(15.3)
(6.2)
(7.6)
(6.0)
(8.0)
(6.1)
4.9
6.7
6.5
8.0
8.5
8.4
7.6
8.0
8.7
8.2
(0.2)
0.0
(0.2)
1.7
4.0
4.1
4.3
4.6
6.6
3.2
5.7
6.8
4.3
4.3
0.4
0.5
1.9
2.7
5.8
5.3
6.3
6.3
7.8
6.2
7.2
8.6
6.8
6.1
0.6
0.7
2.4
2.7
6.0
5.2
6.3
6.1
8.7
6.9
6.8
7.8
6.9
6.2
1.0
1.3
3.1
3.8
7.4
6.4
8.7
7.8
11.8
2.4
11.0
13.1
10.0
9.7
2.0
2.6
n/a
n/a
4.4
4.2
3.8
4.5
7.2
(0.8)
n/a
n/a
n/a
n/a
2.6
3.3
n/a
n/a
5.8
5.2
6.4
5.8
9.4
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
(0.8)
Defensive
Benchmark1 <
(0.2)
(8.3)
Conservative
Benchmark12
(3.2)
(7.4)
Balanced
Benchmark13
(3.8)
(8.0)
Growth
Benchmark14
(5.3)
(16.9)
Australian Shares
Benchmark6 <
(7.0)
(9.0)
International Shares
Benchmark5 <
(6.8)
(0.4)
(0.2)
(1.9)
2.4
3.1
4.5
6.5
8.4
8.9
9.1
7.6
8.9
(0.2)
0.0
(0.5)
1.7
3.0
2.9
4.3
4.9
7.2
3.4
5.7
7.5
0.4
0.6
2.0
2.9
5.0
4.1
6.7
6.7
8.4
6.7
7.4
9.7
0.7
0.8
2.5
3.0
5.4
4.1
6.7
6.5
9.1
7.5
7.1
8.8
1.2
1.4
3.5
4.2
7.2
5.9
9.2
8.3
12.6
2.9
11.3
13.9
2.3
2.6
n/a
n/a
4.2
3.9
4.3
4.8
7.9
(0.3)
n/a
n/a
3.0
3.4
n/a
n/a
6.0
5.2
7.1
6.2
10.3
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 SR25 High Growth (91-100) Index
12 SuperRatings SRP50 Capital Stable (20-40) Index
13 SuperRatings SRP25 Conservative Balanced (41-59) Index
14 SuperRatings SRP50 Growth (77-90) Index
~ Net of tax and % administration fees
< Net of % administration fees
11
Our senior leadership team
David Macri | BSc, CFA
Chief Investment Officer
David has been with Australian Ethical for more than 13 years, with over
10 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.
He has over 24 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).
Eveline Moos | BCom
Chief People & Culture Officer
Eveline is responsible for people and culture strategy and execution at
Australian Ethical, aligning our people to AE’s purpose, business strategy
and client outcomes. Eveline has extensive experience encompassing
strategic and operational leadership with previous roles at First Sentier
Investors, AMP Capital and Perpetual.
John McMurdo | MBA, GAICD
Chief Executive Officer and Managing Director
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.
12
ANNUAL REPORT 2022 Karen Hughes | BSc (Hons), ACA (ICAEW), GAICD
Chief Risk Officer and Company Secretary
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 in Australia and the UK.
Mark Simons | B Bus, CA, GAICD
Chief Financial Officer
Mark is responsible for business performance, financial control and
fund accounting. In addition, he currently manages the Product and
Operations functions. Mark has more than 30 years’ experience in
financial services, having previously held senior roles within Australian
Ethical, Challenger, Perpetual, Tyndall and KPMG.
Maria Loyez | MEng
Chief Customer Officer
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.
13
Marion Enander | BCom, MBA
Chief Strategy & Innovation Officer
Marion is driving and championing Australian Ethical’s strategic direction
and innovation agenda. 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).
Dr Stuart Palmer | BA, LLB, MLitt, PhD
Head of Ethics Research
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.
Tom May | BA, LLB, MBA, TFASFA, MAICD, FGIA
General Counsel and Company Secretary
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 over 30 years’ legal experience in
Australia, London and Tokyo.
14
ANNUAL REPORT 2022 Australian Ethical Investment Limited and
its Controlled Entities
Financial Report
30 JUNE 2022
Directors’ Report
Remuneration Report
Auditor’s Independence Declaration
Statements of comprehensive income
Statements of financial position
Statements of changes in equity
Statements of cash flows
Notes to the financial statements
Directors’ declaration
Independent Auditor’s Report
16
36
58
59
60
62
63
64
100
101
Directors’
Report
The directors present their
report, together with the financial
statements, on the consolidated
entity (the ‘Group’) consisting of
Australian Ethical Investment Limited
(‘Australian Ethical’, the ‘Company’
or ‘Parent entity’), Australian Ethical
Superannuation Pty Limited (‘AES’)
and Australian Ethical Foundation
Limited (the ‘Foundation’), being the
entities it controlled at the end of, or
during, the year ended 30 June 2022.
16
ANNUAL REPORT 2022
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 | BEcon, MBA
Non-Executive Director since 2012 and Chair since 2013
Steve chairs the People, Remuneration and Nominations Committee, is a
member of 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 | BA (Political Economy), GAICD
Non-Executive Director since 2013
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 two
organisations: Bowerbird Collective, a chamber music ensemble dedicated
to nature conservation through performance and asset consultants Australian
Impact Investments. She is a Non-Executive Director of the Boards of GreenCollar
and The Conversation Brazil.
Kate Greenhill | BEc, FCA, GAICD
Non-Executive Director since 2013
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. 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 | BA, FIAA, FAICD
Non-Executive Director since 2017
Michael is Chair of the Investment Committee, a member of the People,
Remuneration and Nominations Committee and the Product Disclosure
Statement Committee. He is a director of Australian Ethical Superannuation
Pty Limited and Australian Ethical Foundation Limited.
Michael has more than 35 years’ experience in investment, consulting
and leadership of financial services organisations both in Australia and
internationally.
Michael is currently Chair of Flag Income Notes 3 Pty Ltd and a Director of
Alpha Vista Financial Services Holdings Pty Ltd.
Julie Orr | BEc, MCom, MCom(Hons), CA, GAICD, FGIA
Non-Executive Director since 2018
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 a Director
of Australian Ethical Foundation Limited, AvSuper and Masters Swimming
NSW. She is also a member of the NSW Biodiversity Conservation Trust
Audit and Risk Committee.
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 EY. Julie’s prior board experience includes
Perennial Value Management, Ord Minnett,Tax Payers Association (NSW
Division) and Tax Payers Research foundation.
John McMurdo | MBA, GAICD
Chief Executive Officer and Managing Director, appointed February 2020
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 2022
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 over
30 years’ legal experience in Australia, London
and Tokyo.
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 in Australia and the UK.
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.
Year in review
The events of 2022 have been challenging for
most investors – ethical or otherwise. Geopolitical
tensions plus the market and economic
volatility associated with unwinding hugely
accommodating macroeconomic policy settings
have created a complex landscape to navigate.
Australian Ethical has not been immune from
these impacts. Having delivered market-leading
returns for our customers across most of our
products just 12 months ago, our short-term
performance has been negatively affected by
this year’s significant headwinds.
Amid today’s disruption-crowded environment,
uncertainty looms large thanks to the combination
of post-pandemic global inflation, rising interest
rates and the war in Ukraine. That these issues
weren’t on many investors’ radars this time last
year is a reminder of how quickly economic and
geopolitical circumstances can change.
But the continuing growth we have seen in retail
and wholesale net flows and new customers
tell us that investor appetite for authentic ethical
investment products remains strong. Because
while the pandemic, climate change and the
global energy crisis underscored the need to
transition to a more sustainable future, the events
of 2022 have highlighted the urgency.
Investor responses to these events illustrate how
large a tent responsible investing has become,
home to a spectrum of investor concerns and
preferences. The investments that comprise
one person’s sense of right and wrong might
not apply to someone else. But investors do not
operate in a vacuum. Decisions taken, or not
taken, have an impact on the world around us.
19
At Australian Ethical our role isn’t to judge others
or to question their ethics or investment choices.
We can only stay true to our own moral compass
and the values we defined in our Ethical Charter.
Where Russia’s unprovoked invasion of Ukraine
and resurgent fossil fuel companies prompted
some ‘responsible’ players to reinvest in
traditional energy companies to benefit from
spiking oil and gas prices, our position on
fossil fuel companies remained unchanged.
Our short-term investment performance was
impacted, but our ethical integrity remains
intact. It’s what our customers expect from us
and we’re proud to help them align their money
with their values. That’s because we still believe
that in the long term our approach will prevail in
leaving a better world.
We find our unwavering commitment to our
purpose is a stable lens through which to view
the world. Even when short-term investment
returns are down, we’re still invested in future-
building companies that will thrive in a low
carbon economy and our advocacy remains
unchanged. It’s how our customers can be sure
they’re invested for a better world for people,
planet and animals.
Financial markets may have had a turbulent
start to 2022, but we don’t believe the instability
will derail efforts to shift the economy on to a
more sustainable footing. In fact, we believe the
structural drivers behind a low carbon future
remain as strong as ever, putting authentic and
experienced responsible investors like us in the
box seat.
Review of operations
In today’s world, when the social context of
business has never mattered more, authenticity
is emerging as the most valuable currency of all
as people look for brands they can trust.
Russia’s invasion of Ukraine sparked the largest
boycott by businesses and consumers since
the apartheid era in South Africa. Public outrage,
pressure on business leaders and the ability of
consumers to make their voices heard reached
unprecedented levels.
As more people around the world began to
question what their money was funding, 83%
of Australians said they expected their money
to be invested responsibly and ethically, with
80% expecting their savings to have a positive
impact on the world around us1.
Our authenticity has been rewarded by another
solid year of financial results. This includes
strong retail and wholesale net flows, new
customer joins and leading net promoter scores
(NPS) at a time when other investment managers
are seeing consecutive quarters of outflows.
Our authenticity is reflected in the quality of
our new hires, our continuing high employee
engagement and the meaningful impact of our
Foundation.
But most of all, our authenticity can be found in
our expanding suite of award-winning ethical
investment portfolios that prove money can be a
force for good.
1 https://responsibleinvestment.org/wp-content/uploads/2022/03/From-Values-to-Riches-2022_RIAA.pdf
20
Australian Ethical Investment Limited and its Controlled Entities Directors’ Reportfor the year ended 30 June 2022ANNUAL REPORT 2022 Highlights
Despite challenging conditions, Australian Ethical has made significant progress on our high growth
strategy. This includes:
Principled Investment Leadership (being a
powerful proof point for ethical investing)
• Two new product launches, including our first
exchange traded fund (ETF)
• Strengthened the Investment Team and
added three new highly skilled Investment
Committee members
• New investments in alternative asset classes
• Enhanced asset allocation through
implementation of a new strategic asset
allocation model
• Minority stake in Sentient Impact Group
Compelling client experience (delivering a
modern and seamless experience that engages
customers with a better financial future)
• New app launched for managed fund
customers
• Continuing digitisation of customer journey
• New hires and a new telephony system to
improve contact centre operations
Advocates for a better world (combining active
engagement with people power to push for a
better world)
• Set a more ambitious 2040 net zero emissions
target for our private sector investments
• More than 450 company engagements
• Gave 7,500 Australians a direct voice at
COP26 by featuring their names on the front
page of the UK Financial Times during the
conference in Glasgow
• Visionary Grants program launched via the
Foundation to support innovative climate
solutions
• Launched Giving Green via the Foundation, an
evidence-based climate action giving guide
Impactful business (growing our scale to grow
and amplify our positive impact)
• Successor Fund Transfer (SFT) deed with
Christian Super executed and integration
planning commenced, which will see up
to 30,000 members and $1.96 billion FUM
transfer to Australian Ethical
• Opened new acquisition channel with
employer platform partnerships
• Continued build-out of adviser channel with
flows increasing 46% year on year
• Scaled up back-office infrastructure
• Multiple award wins and accolades
Leadership & innovation (fostering a culture of
innovation and high performance)
• Strategic investment in capability across the
business
• Roll out of a new performance and
remuneration framework aligned to our high-
impact and high-performance culture
• Creation of an incubator team focused on
innovation and new product development.
More updates are provided in the coming pages.
21
Profit
Expenses
Expenses (excluding due diligence and
transaction costs) increased by 28% as we
execute on strategic initiatives to continue to
drive long term growth. Key drivers of the cost
increases include:
• New product launches, a new customer
app, new general ledger and HR platforms,
customer experience improvements and
insourcing our strategic asset allocation
process
• Deep investment in capability across the
Investment, Customer Experience, Business
Intelligence & Technology and People &
Culture teams. Headcount increased by 22
during the year, which included 8 contractors
to support strategic projects
• An increase in variable remuneration costs
following the implementation of a new
performance and remuneration framework
introduced to identify and reward high
performance across the business
• Further investment to grow our adviser
channel and high net worth customer
segments
• Investment in brand to drive greater brand
awareness
• Higher fund-related costs predominantly
driven by the increase in customer numbers
FY23 will see further focused investment in
the business as we execute on our strategic
roadmap, balancing market volatility with the
growth opportunity.
The net profit for the Group amounted to $9.5
million.
The net profit attributable to shareholders
amounted to $9.6 million, compared with $11.3
million for the 12 months to 30 June 2021.
Underlying profit after tax was $10.3 million, down
7% compared with the prior corresponding
period. Excluding the impact of performance
fees, underlying profit increased 10%.
Pleasingly, Australian Ethical has been able
to donate $1.5 million to the Australian Ethical
Foundation following our success during this
financial year. This will allow the Foundation
to continue its impactful philanthropic work
delivering positive impact via the grant program
and other associated initiatives.
Revenue
Revenue growth, including $0.4 million (2021:
$2.9 million) performance fees, remains
strong, with operating revenue increasing
21% to $70.8 million, up from $58.7 million for
the year to 30 June 2021. This increase was
driven by strong FUM growth in the first half
of the year, underpinned by strong net flows.
Volatile markets have impacted investment
performance, and to a lesser extent, flows,
particularly in the second half however, we
believe the underlying growth drivers remain
solid.
Ongoing fee reductions are a core part of our
growth strategy as we aim to make investing in
our products more accessible and competitive
for current and future customers. Fee reductions
in June 2021 as well as October 2021 have
partially offset the FUM driven revenue growth
Average FUM growth for FY22 was 33%. During
the year the average FUM based fee margin
reduced from 1.04% to 0.99%.
22
Australian Ethical Investment Limited and its Controlled Entities Directors’ Reportfor the year ended 30 June 2022ANNUAL REPORT 2022 Funds under management
Institutional
At a time when other investment managers are
experiencing significant declines in FUM, we
are pleased to report net positive FUM growth
during FY22. Despite the challenging market
conditions, we have seen solid net flows of $0.9
billion during the period. Excluding institutional,
net flows were $1.1 billion, which was 20% above
prior year.
FUM growth was strong in the first half of FY22,
driven by solid net flows and positive investment
performance, reaching $6.9 billion at 31
December 2021. During the second half, volatile
markets impacted investment performance, and
to a lesser extent, flows. FUM at the end of the
year was $6.2 billion, 2% higher than last year,
with average FUM increasing 33% year on year.
Institutional net flows decreased in the current
year after a large but low margin institutional
client began the redemption of their investments
following the internalisation of the management
of their sustainable option due to their successor
fund transfer into another fund. The opportunity
with institutional clients remains attractive and
as part of our high growth strategy we hired
an Investment Director in FY22 to grow and
diversify this channel.
Superannuation
During the period we saw record super flows of
$0.8 billion, an increase of 22% year on year –
again a very pleasing result given the increasingly
competitive superannuation market especially as
competitors launch their own ‘ESG-style’ products.
Managed funds
Adviser
Pleasingly, our higher margin retail and wholesale
managed funds flows increased 16% year on
year to $0.4 billion despite challenging market
conditions. Net flows into our managed fund
products saw strong growth in the first half of the
financial year before market volatility contributed
to a slowdown in flows in the second half.
Our adviser channel continues to grow following
our focused strategic investment. Flows in this
important channel increased 46% year on year –
again a solid result in the current environment.
The below table outlines FUM movements for
the period:
$bn
Opening FUM
Super net flows
Managed Funds* net flows (excl Institutional)
Total net flows (excl institutional)
Institutional net flows
Total net flows
Investment performance
Closing FUM
Average FUM
30 June 2022
30 June 2021
% change
6.07
0.75
0.39
1.14
(0.20)
0.94
(0.81)
6.20
6.58
4.05
0.61
0.34
0.95
0.08
1.03
0.99
6.07
4.96
20%
(8%)
2%
33%
* Includes Managed Funds (retail, wholesale and institutional) and SMA
23
Investment performance
Short-term performance this financial year has not
been immune from the broader market pressure,
though we remain pleased with the long-term
performance of our investment strategies.
The first half of FY22 saw many of our funds
tracking on or above benchmark for the six-
month period. However, many of the better
performing ASX companies in the second half
of FY22 were in the carbon intensive resources
sector, in which we are and always will be
underweight, which impacted our relative
performance. Meanwhile, our allocation to
smaller growth-oriented companies also
impacted on our recent investment performance.
The recent rising bond yields presented a
difficult environment for equity investors and
are a reminder of the inherent volatility of share
markets. Though we remain pleased with the
long-term performance of our investment
strategies, our short-term performance has not
been immune from the broader market pressure.
For the year to 30 June 2022 our Australian Shares
Fund (ASF) underperformed its benchmark2
over one-year, but remained above benchmark
for all periods of three years or greater. The ASF
(wholesale) has achieved top quartile returns
for three-, five- and ten-year time periods.3 Our
Emerging Companies Fund outperformed its
benchmark4 for all periods including one-year,
resulting in a performance fee of $0.4 million
for FY22. This fund achieved top quartile returns
across three and five-year periods.5
For our super members, our Balanced option
underperformed over one- and two-year periods,
but remained above benchmark6 for all periods
of three years or greater. Finally, our Australian
Shares option underperformed its benchmark7
over one year but outperformed for periods of
two-years and above.
We believe the outlook for the long-term
performance of our funds remains strong.
Current geopolitical events and natural
disasters only serve to underscore the
importance of energy security and tackling
climate change. Our ethical investment
philosophy has a long-term and strategic vision,
focusing on future-building companies that will
thrive in a low-carbon future. This is what our
customers expect, and we remain committed
to this approach.
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.
In June 2021, we reduced the fees on the
Australian Shares and International options
for our super members. For managed fund
customers, fees were reduced on the Balanced,
International, Diversified, Advocacy, Australian
Shares and Emerging Companies retail funds,
and the Balanced and International wholesale
funds. In October 2021, we repositioned our
Advocacy Fund as the High Growth Fund with
a reduction in fees for our super and wholesale
managed fund customers.
Our revenue margin has reduced from 1.0% at
30 June 2021 to 0.97% at 30 June 2022. Average
revenue margin for FY22 was 0.99%.
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 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.
2 Benchmark is composite S&P/ASX Small Industrials Accumulations Index till 12 August 2019 & S&P/ASX 300
Accumulation Index thereafter.
3 For the wholesale funds in their respective Mercer surveys as at 30 June 2022.
4 Benchmark is S&P/ASX Small Industrials Accum Index.
5 For the wholesale funds in their respective Mercer surveys as at 30 June 2022.
6 Benchmark changed from Morningstar Multisector Growth - Superannuation to SuperRatings SR50 Balanced
(60-76) Index from 1 Dec 2019.
7 Benchmark changed from S&P/ASX Small Industrials (Net of tax and admin fees) to ASX 300 Monthly Index
(Accum.) (Net of tax and admin fees) on 1 Dec 2019.
24
Australian Ethical Investment Limited and its Controlled Entities Directors’ Reportfor the year ended 30 June 2022ANNUAL REPORT 2022 Operational excellence &
compelling client experience
Over the past year, we have continued to
build on previous customer experience
improvements, delivering further initiatives that
enhance the interactions with our customers.
Initiatives include:
• Launching our first app for managed fund
customers with an interactive platform for
customers to engage with us
• Redesigning multiple online forms to make
it easier for customers and to streamline
processes
• Implementing a new telephony system for
our contact centre, which, together with
other process improvements, has lifted the
contact centre’s customer service metrics,
most notably, the abandonment rate which is
now better than the industry standard, and a
commendable NPS score of 528
Our already industry leading customer
experience scores9,10 improved even further
during the period:
No.1 NPS for Super9
No.1 High Net Worth NPS10
Continuing channel growth
Investing ethically must be easy and the most
natural choice for all investors if we’re going
to realise our purpose of investing for a better
world. As such, we’ve continued to invest in
our adviser channel where we’re seeing some
encouraging results. Advisers providing advice
on ESG investments has increased to 1 in 2
advisers, up from 1 in 5 in 2016.11 Increasingly
advisers are embracing ethical investing as an
opportunity to enhance their value proposition
and build better rapport with clients and looking
to Australian Ethical for support. During the
period we have added capability in our sales
team and broadened our brand reach through
education and events. We’re seeing the benefits
of this investment in the growing adviser
channel flows, which are up 46% year on year
to $0.3 billion, as well as our Adviser NPS rank
which moved from 16th to 13th during the year11.
In late FY22 we launched a new channel to
Australian Ethical by partnering with employer
platforms to acquire new superannuation
customers. By engaging with people as part of
their onboarding journey to new roles, we can
continue to build our superannuation business
with our unique ethical offering in a competitive
market. Further investment is planned for FY23
to continue to build on these partnerships and
realise their potential.
In our investment team, we further expanded
capability with the addition of an Investment
Director to build out our institutional channel
where we see significant opportunity for growth
in both the institutional and mezzanine channels.
And through the launch of our High Conviction
ETF, we expanded into the listed channel,
increasing the accessibility of our ethical
product set.
Other improvements
Our continued investment in our brand is
also paying off. Familiarity with our brand
has increased over the past year as we are
reaching more Australians. We’re now the most
recognised responsible investment brand
amongst current ESG investors.11
Meanwhile in the background, but very much
critical to our future success, we have invested
in upgrading our back-office systems. A new
cloud-based general ledger system together
with a new payroll and HR system have created
scalable back-office infrastructure in readiness
for our growth aspirations.
8 Internal customer surveys.
9 Investment Trends Super Member Engagement Report 2022 – Independent research with 23 major super funds
surveying over 7,500 Australians.
10 Investment Trends High Net Worth Investor Report – November 2021.
11 Investment Trends ESG Report 2022.
25
Our culture
Covid-19
Covid-19 put employee health and safety into
the spotlight. After two years of challenging
lockdowns, we’re focusing on the holistic health
of our people, supporting their wellbeing and
the role Australian Ethical plays in their lives.
In addition to reintroducing popular wellbeing
benefits, we’ve taken the opportunity to revisit
our purpose through all-staff events and
development opportunities. These initiatives
have helped to bond people across different
parts of the organisation, stimulate innovation,
contribute to strategy, celebrate our diverse
culture and refine what Australian Ethical is all
about. We were particularly pleased by our
continuing top quartile employee engagement
score of 79%12 and the quality of the new hires
we are attracting to our business. This year we
have added to our Investment Committee as
well as our Investment, Distribution, Business
Intelligence & Technology, People & Culture and
Customer teams.
We remain committed to supporting our
employees through seamless hybrid working
and workplaces, expanded employee wellbeing
initiatives and a new employee assistance
provider. Our focus on cultivating a high-
performance culture continues with a new
performance and remuneration framework
which was introduced to identify and reward
high performance across the business.
Meanwhile, we continue to be a leader in
gender diversity with 50% female representation
on our Board, 44% on our Senior Leadership
Team (‘SLT’) and 48% across all employees.
Australian Ethical was able to absorb and adapt
to the challenges of Covid-19. This is thanks
to our business continuity and crisis planning,
enabling technology, an agile workplace
and of course strong leadership. Having
faced disruption on that scale in real time has
strengthened our readiness and resilience for
the future.
We’re now at a turning point in our recovery
process and ensuring we learn from the
experience, while building these attributes into
our culture and our organisational mindset.
A fundamental lesson from the pandemic is that
resilience is as much about thinking ahead as
it is about doing what it takes to respond and
recover from a crisis. As such, we are continuing
with the strategic and technology investments
that enhance our resilience. This includes
enabling 100% of our employees to perform
their roles regardless of location by reviewing
and uplifting our security capabilities in line with
industry best practice. Meanwhile, our ongoing
adoption of cloud services ensures the business
can adapt quickly to a changing landscape as
we grow.
Notwithstanding the continuing lockdowns
during 2021 and into 2022, our business
operations have remained efficient and
effective. We have made significant progress on
our strategic milestones and other business-as-
usual deliverables, including growing customer
numbers, retail and wholesale net flows and our
positive impact for people, planet and animals.
12 Culture Amp Survey, June 2022.
26
Australian Ethical Investment Limited and its Controlled Entities Directors’ Reportfor the year ended 30 June 2022ANNUAL REPORT 2022 Climate change
Ethical charter
The core ethical principles guiding
everything we do, unchanged since 1986
Ethical Investment Policy
Our approach to ethical investment
under the Ethical Charter
Industry Frameworks
Issues Frameworks
Interpretation Principles
Our approach to key
business sectors e.g.
energy banking, food,
mining, healthcare
Our approach to key ethical
issues e.g. human rights,
animal welfare, diversity
How we e.g. balance
positives and negatives,
treat historical misconduct,
assess materiality
Impactful Measurements
How we track and report the key impacts of investing
Governing climate-related decision making
Our approach to ethical investment is
governed by our Ethical Charter. The Charter
principles are applied using our ethical
frameworks, policies and measurement
systems. These require detailed assessment
of the impacts of climate change on people,
animals and the environment, which in turn
affects the way we invest including through
negative and positive screening, engagement
and advocacy, and climate performance
measurement and reporting.
Our Chief Investment Officer and Head of Ethics
Research are responsible for implementation
of our Ethical Charter across our investment
activities. They approve new and updated
ethical frameworks, which include our climate-
related ethical screening criteria for emissions
intensive sectors. The Board of directors has
oversight of our ethical frameworks, with
quarterly reporting to the Board of changes to
frameworks and critical ethical issues.
Our ethics research team applies our Ethical
Charter on a day-to-day basis in our investment
screening. The ethics team monitors existing
and emerging ethical risks (including climate-
related risks) using diverse company, industry,
government, responsible investment, scientific,
civil society and news sources.
The 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.
27
Achieving the Paris goals of limiting the increase
in the global average temperature to well below
2°C and then to 1.5°C is essential, but not easy.
The 2022 Intergovernmental Panel on Climate
Change (IPCC) report provided an update
of the scientific assessment of how this can
be achieved through urgent action to reduce
emissions across the economy. 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 1.5oC. 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.
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 to
identify 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; ambitious emissions reduction
targets; 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.
28
Australian Ethical Investment Limited and its Controlled Entities Directors’ Reportfor the year ended 30 June 2022ANNUAL REPORT 2022 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 across the globe 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 2040 for our
company and other private sector 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 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 foot printing) 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.
For more than 35 years, Australian Ethical has
been investing to protect our planet. During
these three decades, the scientists with the
IPCC have been issuing major reports about the
state of the climate, gradually expressing more
certainty about what is happening and why and
the action needed to limit global warming.
The latest IPCC report on climate change
mitigation, released in April 2022, identified over
40 categories of decarbonisation opportunities
across energy supply, agriculture, forestry,
buildings, transport and efficiency technologies.
These include ammonia and hydrogen powered
ships, zero emissions steel produced using
hydrogen, concrete which absorbs carbon, and
direct capture of CO2 from the air.
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.
29
Strategic update
Last year we announced an aggressive growth
strategy to build upon our existing market share
and expand capability and capacity where we
saw the most potential. We identified four key
investment pillars to strengthen our business for
impact and leadership. These pillars were:
• Impactful business (growing our scale to grow
and amplify our positive impact)
It has been an extremely busy year as we have
successfully executed against this strategic
roadmap, despite ongoing Covid disruption and
external market challenges.
• Principled investment leadership (being a
powerful proof point for ethical investing)
• Advocates for a better world (combining
active engagement with people power to
push for a better world)
FY22 saw a big lift in capability with strategic
new hires and the introduction of new processes
and offerings to better position our business to
capture the large growth opportunity. Further
detail of our progress is outlined below.
• Compelling client experience (delivering a
modern and seamless experience that engages
customers with a better financial future)
We are proud of the significant milestones
achieved during the year and are already seeing
the benefits of the strategic investments made.
Delivering on strategy in FY22
Strong momentum on delivering against our strategic pillars through FY22.
We are investing now to support sustainable, long-term growth
1.
Principled
investment
leadership
2.
Advocates
for a better
world
3.
Compelling
client
experience
4.
Impactful
business
+
Leadership &
innovation
New capability:
Investment
Director, Head of
Investment Business
Management &
3 new Investment
Committee members
Minority stake in
Sentient Impact
Group
Announced a more
ambitious net zero
target of 2040 for
our private sector
investments
Strong visibility
through COP26
with 7,500 investors
profiled on front page
of Financial Times
Momentum
in product
development:
Launched High
Growth & High
Conviction funds
(incl. first ETF) to
reach new segments
$1.6m allocated by
the Foundation for
impact initiatives
including $500k
to new Visionary
Grants supporting
innovative climate
solutions
Enhanced asset
allocation through
implementation of
new strategic asset
allocation model
#1 NPS for Super &
HNW customers
Launch of new AE
App to digitise,
personalise and
improve the
managed fund
investor experience
Continued
to streamline
the customer
experience –
launched new
telephony system
and automated
key customer
interactions;
significant uptick
in customer
satisfaction metrics
Adviser
channel gaining
momentum: net
flows up 46%
Deep investment in
capability across the
business
Top quartile
employee
engagement
New performance
& remuneration
framework aligned
to high performance
culture
Creation of new
incubator team to
underpin innovative
new product
development
Launch of new
channels – ‘employer
platform’ channel to
accelerate
acquisition of
super customers;
and diversification
into listed channel
via launch of High
Conviction ETF
SFT with Christian
Super announced
with potential to
grow FUM by up to
$1.96bn
Backoffice digital
transformation with
new cloud based
GL, integrated HR &
payroll system
30
Australian Ethical Investment Limited and its Controlled Entities Directors’ Reportfor the year ended 30 June 2022ANNUAL REPORT 2022 Outlook
Like all fund managers, we remain highly
leveraged to financial markets. With the ongoing
war in Ukraine, high inflation and aggressive
interest rate rises, we expect market volatility
to continue. Notwithstanding this, we remain
steadfastly committed to our high growth
investment strategy.
In line with our fee strategy, further fee reductions
will be implemented on 1 September 2022. The
fixed super administration fee will reduce from
$97 to $74 per annum – this equates to a 2-basis
point reduction in overall revenue margin. Further,
on completion of the Christian Super SFT, a
further reduction in fees is anticipated.
Despite short-term headwinds posing
challenges in the near term, we remain
convinced that the medium-term market
opportunity remains bigger than ever. The
regulatory and policy environment are
particularly supportive with signs that the
change in Federal government will accelerate
efforts in Australia.
Our focus for FY23 will be on further enhancing
our investment leadership via a multi-faceted
program of work, further strengthening our
underlying infrastructure, capabilities and
processes to support a scaled business. We will
further expand our product and service offering;
diversify our distribution channels with focus
on our institutional offering and new employer
platform channel. We will embark on the next
phase of digitising our business, capturing the
seismic shift in preference for ethical investing
generally (organically), and enhancing our ability
and readiness to execute on appropriate M&A
for both scale and capability.
We anticipate that the Christian Super successor
fund transfer (SFT) will complete by early 2023,
delivering FUM growth, scale, capability and
portfolio diversification to our business.
And while we are well-positioned – with no
debt, well-managed cashflows and positive
momentum – we are mindful that in a
constrained environment we will need to ensure
even sharper focus. This includes a focused
and agile approach on where we allocate our
investment dollars to derive maximum returns,
as well as carefully managing our business-as-
usual cost base.
As such, our expense growth for FY23 will
again reflect the investment we will make into
our business to realise our ambitious growth
aspirations. Though we expect to see continued
strong growth in net flows, our profit outlook will
reflect the higher growth in expenses versus
revenue. We expect to see some scale benefits
to start emerging in FY24 as we realise the
anticipated benefits of investing in our business,
however, the organisation will remain in growth
phase for the medium term.
Any performance fees generated by the
Emerging Companies and High Conviction
Funds are not guaranteed year on year.
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:
2022
$’000
9,511
86
9,597
Due diligence costs in relation to mergers & acquisition activity
982
Government grant income
Payment of government grant to The Foundation
Net proceeds from insurance settlement
Tax on adjustments
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)
–
–
–
(295)
10,284
(240)
9,270
10,044
8.57
8.64
8.55
9.26
9.16
* refer to Note 45 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 2021 of 4.00 cents
(2020: 2.50 cents) per ordinary share – fully franked
Special performance dividend for the year ended 30 June 2021
of 1.00 cents (2020: 1.00 cents) per ordinary share
Interim dividend for the year ended 30 June 2022 of 3.00 cents
(2021: 3.00 cents) per ordinary share – fully franked
2021
$’000
% Increase
(Decrease)
(14%)
(15%)
(7%)
–
10%
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
2022
$’000
2021
$’000
4,495
2,810
1,124
1,124
3,372
8,991
3,371
7,305
Since year end the Directors have declared a final dividend of 3.00 cents per fully paid ordinary
share (2021: 4.00 cents final dividend and 1.00 cents special dividend). The aggregate amount of the
declared dividend expected to be paid on 15 September 2022 out of profits for the year ended 30
June 2022, but not recognised as a liability at year end, is $3,372,000 (2021: $5,619,000).
All dividends paid during the year were fully franked based on tax paid at 30.0%. The final dividend to
be paid in September 2022 will be fully franked at 30.0%.
32
Australian Ethical Investment Limited and its Controlled Entities Directors’ Reportfor the year ended 30 June 2022ANNUAL REPORT 2022
Changes to contributed equity during the year and prior to the issue of
the report
During the year and prior to the release of this report the following changes to contributed equity
occurred:
Details
Balance
Date
1 July 2021
Shares
112,387,138
Weighted
average
issue price
$’000
10,676
Vesting of deferred shares in the
Employee Share Plan (730,200 shares)
Vesting of deferred STI shares for CEO
(5,193 shares)
Purchase of deferred shares in the
Employee share plan – on-market
(274,762 shares)
1 September 2021
1 September 2021
16 September to
2 February 2022
–
–
–
$1.32
962
$4.53
23
$9.80
(2,692)
Balance
30 June 2022
112,387,138
8,969
No amounts are unpaid on any of the shares. Refer to Note 44 for additional information and a
detailed breakdown of the shares vested during the year.
Significant changes in the
state of affairs
On 9 December 2021, Australian Ethical
acquired a minority equity stake (10%) in
Sentient Impact Group Pty Ltd. (‘Sentient’). The
investment is $5.2 million. The stake is part of
Australian Ethical’s high growth strategy by
extending our capability in the impact investing
arena and to drive further organic growth in our
existing investment strategy.
Sentient is a Melbourne based impact
investment manager. Australian Ethical is a
strategic investor and has taken up a non-
executive seat on the Sentient board from
February 2022.
On 6 April 2022, Australian Ethical announced
it had entered into an exclusive memorandum
of understanding to explore a Successor
Fund Transfer (SFT) that would see Christian
Super members transfer into Australian Ethical
Super. The SFT deed was executed on 13 July
2022 after the due diligence process was
completed. The SFT will see up to 30,000
members representing around $1.96 billion in
FUM transferring to Australian Ethical, adding
both scale and capability to our business. We
anticipate that the Christian Super SFT will
complete by early 2023.
There were no other 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 Christian Super SFT mentioned
above, and the dividend declared as disclosed
in Note 34, no other matter or circumstance has
arisen since 30 June 2022 that has significantly
affected, or may significantly affect the Group’s
operations, the results of those operations, of the
Group’s state of affairs in future financial years.
33
Likely developments and expected results of operations
Information about likely developments in the operations of the Group and the expected results of
those operations in future financial years has not been included in this report because disclosure of
the information would be likely to result in unreasonable prejudice to the Group.
Environmental regulation
To the best of the Directors’ knowledge, the relevant environmental regulations under
Commonwealth and State legislation have been complied with.
Meetings of Directors
The number of meetings of the Company’s Board of Directors (‘the Board’) held during the year
ended 30 June 2022, 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 Bûn
Michael Monaghan
Julie Orr
John McMurdo
11
11
11
11
11
11
11
11
11
11
11
10
7
7
7
7
7
–
7
7
6
7
7
–
6
6
5
2
6
–
6
6
4
2
6
–
Product Disclosure
Statement Committee
Investment Committee
Eligible
Attended
Eligible
Attended
Steve Gibbs
Kate Greenhill
Mara Bûn
Michael Monaghan
Julie Orr
John McMurdo
4
–
–
4
–
–
4
–
–
4
–
–
1
1
5
5
5
–
1
1
4
5
5
–
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 Directors’ Reportfor the year ended 30 June 2022ANNUAL REPORT 2022 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 38 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 38 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 2022
Sydney
35
Remuneration
Report 2022
For the year ended 30 June 2022
Dear Shareholder,
On behalf of the Board, I am pleased to present our Remuneration Report for the financial year ended
30 June 2022 (FY22).
The remuneration report provides our shareholders and stakeholders with a thorough and transparent
outline of our remuneration framework and the philosophies behind the remuneration arrangements
and other employee benefits. It specifically focuses on the remuneration outcomes of Non-Executive
Directors, the Chief Executive Officer (CEO) and senior executives, collectively referred to as Key
Management Personnel (KMP), and how it aligns with our performance and strategic goals for the year.
Our strategic plan is to build a more impactful business and whilst market conditions have been
challenging, we have continued to grow and invest for future success. We are also pleased to have
achieved record new member and investor numbers along with record retail and wholesale net
inflows. To ensure we have the right capacity to focus on growing our business with impact and
purpose, we added 22 new team members (including 8 contractors supporting strategic projects) this
year including welcoming Eveline Moos as our new Chief People & Culture 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.
The 2022 financial year has been challenging due to the ongoing impact of Covid-19 and extreme
market volatility which has affected our performance in the second half of the year. Notwithstanding
those challenges it would be fair to say that in FY22 our staff remained resilient and successfully
achieved many milestone projects as we continue to implement our long-term growth strategies. We
take a flexible approach to how our staff work, combining a hybrid model of working in the office and
from home as it best suits the individual and the team.
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.
36
Australian Ethical Investment Limited and its Controlled Entities Remuneration Reportfor the year ended 30 June 2022ANNUAL REPORT 2022 FY22 remuneration
Our performance and remuneration framework is an important component of our high-performance
culture where employees perform well because they are engaged, valued, and continually learning.
We undertook a review of our remuneration framework in FY21 including benchmarking our executive
remuneration practices to ensure our framework and practices remain contemporary, fair and align
with our transformational growth agenda through to 2025 and beyond. These changes foreshadowed
in the FY21 remuneration report were implemented as planned from 1 September 2021 and are
outlined in section 2 of our report.
The newly implemented short- and long-term incentive programs are expected to drive our
growth aspirations which will amplify our impact and realise our purpose of better outcomes for all
stakeholders, including people, planet and animals.
Looking forward
We annually review our remuneration framework to ensure it remains contemporary and is aligned
with the Company’s strategy, industry trends and regulatory changes, including the Financial
Accountability Regime (FAR) and Australian Prudential Regulation Authority (APRA) prudential
standard on remuneration (CPS 511).
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
37
1. Key Management Personnel
Executive
Position
Term as KMP in FY22
John McMurdo
Managing Director & CEO
Full year
Marion Enander
Chief Strategy & Innovation Officer
Full year
Kim Heng
Chief Operating Officer
Departed 21 June 2022
Karen Hughes
Chief Risk Officer
Maria Loyez
David Macri
Tom May
Eveline Moos
Stuart Palmer
Mark Simons
Chief Customer Officer
Chief Investment Officer
General Counsel
Head of Ethics Research
Chief Financial Officer
Non-Executive Directors
Steve Gibbs
Chairman
Katherine Greenhill
Non-Executive Director
Mara Bun
Non-Executive Director
Michael Monaghan
Non-Executive Director
Julie Orr
Non-Executive Director
Full year
Full year
Full year
Full year
Full year
Full year
Full year
Full year
Full year
Full year
Full year
Chief People & Culture Officer
Commenced 18 May 2022
Following the appointment of the new Chief People & Culture Officer, this triggered a review of
the effectiveness of the current Senior Leadership Team structure and those designated as Key
Management Personnel (KMPs). The CEO and Board assessed the roles that drive the strategic
direction of the business, effective 1 July 2022. The executive KMP roles include Chief Executive
Officer, Chief Financial Officer, Chief Investment Officer, Chief Customer Officer, Chief Strategy and
Innovation Officer, Chief Risk Officer, and Chief People & Culture Officer.
Our Remuneration Philosophy and Structure
The Company’s remuneration philosophy is designed to create a high-performance environment
where employees are motivated and engaged, and remuneration is aligned with the long-term
strategies of the Company.
Remuneration principles
Australian Ethical’s remuneration approach is designed to facilitate the attraction, retention and
engagement of talent, within the organisations capacity to pay, to achieve Australian Ethical’s
corporate objectives.
Our remuneration approach is guided by the following principles:
• Pay fairly and equitably, and market competitive, to attract and retain talented people
• Align and balance the interests of clients, shareholders, and employees
• Recognise and differentiate for contribution to the Group’s performance
• Promote our values, behaviours, risk and conduct expectations
• Be simple to administer and to communicate to stakeholders
• Adhere to all applicable legislation and regulations
• Supports the long-term financial soundness of AEI Group
38
Australian Ethical Investment Limited and its Controlled Entities Remuneration Reportfor the year ended 30 June 2022ANNUAL REPORT 2022 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 gender 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 the payment of incentives.
In relation to bonus or incentive payments, the incentive structure meets the requirements of Rule
15.1(c) of the Company’s Constitution which provides a maximum amount payable as bonuses from
profits each year. The Company’s constitution states 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.
Diversity & Inclusion and Ethical Considerations of Income Inequality
AEI is committed to building a diverse and inclusive team. We strongly believe that an inclusive culture
will enable growth and will deliver better outcomes for our shareholders, customers and employees.
We strive to achieve diversity within our workforce that reflects the diverse community around us.
We provide equal opportunities to all, and this is embedded in our hiring practices and approach to
setting remuneration as stipulated in our Diversity & Inclusion Policy, Remuneration Policy and Charter.
We are one of a few ASX listed companies that has a Board 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 48% females (target 50%).
A key component of AEI’s gender equality strategy is the commitment to reduce the disparity in
superannuation savings between men and women at retirement where women are retiring with
significantly lower superannuation balances due to wage disparity and time out of the workforce. To
address this, AEI have committed to continue to pay superannuation contributions for employees on
parental leave, whether that leave is paid or unpaid, for up to 24 months.
Key diversity and inclusion achievements in FY22 are listed below:
• We have embraced a combination of in-office and from-home working (hybrid working), providing
our people flexibility to get tasks done where best completed.
• Onboarded our new wellbeing partner, Allos, who manage our employee assistance program to
empower our people to develop strategies to thrive at work and in life.
• Continued to foster an inclusive culture through awareness campaigns and celebrations, including:
– International Women’s Day with an employee education session from Community Grant
Recipient, One Girl
– Wear it Purple Day, and the International Day against Homophobia, Biphobia, Intersexism and
Transphobia (IDAHOBIT).
• Signatory to Financial Services Council Women in Investment Management Charter, committing to
a target of 40% female representation in the investment management team.
39
2. Changes to the Remuneration Framework in FY22
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, driving good behaviour
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 as well as 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
and behaviour of employees and the remuneration outcomes.
In FY22, the Board implemented a new remuneration framework as outlined in the FY21
remuneration report.
The Board engaged AON Hewitt in FY21 to carry out a comprehensive review of our remuneration
structure, including industry benchmarks and incentives, considering the company’s current
market position and aspirational strategic growth targets to 2025 and beyond. This review also
considered the upcoming proposed changes to the regulatory environment on remuneration to
ensure we continued to comply with prudential and regulatory requirements as well as meet our
own high ethical standards.
The review concluded that long-term award incentive opportunities for senior executive roles were
below market comparable opportunities and that there had been an identifiable shift towards the
deferment of short-term incentive awards where those awards exceeded a threshold along with
long term incentive awards.
A summary of key changes to the remuneration structure that came into effect from 1 September
2021 following the review are listed below.
• The STI incentive framework for all staff changed from a maximum % to a target % which allows for
increased opportunities to recognise individual employees where there is significant contribution
and outperformance of goals. The new target STI is approximately 75% of the previous maximum
bonus potential (based on % of fixed remuneration) and the new maximum is capped at 2 times the
target for KMPs.
• 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. From FY22 onwards,
this is now referred to as the Employee Share Plan (ESP), fixed at 10% of annual remuneration for all
employees except for certain members of the Investments team. It remains subject to the same
3-year vesting timeframe and performance hurdle criteria. The ESP will be settled in shares. There
are no changes to unvested shares granted in LTI awards in prior years.
• A new Executive Long-term Incentive (ELTI) program designed to retain key senior talent and
provide reward for achieving aspirational targets by the period ending 30 June 2025. Specifically,
where LTI for executives previously ranged from 10-33% of fixed remuneration annually depending
on role, they now range from 20-60%, being a combination of ESP and ELTI at vesting in 2025.
40
Australian Ethical Investment Limited and its Controlled Entities Remuneration Reportfor the year ended 30 June 2022ANNUAL REPORT 2022 – The base ELTI is issued in the form of hurdled performance rights to qualifying executives and
has a 4-year vesting timeframe.
– Vesting criteria includes 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 FUM target includes a multiplier mechanism that provides a range of stretch targets for
Australian Ethical’s leadership team. A multiplier of the base award will apply at each FUM target
achieved. If the maximum stretch FUM target of $30bn by 30 June 2025 (along with other KPIs)
is achieved, then the maximum multiplier of 7 times the base award will apply. The multiplier
mechanism applies only to the ELTI tranche vesting 1 September 2025.
– Refer to below Elements of Remuneration table for additional details.
• The introduction of a deferred component of any STI paid to KMP’s (excluding CIO) above $100,000
in any given year to be paid in deferred shares. The CIO has a fixed percentage of STI awarded paid
as deferred shares. A deferral component had already been in place for the CEO and the CIO in
FY21.
• No other material structural changes were made to fixed remuneration or annual Short-term
Incentives (STI).
In considering the implementation of the ELTI 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 ELTI closely aligns the interests of
Executives with those of shareholders. The ELTI opportunity was designed to drive greater business
impact and purpose, and reward those key to that success.
The weighting of new potential remuneration towards long-term and deferred incentives is
consistent with the best practice governance principles signalled in the foreshadowed Financial
Accountability Regime (FAR) and APRA Prudential Standard CPS 511 Remuneration regulation.
FY23 considerations
The Board are in the process of considering a new FY23 ELTI grant with a vest date of 1 September
2026. It is expected to be based on a similar percentage of fixed remuneration for KMPs as in FY22.
This is not expected to include a multiplier mechanism. The FY26 performance hurdles are yet to be
determined.
41
Elements of Remuneration (financial year ended 30 June 2022)
The following framework applied to all employees of Australian Ethical Investment Limited (not including
Non-Executive Directors and Investment Committee members) for the financial year ended 30 June 2022.
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.
Paid as
Cash
Cash and
Deferred
Shares
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.
• 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 for KMPs is two times target of Fixed
Remuneration. For all other staff, the maximum STI is uncapped.
• Actual outcome is linked to performance and contribution
against annual financial and non-financial KPIs.
• For KMPs (except CEO and CIO), STI in any given year that
exceeds $100,000 will be deferred for up to 3 years, is not
subject to further hurdles and paid in shares. The CEO and CIO
have other deferral components within their remuneration.
• On an annual basis the PRN will consider an additional
discretionary bonus paid in deferred shares for specified
members of the Investment team, connected to any
performance fees achieved. The deferred shares are not
subject to further hurdles and vest over the 3 years following
the year in which the performance fee is earned. 25% of the
performance fee revenue that crystallised as at 30 June 2021
was awarded to the investment team in FY22.
• 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.
Employee
Share Plan
(ESP) –
(previously
named
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.
• 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.
42
Australian Ethical Investment Limited and its Controlled Entities Remuneration Reportfor the year ended 30 June 2022ANNUAL REPORT 2022 Paid as
Performance
Rights
Element
Description
Quantum
Executive
Long-Term
Incentive
(ELTI)
Designed
to align the
business
strategy with
specific KPIs
to drive long-
term growth,
personal
interest in
the future of
AEI and the
achievement of
AEI’s long-term
strategic goals.
• Awarded as percentage of Fixed Remuneration, ranging from
10% to 50% for selected senior executives.
• Issued as performance rights and vest as ordinary shares after
4 years, provided that:
– employee remains employed; and
– achievement of the below minimum measurement criteria:
– financial measures:
• $15bn of FUM as at 30 June 2025, and with each
incremental increase in FUM of $2.5bn, a multiplier to the
base award is applied ranging from 2 to a maximum of 7
times at $30bn;
• Operating costs to Income ratio of no more than 75%;
- non-financial measures:
• median NPS score for both super and managed funds to
measure customer satisfaction,
• median employee engagement score for financial services
companies, and
• ongoing compliance with our Ethical Charter.
• The multiplier mechanism applies only to the ELTI tranche
vesting 1 September 2025.
• During the vesting period, ELTI participants are not entitled
to receive dividends nor hold voting rights.
• No award will vest if all targets are not attained.
• On cessation of employment, all performance rights are forfeited
unless the Board in its absolute discretion determines otherwise.
Other
employee
benefits
The Group also
provides other
benefits to all
employees.
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.
• support for 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
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.
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.
43
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 2022. The following outcomes have been taken into
account when assessing short-term incentives for KMPs.
Measure
Metric
Financial
– Net profit after tax
attributable to shareholders
(NPAT)
– Net inflows targets set based
on prior year experience,
budget expectations and
stretch target. Key focus
is on retail and wholesale
netflows and improving
advisor channel penetration.
Client
experience
– Compelling client
experience measured by
Net Promoter Score (NPS)
for super and managed fund
clients.
Why this metric
is appropriate
Incentive Award
Achievement for FY21
Provides alignment to
the Group’s financial
performance.
The target was set in
context of investment
required to underpin
High Growth strategy
outlined in August
2021.
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.
Target: NPAT attributable to
shareholders of $9.1m
Actual: NPAT attributable to
shareholders of $9.6m
Target: Net inflow year on year
growth rate of 20%
Actual: Net retail and wholesale
inflows of $1.1bn, up 20% on the
prior year. Advisor net inflows
up 46% and record super net
inflows of $0.8 bn. Total net inflow
growth (including institutional
redemption) of $0.9bn.
Target:
– Super NPS – Top 3
– Managed Funds NPS (High Net
Worth) – Top 3
– Adviser NPS: Top 10
Actual:
– Super NPS – ranked 1st with a
score of 45%
– Managed Funds NPS (High Net
Worth) – ranked 1st with a score
of +50%
– Adviser NPS: Top 10 – ranked
13th with a score of +7
2 out of 3 exceeded stretch
targets
Source: Investment Trends data
44
Australian Ethical Investment Limited and its Controlled Entities Remuneration Reportfor the year ended 30 June 2022ANNUAL REPORT 2022 Why this metric
is appropriate
Incentive Award
Achievement for FY21
Delivering priorities
consistent with the
long-term strategies of
the Group
Target:
– Achieve > 85% of KRAs
– Achievements assessed by the
Board
Measure
Metric
Strategic &
regulatory
initiatives
and Business
Plan Key
Result Areas
– Strategy development
– Delivery of agreed strategic
& regulatory initiatives
program as a team.
– Delivery of Key Result
Areas (KRAs) per the annual
Business Plan which are
linked to each strategic pillar
– Brand familiarity
Investment
performance
– Balanced Fund (BF),
Australian Shares Fund (ASF)
& Emerging Companies
Fund (ECF) performance
against market benchmarks.
Delivering long
term competitive
investment returns for
our customers is core
to our offering.
– BF, ASF & ECF performance
relative to peers.
– Super Fund Balanced option
(MySuper) relative to peers
performance and Sharpe
ratio.
– Brand familiarity of 10% of
whole market and 11% ethical
interested
Actual:
– Delivered all regulatory
projects. On target.
– Delivered on prioritised KRAs
delivered some additional
strategic initiatives. On target.
Refer to Operating Financial
Review for details of the
projects completed in FY22.
Target: ASF / ECF / BF vs
Benchmark:
– Stretch target for BF is
benchmark + 2%, ASF is
benchmark + 3%, for ECF is
benchmark +4%, over blended
1 and 3 year horizons.
Actual:
– 1 year: Below target
– 3 year: Above target for ASF
and ECF
Target: ASF / ECF / BF vs Peers:
– Measured in quartiles with
stretch target being 2nd
quartile, over blended 1 and 3
year horizons.
Actual:
– 1 year: Below target
– 3 year: Above target
Target: MySuper Fund vs Peers
Performance, and MySuper Fund
vs Peers Sharpe Ratio:
– Measured in quintiles with
stretch target being 2nd
quintile, over blended 1 and 3
year horizons.
Actual:
– 1 year: Below target
– 3 year: Below target
45
Why this metric
is appropriate
Incentive Award
Achievement for FY21
Providing a
motivating and
inspiring workplace
and high employee
engagement has been
proven to drive better
business outcomes
for customers and
shareholders.
Target: Top quartile Employee
Engagement across Financial
Services organisations
Actual: Engagement survey in
June achieved a score of 79%, in
the top quartile Finance Australia
2022 Industry Benchmark.
Measure
Metric
Employee
engagement
– Employee annual
engagement score (as
surveyed by Culture Amp).
Assessed against market
comparisons
– SLT leadership and team
development (application
of leadership training,
collaboration and 3600
feedback)
– Adherence to the
Company’s values is treated
as a gate to short term
incentive awards.
Target: Maintain strategic risk
appetite and embed risk culture
across the organisation
Actual: Measurement was
a combination of factual
and subjective assessment.
Achievements was discussed at
PRN on an individual basis.
No KMPs had a reduction in their
STI due to risk.
Risk
– Managing incidents and risks
out of tolerance back with
Board approved risk appetite
for business activities.
It is critical for our SLT
to have a high degree
of ownership for risk
management.
– Risk management on
strategic projects
– Risk will also have a
“detractor” measure, based
on behaviour, risk culture
in team, failure to meet
requirements, or behaviour
that results in AEI not acting
or appearing not to act in
the best interests of clients
and of AERSF members. If
triggered, the impact will
be a reduction in total STI
allocation for the person of
at least 5% up to 100%, and/
or for the company factor if
considered an organisation
wide concern.
In assessing the performance of the business and the CEO, the Board acknowledges significant
progress on a number of our long-term strategic projects. Whilst market conditions have been
challenging and extreme market volatility has affected out performance in the second half of the year,
we have continued to grow and invest for future success. We are pleased to have achieved record
new member and investor numbers along with record retail and wholesale net inflows.
The CEO’s performance is assessed on the Company balanced scorecard and number of strategic
initiatives such as:
• Company balanced scorecard and key result areas
• Leadership and team development
• Strategy development and execution
• Brand, reputation and advocacy development
• Strategic partnerships including mergers and acquisitions
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. In addition to the balanced scorecard, each SLT is also assessed on a
range of individual objectives relevant to their role and responsibilities. The awards reflect recognition
of the performance of each SLT, their team and the achievement of the many strategic initiatives.
46
Australian Ethical Investment Limited and its Controlled Entities Remuneration Reportfor the year ended 30 June 2022ANNUAL REPORT 2022 3. 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 which reflect Australian Ethical’s performance across a range of metrics over the last five years:
Net inflows ($ billion)
FUM at year end ($ billion)
Operating Revenues ($’000)
2018
2019
2020
2021
2022
0.52
2.82
0.33
0.66
3.42
4.05
1.03
6.07
0.94
6.20
35,992
40,977 49,902
59,110
70,784
Net Profit After Tax attributable to shareholders ($’000)
4,998
6,465
9,457
11,261
9,597
Underlying Profit After Tax (UPAT) ($’000)1
4,998
6,540
9,279
11,052
10,284
NPAT excluding performance fees
4,998
5,949
7,206
9,377
9,356
UPAT excluding performance fees
4,998
6,024
7,028
9,167
10,044
Diluted Earnings Per Share (cents per share)
4.46
5.84
8.42
10.02
8.55
Diluted Earnings Per Share (EPS) growth (3 years)2
35.2% 28.5% 47.3% 31.0% 14.0%
Diluted EPS growth excl performance fees (3 years)
35.2% 25.3% 36.4% 23.2% 16.2%
Share price at end of period ($, restated for share split)
1.35
1.77
6.66
8.44
4.66
Dividends (cents per share, restated for share split)
4.00
5.00
5.00
Special performance fee dividend (cents per share)2
–
–
1.00
7.00
1.00
6.00
–
Staff engagement scores
78%
71%
86%
82%
79%
1 Underlying Profit After Tax is a non-IFRS measure and is not audited
2 EPS growth over 3 years is shown to align with the performance hurdle period of the ESP
3 The Special performance fee dividend is linked to the performance fee achieved on the Emerging Companies
Fund outperformance in FY20 and FY21
47
Weighting of remuneration components
The following are the weightings of the various components of target remuneration for the CEO, CIO
and all other SLT members. Target remuneration is the remuneration that KMP expect to be paid if all
of their strategic initiatives are achieved. Under Target remuneration, ELTI is valued at 1 times the base
multiplier which is payable if $15bn FUM is achieved (along with other metrics) by 2025.
The ELTI performance hurdles will only be assessed at the end of the 2025 year and accordingly
not a component of the current year’s remuneration. Opportunity for stretch targets and additional
remuneration are available under certain conditions and these are outlined in the ELTI table below.
Target Remuneration by Component
CEO
CIO
43%
40%
16%
16%
4%
21%
26%
6%
13%
16%
Other KMPs
64%
13%
6%
17%
0%
20%
40%
60%
80%
100%
Fixed Remuneration
STI
Deferred STI
ESP
ELTI
STI bonus
The below table shows for each KMP how much of their STI bonus was awarded, in relation to
the maximum incentive pay they were entitled to. The percentages equate to the ratio of bonus
components against fixed salary. Deferred shares vest a third per year over 3 years. The KMP bonuses
are subject to PRN approval and all other bonuses subject to CEO discretion, minimum is 0%.
Total STI Bonus (Cash and Deferred Shares)
Name
Opportunity as a % of
fixed remuneration
Target
Opportunity
Maximum
Opportunity as a %
of fixed remuneration
(2 x Target)
Awarded
Achieved
as % of Max
Opportunity1
Target % Maximum %
J McMurdo
M Enander
K Heng
(dep 21 June)
K Hughes
M Loyez
D Macri
T May
E Moos2
S Palmer
M Simons
75%
25%
25%
15%
25%
75%
15%
25%
15%
25%
150%
50%
50%
30%
50%
150%
30%
50%
30%
50%
375,000
87,500
93,750
45,000
90,000
315,000
43,500
80,000
49,500
100,000
750,000
562,500
175,000
131,250
187,500
–
90,000
72,000
180,000
112,500
630,000
157,500
87,000
160,000
–
–
99,000
68,000
200,000
180,000
75%
75%
–
80%
63%
25%
–
–
69%
90%
1 Forfeiture %, in accordance with Corporations Regulation 2001 – Reg 2M.3.03 clause 12(f), is calculated as 100%.
2 E Moos is not yet eligible for STI bonus.
48
Australian Ethical Investment Limited and its Controlled Entities Remuneration Reportfor the year ended 30 June 2022ANNUAL REPORT 2022 ELTI - Performance Rights
Rights to ordinary shares under the Executive LTI program were granted on 1 December 2021. The number of
performance rights allocated to each KMP was determined using an allocation price of $10.34. On vesting,
each right automatically converts into one ordinary share.
The fair value of the Performance Rights was determined based on the market price of the company’s shares
at the grant date, with an adjustment made for dividends foregone during that period, equating to $13.54.
In FY22 the potential multiplier has been assessed as 1 times and statutory expense in the ‘Remuneration
Outcomes – Statutory Basis’ table below has been calculated on this basis.
At this time, the performance hurdles for the Performance Rights to vest have not yet been met. The table
below shows the number of rights granted and the fair value of those rights based on the assumption that
the first performance hurdle of $15bn is achieved (1 times multiplier). For each incremental FUM hurdle
of $2.5bn, a multiplier of 2 through to 6 would be applied. The maximum opportunity is 7 times the base
number of rights granted which would only vest if $30bn FUM is achieved along with other KPIs in 2025.
Therefore, the maximum fair value of rights would be 7 times the fair value presented in the table below.
Refer to Elements of Remuneration table above for detailed vesting requirements.
Name
J McMurdo
M Enander
K Hughes
M Loyez
D Macri
T May
E Moos
S Palmer
M Simons
Granted as
a % of fixed
remuneration
Potential
Multiplier
No. of rights granted
(based on 1 times
multiplier)
Fair Value of Rights
(based on 1 times multiplier)
$
50%
40%
10%
40%
40%
10%
–
20%
40%
1 to 7 times
1 to 7 times
1 to 7 times
1 to 7 times
1 to 7 times
1 to 7 times
1 to 7 times
1 to 7 times
1 to 7 times
24,178
13,540
2,901
13,926
16,248
2,805
–
6,383
15,474
327,369
183,327
39,284
188,565
219,992
37,975
–
86,426
209,516
Kim Heng was granted 14,507 rights but these were forfeited upon resignation and the statutory expense reversed.
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 2022.
The movement in the Senior Leadership Team remuneration outcomes (statutory basis) between FY21 and
FY22 is explained in the following table:
• Chief Executive Officer (CEO) – the increase is attributable to an increased in salary in line with industry
benchmarking and his performance-based bonuses
• Other KMP
– increase in individual salaries in line with responsibilities and industry benchmarking to ensure reward
remains competitive and fair
– Changes in STI is based on individual performance
• Performance rights (ELTI) granted 1 December 2021
• New Chief People & Culture Officer (CPCO) commenced in June 2022. Amounts disclosed for the CPCO
reflect the period of time in this role
49
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51
Unvested and Ordinary Shares, and Performance Rights holdings
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.
Grant
Date
Vesting
Date
Share Price
at Grant
Date
Balance
at 1 July
2021
No. of
shares/
rights
granted
No. of
shares/
rights
forfeited
No. of
shares
vested
No. of
shares
sold
Balance
at
30 June
2022
Name
J McMurdo
Unvested Deferred STI
Unvested Deferred STI
Unvested Deferred STI
& ESP
Unvested ESP
Unvested Deferred STI
Unvested Deferred STI
Unvested Deferred STI
Ordinary shares
Unvested
Performance rights
Total
M Enander
Unvested ESP
Unvested ESP
Ordinary shares
Unvested
Performance rights
Total
K Heng
Unvested ESP
Unvested ESP
Unvested ESP
Ordinary shares
Unvested
Performance rights
Total
K Hughes
Unvested ESP
Unvested ESP
Unvested ESP
Unvested ESP
Ordinary shares
Unvested
Performance rights
Total
M Loyez
Unvested ESP
Unvested ESP
Ordinary shares
Unvested
Performance rights
Total
D Macri
Unvested ESP
Unvested ESP
Unvested ESP
Unvested ESP
Unvested Deferred STI
Unvested Deferred STI
Unvested Deferred STI
Ordinary shares
Unvested
Performance rights
Total
52
1-Sep-20
1-Sep-21
1-Sep-20 1-Sep-22
1-Sep-20 1-Sep-23
1-Sep-24
1-Sep-21
1-Sep-22
1-Sep-21
1-Sep-23
1-Sep-21
1-Sep-24
1-Sep-21
4.53
4.53
4.53
9.80
9.80
9.80
9.80
1-Dec-21
1-Sep-25
10.34
1-Sep-20 1-Sep-23
1-Sep-24
1-Sep-21
4.53
9.80
1-Dec-21
1-Sep-25
10.34
5,193
5,193
48,602
–
–
–
–
–
–
–
–
5,102
7,459
7,459
7,459
–
–
58,988
24,178
51,657
6,620
–
–
–
3,571
–
–
6,620
13,540
17,111
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
1-Sep-19 1-Sep-22
1-Sep-20 1-Sep-23
1-Sep-24
1-Sep-21
2.15
4.53
9.80
21,653
7,048
–
–
–
3,827
–
–
(21,653)
(7,048)
(3,827)
–
1-Dec-21
1-Sep-25
10.34
–
28,701
14,507
18,334
(14,507)
(47,035)
(5,193)
–
–
–
–
–
–
5,193
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
5,193
48,602
5,102
7,459
7,459
7,459
5,193
24,178
110,645
6,620
3,571
–
13,540
23,731
–
–
–
–
–
–
1-Sep-21
1-Sep-18
1-Sep-19 1-Sep-22
1-Sep-20 1-Sep-23
1-Sep-24
1-Sep-21
1.32
2.15
4.53
9.80
1-Dec-21
1-Sep-25
10.34
1-Sep-20 1-Sep-23
1-Sep-24
1-Sep-21
4.53
9.80
1-Dec-21
1-Sep-25
10.34
1-Sep-18
1-Sep-21
1-Sep-19 1-Sep-22
1-Sep-20 1-Sep-23
1-Sep-24
1-Sep-21
1-Sep-22
1-Sep-21
1-Sep-23
1-Sep-21
1-Sep-24
1-Sep-21
1.32
2.15
4.53
9.80
9.80
9.80
9.80
1-Dec-21
1-Sep-25
10.34
20,900
13,256
6,289
–
–
–
–
–
3,061
–
–
40,445
2,901
5,962
6,779
–
–
–
3,673
–
–
6,779
13,926
17,599
90,200
56,898
26,995
–
–
–
–
176,921
–
–
–
14,143
616
616
615
–
–
16,248
351,014 32,238
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(20,900)
–
–
–
20,900
–
–
–
–
(15,321)
–
13,256
6,289
3,061
5,579
–
(15,321)
2,901
31,086
–
–
–
–
–
6,779
3,673
–
13,926
24,378
–
56,898
26,995
14,143
616
616
615
144,865
(90,200)
–
–
–
–
–
–
90,200
–
–
–
–
–
–
–
(122,256)
16,248
–
–
– (122,256) 260,996
Australian Ethical Investment Limited and its Controlled Entities Remuneration Reportfor the year ended 30 June 2022ANNUAL REPORT 2022
Grant
Date
Vesting
Date
Share Price
at Grant
Date
Balance
at 1 July
2021
No. of
shares/
rights
granted
No. of
shares/
rights
forfeited
No. of
shares
vested
No. of
shares
sold
Balance
at
30 June
2022
1-Sep-18
1-Sep-21
1-Sep-19 1-Sep-22
1-Sep-20 1-Sep-23
1-Sep-24
1-Sep-21
1.32
2.15
4.53
9.80
1-Dec-21
1-Sep-25
10.34
1-Sep-18
1-Sep-21
1-Sep-19 1-Sep-22
1-Sep-20 1-Sep-23
1-Sep-24
1-Sep-21
1.32
2.15
4.53
9.80
1-Dec-21
1-Sep-25
10.34
19,700
12,791
6,068
–
26,192
–
–
–
2,959
–
–
64,751
2,805
5,754
22,800
14,419
6,841
–
–
–
–
–
3,367
–
–
44,060
6,383
9,750
1-Sep-21
1-Sep-18
1-Sep-19 1-Sep-22
1-Sep-20 1-Sep-23
1-Sep-24
1-Sep-21
1.32
2.15
4.53
9.80
25,000
15,814
7,503
–
41,000
–
–
–
4,082
1-Dec-21
1-Sep-25
10.34
–
89,317
15,474
19,556
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(19,700)
–
–
–
19,700
–
–
–
–
(26,192)
–
12,791
6,068
2,959
19,700
–
–
–
–
2,805
44,323
(22,800)
–
–
–
22,800
–
–
–
–
(22,800)
–
14,419
6,841
3,367
–
–
–
–
(22,800)
6,383
31,010
(25,000)
–
–
–
25,000
–
–
–
–
(26,000)
–
15,814
7,503
4,082
40,000
–
–
–
(26,000)
15,474
82,873
Name
T May
Unvested ESP
Unvested ESP
Unvested ESP
Unvested ESP
Ordinary shares
Unvested
Performance rights
Total
S Palmer
Unvested ESP
Unvested ESP
Unvested ESP
Unvested ESP
Ordinary shares
Unvested
Performance rights
Total
M Simons
Unvested ESP
Unvested ESP
Unvested ESP
Unvested ESP
Ordinary shares
Unvested
Performance rights
Total
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 is outlined below:
Salary
Term Notice period
STI
LTI
Malus Provision
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. In FY23,
the ELTI rights is not
expected to have a
multiplier mechanism.
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
53
The below graph summarises the structure and vesting schedules of the variable incentive
compensation for the CEO in FY22.
Performance
Year for
Variable
Incentives
y
t
i
u
q
E
Performance Rights
Executive long-term incentives (ELTI) subject to 4-year various
performance-based hurdles
Deferred Shares (LTI)
Employee share plan (ESP) subject to 3-year
CAGR hurdle
Deferred Shares (STI)
1/3 subject to 3-year
vesting period
(STI)
1/3 subject to 2-year
vesting period
s
n
o
i
t
c
i
r
t
s
e
r
t
u
o
h
t
i
w
t
s
e
V
h
s
a
C
(STI)
1/3 subject to 1-year
vesting period
1 July 2020
30 June 2021
30 June 2022
30 June 2023
30 June 2024
30 June 2025
September
September
4. 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 $1,000,000, which was approved
at the AGM in October 2021. A review of NEDs’ remuneration is undertaken annually by the Company
Board, taking into account recommendations from the PRN.
The following table sets out the agreed remuneration for NEDs by position for a full year, with effect
from 1 November 2021. We note that this was the first adjustment to director fees since 1 December
2019. NEDs do not receive performance-related pay and are not provided with retirement benefits
apart from statutory superannuation.
54
Australian Ethical Investment Limited and its Controlled Entities Remuneration Reportfor the year ended 30 June 2022ANNUAL REPORT 2022
In total, directors’ fees of $785,000 was paid during the year out of the director fee pool approved at the 2021 AGM
of $1,000,000.
From 1 November 2021
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
$
140,000
80,000
35,000
35,000
26,250
15,000
26,250
15,000
5,000
5,000
–
–
–
–
17,500
10,000
–
–
–
–
5,000
5,000
–
–
–
–
–
–
–
–
–
–
–
–
–
–
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.
Audit,
Risk &
Compliance
Committee
$
People,
Remuneration
& Nominations
Committee
$
Board
Fee
$
Investment
Committee
$
PDS
Committee
$
Insurance
Benefits
Committee
$
Super
$
Total
$
Name
2022
S Gibbs
K Greenhill
M Bûn
141,961
93,798
93,798
M Monaghan
93,798
J Orr1
Total
2021
S Gibbs
K Greenhill
M Bûn
63,671
487,026
108,126
72,304
72,304
M Monaghan
72,304
J Orr1
Total
45,557
370,595
20,835
36,462
14,111
8,373
11,933
91,714
17,050
29,839
17,050
17,050
8,525
89,514
–
–
–
–
–
–
–
–
–
–
–
–
3,044
3,044
12,135
20,475
12,135
50,833
9,132
9,132
9,132
13,699
9,132
50,227
3,657
–
–
3,657
–
7,314
3,971
3,971
17,304
190,772
13,728
151,003
–
–
–
12,005
132,049
12,630
138,933
8,774
96,513
7,942
64,441
709,270
1,881
2,822
13,044
152,055
–
–
1,881
–
3,762
5,174
11,063
127,512
235
9,379
108,100
–
–
9,969
6,005
114,903
69,219
8,231
49,460
571,789
1 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.
55
During the year, the following changes to committee memberships occurred:
• From 1 November 2021 Ms Greenhill and Mr Gibbs were no longer members of the AEI Investment
Committee
• From 1 November 2021 Ms Bûn and Mr Monaghan were no longer members of the AEI ARC
• From 1 November 2022 Ms Bûn was no longer a member of the AES ARC
• From 15 February 2022 Ms Bûn rejoined the AEI ARC
• From 15 February 2022 Ms Bûn rejoined the AES ARC
• From 15 February 2022 Mr Monaghan was no longer a member of the AES ARC
The Investment Committee also includes Sandra McCullagh, Sean Henaghan and Steven Rankine
who were appointed on 22 February 2022. Ms McCullagh, Mr Henaghan and Mr Rankine are not
directors and are not KMP. Their remuneration is not paid from the Director fee pool.
Shares owned by Non-Executive Directors
Name
Non-Executive Directors
M Bûn
Purchase
date
Balance at
1 July 2021
No. of shares
purchased
No. of
shares sold
Balance at
30 June 2022
AEF Ordinary shares
13-Nov-17
Total
57,000
57,000
–
–
–
–
57,000
57,000
5. 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 committee’s charter includes oversight of remuneration as well as executive development, talent
management and succession planning.
• Steve Gibbs (Chair);
• Mara Bûn;
• 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 Chief
People & Culture Officer 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, the PRN assesses the eligibility for
vesting of deferred shares.
56
Australian Ethical Investment Limited and its Controlled Entities Remuneration Reportfor the year ended 30 June 2022ANNUAL REPORT 2022 CEO and Senior Executives Performance
The CEO is responsible for reviewing the performance of senior executives 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 senior executives performance.
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.
Hedging Policy
Senior executives participating in the Company’s equity-based plans are prohibited from entering
into any transaction which would have the effect of hedging or otherwise transferring to any other
person the risk of any fluctuation in the value of any unvested entitlement in the Company’s securities.
Trading Restrictions and Windows
All directors and employees are constrained from trading the Company’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 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 2022
57
Lead Auditor’s Independence Declaration under
Section 307C of the Corporations Act 2001
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
To the Directors of Australian Ethical Investment Limited
Investment Limited for the financial year ended 30 June 2022 there have been:
i.
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 2022 there have been:
no contraventions of the auditor independence requirements as set out in the
Corporations Act 2001 in relation to the audit; and
ii.
i.
no contraventions of any applicable code of professional conduct in relation to the audit.
no contraventions of the auditor independence requirements as set out in the
Corporations Act 2001 in relation to the audit; and
ii.
no contraventions of any applicable code of professional conduct in relation to the audit.
KPMG
KPMG
Karen Hopkins
Partner
Karen Hopkins
Sydney
Partner
25 August 2022
Sydney
25 August 2022
44
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
44
a scheme approved under Professional Standards Legislation.
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.
58
Australian Ethical Investment Limited and its Controlled Entities Financial Statementsfor the year ended 30 June 2022ANNUAL REPORT 2022
Australian Ethical Investment Limited and its Controlled Entities
Financial Statements
for the year ended 30 June 2022
Statements of comprehensive income
For the year ended 30 June 2022
Consolidated
Parent
Note
2022
$’000
2021
$’000
2022
$’000
2021
$’000
Revenue
Operating revenue
Other income
Total revenue
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
Due diligence & transaction costs
Total 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
Basic earnings per share
Diluted earnings per share
5
6
7
8
9
10
11
12
13
13
14
15
20
16
17
26
43
43
70,784
–
70,784
(25,260)
(10,194)
(9,094)
(3,831)
(2,842)
(1,580)
(578)
(627)
(1,646)
(335)
(41)
(982)
(57,010)
13,774
(4,263)
9,511
58,711
399
59,110
(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
63,167
–
63,167
49,175
100
49,275
(24,824)
(18,331)
(4,034)
(9,094)
(3,497)
(2,301)
(1,509)
(578)
(627)
(1,313)
(335)
(41)
(982)
(49,135)
14,032
(4,085)
9,947
(3,261)
(4,951)
(2,648)
(2,057)
(1,619)
(554)
(615)
(946)
(258)
(57)
–
(35,297)
13,978
(3,376)
10,602
3
3
8
8
–
–
–
–
9,514
11,126
9,947
10,602
Cents
8.57
8.47
Cents
10.06
9.90
1 Comprehensive income includes the results of The Foundation (refer to Note 45).
The above statements of comprehensive income should be read in conjunction with the accompanying notes.
59
Statements of financial position
As at 30 June 2022
Consolidated
Parent
Note
2022
$’000
2021
$’000
2022
$’000
2021
$’000
Assets
Current assets
Cash and cash equivalents
Trade and other receivables
Prepayments
Right-of-use assets
Income tax refund due
Other receivables
Total current assets
Non-current assets
Deferred tax
Property, plant and equipment
Right-of-use assets
Term deposit
Investments in subsidiary
Financial assets through profit or loss
Financial assets through other
comprehensive income
Total non-current assets
Total assets
Liabilities
Current liabilities
Trade and other payables
Employee benefits
Deferred consideration
Income tax
Lease liabilities
Total current liabilities
Non-current liabilities
Lease liabilities
Employee benefits
Provisions
Deferred tax
Total non-current liabilities
Total liabilities
Net assets
Equity
Issued capital
Reserves
Retained profits
Total equity
18
19
20
17
21
17
22
20
23
24
25
26
27
29
28
17
20
20
30
31
17
32
33
27,387
1,737
1,346
626
249
–
27,813
4,217
909
626
–
465
24,313
4,443
1,315
626
249
–
23,143
6,300
740
626
–
465
31,345
34,030
30,946
31,274
3,338
1,401
46
504
–
5,200
106
2,900
1,219
672
504
–
–
141
10,595
41,940
5,436
39,466
8,568
5,997
1,300
–
787
16,652
47
284
258
34
623
17,275
24,665
8,969
2,706
12,990
24,665
7,250
4,593
–
1,364
740
13,947
834
218
252
35
1,339
15,286
24,180
10,676
1,034
12,470
24,180
3,207
1,401
46
504
316
5,200
1
10,675
41,621
9,403
5,954
1,300
–
787
17,444
47
284
258
34
623
18,067
23,554
8,969
2,702
11,883
23,554
2,617
1,219
672
504
316
–
2
5,330
36,604
5,988
4,537
–
1,364
740
12,629
834
218
252
35
1,339
13,968
22,636
10,676
1,033
10,927
22,636
The above statements of financial position should be read in conjunction with the accompanying notes.
60
Australian Ethical Investment Limited and its Controlled Entities Financial Statementsfor the year ended 30 June 2022ANNUAL REPORT 2022 Statements of changes in equity
For the year ended 30 June 2022
Issued
capital
$’000
Share-based
payment
reserve
$’000
FVOCI1
reserve
$’000
Retained
profits
$’000
Total
equity
$’000
Consolidated
Balance at 1 July 2020
11,191
791
(7)
8,657
20,632
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 deferred shares
Employee share plan – shares purchased
on-market
Revaluation of investments
–
1,120
–
(1,635)
–
–
–
–
–
(1,120)
1,362
–
–
Balance at 30 June 2021
10,676
1,033
–
–
–
–
–
–
–
8
1
11,118
11,118
8
8
11,126
11,126
(7,305)
(7,305)
–
–
–
–
1,362
(1,635)
(8)
–
12,470
24,180
Consolidated
Balance at 1 July 2021
Issued
capital
$’000
Share-based
payment
reserve
$’000
FVOCI1
reserve
$’000
Retained
profits
$’000
Total
equity
$’000
10,676
1,033
1
12,470
24,180
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 deferred shares & rights
Employee share plan – shares purchased
on-market
Revaluation of investments
Balance at 30 June 2022
–
985
–
(2,692)
–
8,969
1 Fair value through other comprehensive income (FVOCI).
–
–
–
–
(985)
2,654
–
–
2,702
–
–
–
–
–
–
–
3
4
9,511
9,511
3
3
9,513
9,513
(8,991)
(8,991)
–
–
–
–
2,654
(2,692)
(3)
–
12,990
24,664
The above statements of changes in equity should be read in conjunction with the accompanying notes.
61
Statements of changes in equity
For the year ended 30 June 2022
Issued
capital
$’000
Share-based
payment
reserve
$’000
Retained
profits
$’000
Total
equity
$’000
Parent
Balance at 1 July 2020
11,191
791
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
1,120
Employee deferred shares
Employee share plan – shares purchased on-market
Balance at 30 June 2021
–
(1,635)
10,676
7,630
10,602
–
19,612
10,602
–
10,602
10,602
(7,305)
(7,305)
–
–
–
–
1,362
(1,635)
–
–
–
–
(1,120)
1,362
–
1,033
10,927
22,636
Parent
Balance at 1 July 2021
Issued
capital
$’000
Share-based
payment
reserve
$’000
Retained
profits
$’000
Total
equity
$’000
10,676
1,033
10,927
22,636
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
985
Employee deferred shares & rights
Employee share plan – shares purchased on-market
Balance at 30 June 2022
–
(2,692)
8,969
–
–
–
–
(985)
2,654
–
9,947
9,947
–
–
9,947
9,947
(8,991)
(8,991)
–
–
–
–
2,654
(2,692)
2,702
11,883
23,554
The above statements of changes in equity should be read in conjunction with the accompanying notes.
62
Australian Ethical Investment Limited and its Controlled Entities Financial Statementsfor the year ended 30 June 2022ANNUAL REPORT 2022 Statements of cash flows
For the year ended 30 June 2022
Consolidated
Parent
Note
2022
$’000
2021
$’000
2022
$’000
2021
$’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
Interest received
Community grants paid
Net proceeds from insurance
settlement
Government grant income
Income taxes paid
Net cash from operating activities
42
Cash flows from investing activities
Net proceeds from sale of investment
property held for sale
Payments for property, plant and
equipment
22
Return on investment in SVA unit trusts
Purchase of investment in Sentient
Impact Group
Purchase of investment in August
Investment Pty Limited
Dividends received from subsidiary
Net cash from investing activities
Cash flows from financing activities
Purchase of employees’ deferred
shares
Dividends paid
34
Payments on lease liabilities
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
73,201
(50,731)
22,470
–
51
(1,425)
–
–
(4,934)
16,162
504
(764)
36
(3,900)
–
–
(4,124)
59,199
(37,878)
21,321
(689)
59
(1,321)
299
100
(3,583)
16,186
–
(92)
–
–
(28)
–
(120)
61,002
(40,946)
20,056
–
42
(1,519)
–
–
(1,550)
17,029
504
(764)
–
(3,900)
–
765
(3,395)
47,301
(31,892)
15,409
(357)
54
(1,400)
–
100
(1,100)
12,706
–
(92)
–
–
(28)
1,721
1,601
(2,692)
(1,635)
(2,692)
(1,635)
(8,991)
(781)
(12,464)
(7,305)
(740)
(9,680)
(8,991)
(781)
(12,464)
(7,305)
(740)
(9,680)
(426)
6,386
1,170
4,627
27,813
21,427
23,143
18,516
18
27,387
27,813
24,313
23,143
The above statements of cash flows should be read in conjunction with the accompanying notes.
63
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’) consisting of Australian Ethical Investment Limited (‘Australian
Ethical’, the ‘Company’ or ‘Parent entity’), Australian Ethical Superannuation Pty Limited (‘AES’) and
Australian Ethical Foundation Limited (the ‘Foundation’), 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 2022. 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 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 Australian Securities and Investments Commission Corporations (Parent Entity Financial
Statements) Instrument 2021/195.
Principles of consolidation
The consolidated financial statements incorporate the assets and liabilities of all subsidiaries of
Australian Ethical Investment Limited (‘Company’ or ‘Parent Entity’) as at 30 June 2022 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.
64
Australian Ethical Investment Limited and its Controlled Entities Notes To The Financial Statementsfor the year ended 30 June 2022ANNUAL REPORT 2022 NOTE 2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
They are de-consolidated from the date that control ceases.
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.
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. The adoption of these new standards did not have an impact on the financial statements.
These include
• Interest Rate Benchmark Reform – Phase 2 (Amendments to AASBs 4, 7, 9, 16, 139 and 1060)
• Covid-19 Related Rent Concessions beyond 30 June 2021 (Amendment to AASB 16)
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.
Management have considered the impact from the ongoing Covid-19 pandemic and its impact on
the financial statements. At this time, management have not adjusted any estimates or valuation of
assets as a direct result from Covid-19.
65
NOTE 3. CRITICAL ACCOUNTING JUDGEMENTS, ESTIMATES AND ASSUMPTIONS (CONTINUED)
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.
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.
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.
Employee benefits provision – refer to Note 29 and Note 30
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 31
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 44
The group 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. Judgement is used in estimating the probability of performance
hurdles being met in determining the value of equity instruments expensed in profit or loss.
Performance rights are measured at fair value at the date at which they are granted and the likelihood
of performance conditions being met. The probability assessed grant date fair value x FUM target
multiplier is recognised as an expense over the vesting period.
66
Australian Ethical Investment Limited and its Controlled Entities Notes To The Financial Statementsfor the year ended 30 June 2022ANNUAL REPORT 2022 NOTE 3. CRITICAL ACCOUNTING JUDGEMENTS, ESTIMATES AND ASSUMPTIONS (CONTINUED)
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.
NOTE 5. REVENUE
Operating revenue
Management fees
Performance fees
Administration fees (net of Operational Risk
Financial Reserve contributions)
Principal investment advisory fee
Member fees (net of rebates)
Interest income
Dividends
Revenue
Recognition and measurement
Consolidated
Parent
2022
$’000
55,188
375
10,424
–
4,730
67
–
2021
$’000
43,185
2,895
8,431
–
4,144
56
–
2022
$’000
48,470
375
2021
$’000
37,870
2,895
9,220
6,638
4,278
–
59
765
–
–
51
1,721
49,175
70,784
58,711
63,167
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 nine Managed Funds and
Australian Ethical Retail Superannuation Fund (‘AERSF’) Product Disclosure Statement (‘PDS’). The
Group recognises revenue as the services are provided.
The parent entity earns investment management and administration fees from its subsidiary Australian
Ethical Superannuation Pty Limited (‘AES’) in accordance with arms’ length service agreements. From
1 July 2021, the parent entity entered into a principal investment advisory fee agreement with AES for
the provision of services relating to developing, implementing and maintaining investment strategies
including strategic advice and portfolio construction for the AERSF. The Group recognises these
revenues as the services are provided.
AES earns a member fees from AERSF from the provision of services to members.
The administration fee entitlement in accordance with the Product Disclosure Statement (‘PDS’) is net of
$1,711k (2021: $787k) paid directly to the Operational Risk Financial Reserve (‘ORFR’) of the superannuation
fund.
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.
Dividends
Dividends are recognised as revenue when the right to receive payment is established.
67
NOTE 6. OTHER INCOME
Government grant income
Net proceeds from insurance settlement
Consolidated
Parent
2022
$’000
–
–
–
2021
$’000
100
299
399
2022
$’000
2021
$’000
–
–
–
100
–
100
In the prior year, 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 Group was not eligible for and did not receive any JobKeeper payments from
the Federal Government in the prior year.
Also in the prior 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
Strategic project contractors
Other committee member fees
Other employment costs
Consolidated
Parent
2022
$’000
22,136
709
729
53
1,633
25,260
2021
$’000
16,733
570
–
–
1,464
18,767
2022
$’000
21,914
528
729
53
1,600
24,824
2021
$’000
16,491
400
–
–
1,440
18,331
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 fair value of equity-settled share-based payment arrangements is recognised as an expense
based on the value at grant date, with a corresponding increase in equity. The amount recognised as
an expense is adjusted to reflect the number of awards expected to vest based on the likelihood that
the performance conditions are met at the vesting date.
68
Australian Ethical Investment Limited and its Controlled Entities Notes To The Financial Statementsfor the year ended 30 June 2022ANNUAL REPORT 2022 NOTE 8. FUND RELATED
Administration and custody fees
Licence, ratings and platform fees
Regulatory & industry body fees
Ethical research
Regulatory projects
Consolidated
Parent
2022
$’000
7,822
1,149
476
57
690
2021
$’000
7,790
907
393
79
671
2022
$’000
2,597
876
328
57
176
2021
$’000
2,176
730
244
79
32
10,194
9,840
4,034
3,261
In the prior year, administration fees includes implementation of the redesign of our insurance
offering within the super fund of $400k.
Regulatory projects includes costs incurred in numerous projects to upgrade systems and
processes to ensure compliance with new regulatory requirements including implementing RG271
(Internal Dispute Resolution), RG97 (Disclosing Fees and Costs in PDSs and Period Statements),
RG98 (Strengthening Breach Reporting), APRA reporting requirements and ATO superannuation
streamlining projects (SuperStream and SuperMatch).
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
2022
$’000
3,974
3,535
1,585
9,094
2021
$’000
2,333
1,196
1,422
4,951
2022
$’000
3,974
3,535
1,585
9,094
2021
$’000
2,333
1,196
1,422
4,951
Other marketing costs include events, sponsorships, marketing & public relations content, media
agents’ fees and annual & sustainability reports.
NOTE 10. IT EXPENSES
Front office IT systems
Support systems, infrastructure and security
Strategic projects
Consolidated
Parent
2022
$’000
1,606
1,153
1,072
3,831
2021
$’000
1,311
1,011
941
3,263
2022
$’000
1,507
1,153
837
3,497
2021
$’000
1,230
1,011
407
2,648
Strategic projects include investments in technology platforms including the upgrades to the online
member experience and data warehouse, and scoping, design and Application Programming
Interface (API) for the mobile app. Costs relating to building the mobile app were capitalised as an
intangible asset.
In the prior year, strategic projects included internalising the superannuation members’ contact
centre, building the Client Relationship Management (CRM) system and implementing improvements
to member engagement channels and member statements.
69
NOTE 11. EXTERNAL SERVICES
Internal & external audit and tax services
Consultants
Legal services
Other
Consolidated
Parent
2022
$’000
819
1,133
511
379
2,842
2021
$’000
736
1,018
299
282
2,335
2022
$’000
2021
$’000
623
833
471
374
529
950
299
279
2,301
2,057
Consultants include advisory services in relation to strategic projects including a new strategic asset
allocation model, implementation of the new finance general ledger, payroll and Human Resources
reporting systems, 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 $1,509,000 (2021: $1,619,000) have been expensed and gifted from
the parent entity to The Foundation. The Foundation has committed to granting $1,580,000 (2021:
$1,750,000) to community organisations through its gifts program, with the difference being funded
from the Foundations own retained earnings.
NOTE 13. DEPRECIATION AND AMORTISATION
Depreciation of property, plant and
equipment
Amortisation of intangible assets – CMS
website and mobile app
Total
Depreciation of right-of-use asset – Sydney
office lease
Depreciation of right-of-use asset – IT
infrastructure
Total
Consolidated
Parent
2022
$’000
2021
$’000
2022
$’000
2021
$’000
470
108
578
580
47
627
1,205
459
95
554
580
35
615
1,169
470
108
578
580
47
627
1,205
459
95
554
580
35
615
1,169
Refer to Note 22 for additional information on depreciation and amortisation.
70
Australian Ethical Investment Limited and its Controlled Entities Notes To The Financial Statementsfor the year ended 30 June 2022ANNUAL REPORT 2022 NOTE 14. OTHER OPERATING EXPENSES
Insurance
Travel
ASX listing fees and registry costs
Printing and subscriptions
Other
NOTE 15. OCCUPANCY
Consolidated
Parent
2022
$’000
2021
$’000
2022
$’000
2021
$’000
768
231
266
191
190
509
170
276
111
158
1,646
1,224
498
227
266
132
190
1,313
252
170
276
90
158
946
Occupancy costs in relation to Sydney office
Consolidated
Parent
2022
$’000
335
2021
$’000
258
2022
$’000
335
2021
$’000
258
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 and as
such rent expense is included in depreciation of the right-of-use asset. Refer to Note 13 and Note 22.
NOTE 16. DUE DILIGENCE & TRANSACTION COSTS
Consultants
Legal
Contractors
Consolidated
Parent
2022
$’000
2021
$’000
2022
$’000
2021
$’000
266
655
61
982
–
–
–
–
266
655
61
982
–
–
–
–
Due diligence & transaction costs includes consultants, legal services and contractors engaged in
relation to the investment in Sentient Impact Group, the successor funds transfer with Christian Super and
ongoing investment opportunities.
71
NOTE 17. INCOME TAX
Income tax expense
Current tax
Deferred tax asset – temporary differences
Deferred tax liability – temporary differences
Adjustment due to change in income tax rate
Aggregate income tax expense
Deferred tax included in income tax expense
comprises:
Increase in deferred tax assets
Increase in deferred tax liabilities
Deferred tax – temporary differences
Numerical reconciliation of income tax expense
and tax at the statutory rate
Consolidated
Parent
2022
$’000
2021
$’000
2022
$’000
2021
$’000
4,702
(438)
(1)
–
4,263
(438)
(1)
(439)
5,426
(766)
10
(292)
4,378
(766)
10
(756)
4,676
(590)
(1)
–
4,085
(590)
(1)
(591)
4,211
(565)
10
(280)
3,376
(565)
10
(555)
Profit before income tax expense
13,774
15,496
14,032
13,979
Less: Tax exempt loss attributable to the
Foundation
Taxable profit before income tax
Tax at the statutory tax rate of 30% (2021: 30%)
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
Other non-deductible items
Adjustment due to change in income tax rate
Income tax expense
86
13,860
4,158
–
–
105
–
4,263
143
15,639
4,692
–
(22)
–
(292)
4,378
–
14,032
4,209
(229)
–
105
–
4,085
–
13,979
4,194
(516)
(22)
–
(280)
3,376
The applicable weighted average effective tax rate for the consolidated group is 30.8% (2021: 28.0%)
and for the parent entity is 29.1% (2021: 24.2%).
The increase in effective tax rate is due to the change in tax rate from 27.5% to 30% in the prior year,
non-deductible expenses incurred in relation to due diligence activity. 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.
72
Australian Ethical Investment Limited and its Controlled Entities Notes To The Financial Statementsfor the year ended 30 June 2022ANNUAL REPORT 2022 NOTE 17. INCOME TAX (CONTINUED)
Consolidated
Parent
2022
$’000
2021
$’000
2022
$’000
2021
$’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
Income tax refund due
Provision for income tax
1,111
179
453
773
77
696
49
892
210
456
551
76
633
82
1,104
148
453
767
77
609
49
881
134
456
545
76
442
83
3,338
2,900
3,207
2,617
2,900
438
3,338
2,134
766
2,900
2,617
590
3,207
2,052
565
2,617
34
34
35
(1)
34
249
–
35
35
25
10
35
–
1,364
34
34
35
(1)
34
249
–
35
35
25
10
35
–
1,364
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.
73
NOTE 17. INCOME TAX (CONTINUED)
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
2022
$’000
242
5,600
21,545
27,387
2021
$’000
197
5,600
22,016
27,813
2022
$’000
236
5,000
19,077
24,313
2021
$’000
191
5,000
17,952
23,143
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.
NOTE 19. CURRENT ASSETS – TRADE AND OTHER RECEIVABLES
Trade receivables
Receivable from subsidiary
Performance fee receivable
Consolidated
Parent
2022
$’000
1,362
–
375
1,737
2021
$’000
1,322
–
2,895
4,217
2022
$’000
685
3,383
375
4,443
2021
$’000
727
2,678
2,895
6,300
74
Australian Ethical Investment Limited and its Controlled Entities Notes To The Financial Statementsfor the year ended 30 June 2022ANNUAL REPORT 2022 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 2022 (2021: nil) and management have not identified any additional concerns regarding
collectability of the receivables as the receivables are predominantly due from related parties. The
performance fees were received on 18 July 2022.
NOTE 20. LEASES
Leases includes the lease for the Sydney office premises, for printing and copying equipment for the
office, and over IT hardware and infrastructure.
The group entered a long-term 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
Financial Position in relation to this lease.
Consolidated & Parent
Right-of-use assets
Balance at 1 July 2020
Additions
Depreciation
Balance at 30 June 2021
Comprising of:
Current
Non-current
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
75
NOTE 20. LEASES (CONTINUED)
Consolidated & Parent
Right-of-use assets
Balance at 1 July 2021
Additions
Depreciation
Balance at 30 June 2022
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
1,160
–
(580)
580
580
–
580
138
–
(47)
92
46
46
92
Total
$’000
1,298
–
(627)
672
626
46
672
Consolidated
2022
$’000
2021
$’000
Parent
2022
$’000
2021
$’000
41
426
57
559
41
426
57
559
Consolidated
2022
$’000
2021
$’000
Parent
2022
$’000
2021
$’000
Amounts recognised in statement of cash flows
Total cash outflow for leases
781
740
781
740
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.
76
Australian Ethical Investment Limited and its Controlled Entities Notes To The Financial Statementsfor the year ended 30 June 2022ANNUAL REPORT 2022 NOTE 20. LEASES (CONTINUED)
Consolidated & Parent
Lease liabilities
Balance at 1 July 2020
Additions
Payments
Interest on lease liabilities
Balance at 30 June 2021
Comprising of:
Current
Non-current
Balance at 1 July 2021
Additions
Payments
Interest on lease liabilities
Balance at 30 June 2021
Comprising of:
Current
Non-current
Office
building
$’000
IT hardware &
infrastructure
$’000
Total
$’000
1,607
477
(705)
56
1,435
694
741
1,435
–
(734)
40
742
742
–
742
34
139
(35)
1
139
46
93
139
–
(47)
1
93
45
47
92
1,641
616
(740)
57
1,574
740
834
1,574
–
(781)
41
834
787
47
834
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.
77
NOTE 21. CURRENT ASSETS – OTHER RECEIVABLES
Other receivable
Consolidated
2022
$’000
–
2021
$’000
465
Parent
2022
$’000
–
2021
$’000
465
The prior year balance related 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 sale of the
property was settled on 22 June 2022.
NOTE 22. NON-CURRENT ASSETS – PROPERTY, PLANT AND EQUIPMENT
Leasehold improvements – at cost
Less: Accumulated depreciation
Plant and equipment – at cost
Less: Accumulated depreciation
Software development – at cost
Less: Accumulated depreciation
Consolidated
2022
$’000
2,332
(1,900)
432
364
(284)
80
1,140
(251)
889
1401
2021
$’000
2,294
(1,531)
763
309
(187)
122
477
(143)
334
1,219
Parent
2022
$’000
2,332
(1,900)
432
364
(284)
80
1,140
(251)
889
1401
2021
$’000
2,294
(1,531)
763
309
(187)
122
477
(143)
334
1,219
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 2020
Additions
Disposals
Depreciation expense
Amortisation expense
Balance at 30 June 2021
Additions
Disposals
Depreciation expense
Amortisation expense
Balance at 30 June 2022
Leasehold
improvements
$’000
Plant and
equipment
$’000
Software
development
$’000
1,140
8
–
(385)
–
763
39
–
(370)
–
432
113
84
(1)
(74)
–
122
62
(4)
(100)
–
80
429
–
–
–
(95)
334
663
–
–
(108)
889
Total
$’000
1,682
92
(1)
(459)
(95)
1,219
764
(4)
(470)
(108)
1,401
78
Australian Ethical Investment Limited and its Controlled Entities Notes To The Financial Statementsfor the year ended 30 June 2022ANNUAL REPORT 2022 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.
The increase in software development costs during the year is due to building the mobile app in line
with our growth plans with respect to digital platforms.
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
2022
$’000
504
2021
$’000
504
2022
$’000
504
2021
$’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.
79
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
2022
$’000
2021
$’000
2022
$’000
2021
$’000
–
–
316
316
NOTE 25. NON-CURRENT ASSETS – FINANCIAL ASSETS THROUGH PROFIT OR LOSS
Investment in Sentient Impact Group
Consolidated
Parent
2022
$’000
5,200
2021
$’000
–
2022
$’000
5,200
2021
$’000
–
On 9 December 2021, AEI acquired a minority equity stake (10%) in Sentient Impact Group Pty Ltd. The
investment is $5,200,000, payable in three instalments, with the first $2,600,000 paid in December
2021, and the second $1,300,000 paid in June 2022. The balance will be paid in December 2022
($1,300,000). In addition, Australian Ethical has three future dated call options equating to an additional
30% of the equity, exercisable over the next three years. Refer to Note 36 for further details.
Sentient is a Melbourne based impact investment manager. Australian Ethical is a strategic investor
and has taken up a non-executive seat on the Sentient board from 7 February 2022.
NOTE 26. 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
Return of capital
Revaluation increments/(decrements)
Closing fair value
Consolidated
Parent
2022
$’000
2021
$’000
2022
$’000
2021
$’000
105
1
106
141
–
(37)
2
106
139
2
141
133
–
–
8
141
–
1
1
2
–
–
(1)
1
–
2
2
2
–
–
–
2
Refer to Note 36 for further information on fair value measurement.
80
Australian Ethical Investment Limited and its Controlled Entities Notes To The Financial Statementsfor the year ended 30 June 2022ANNUAL REPORT 2022
NOTE 26. NON-CURRENT ASSETS – FINANCIAL ASSETS THROUGH OTHER
COMPREHENSIVE INCOME (CONTINUED)
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.
NOTE 27. CURRENT LIABILITIES – TRADE AND OTHER PAYABLES
Trade payables and accruals
Payable to subsidiary
Community grant payable
Consolidated
Parent
2022
$’000
6,753
–
1,815
8,568
2021
$’000
5,590
–
1,660
7,250
2022
$’000
7,812
82
1,509
9,403
2021
$’000
4,464
5
1,519
5,988
Refer to Note 35 for further information on financial instruments.
Recognition and measurement
Trade payables and accruals represent liabilities for goods and services provided to the group
prior to the end of the financial year and which are unpaid. Due to their short-term nature they are
measured at amortised cost and are not discounted. The amounts are unsecured and are usually
paid within 30 days of an invoice being rendered.
NOTE 28. CURRENT LIABILITIES – DEFERRED CONSIDERATION
Deferred consideration
Consolidated
Parent
2022
$’000
1,300
2021
$’000
–
2022
$’000
1,300
2021
$’000
–
This obligation relates to the remaining instalment payment for the acquisition in Sentient Impact
Group. Payment is due December 2022. Refer to Note 25 for additional details.
81
NOTE 29. CURRENT LIABILITIES – EMPLOYEE BENEFITS
Annual leave
Long service leave
Employee benefits
Consolidated
Parent
2022
$’000
1,224
1,070
3,703
5,997
2021
$’000
842
777
2,974
4,593
2022
$’000
1,215
1,059
3,680
5,954
2021
$’000
829
770
2,938
4,537
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 30. NON-CURRENT LIABILITIES – EMPLOYEE BENEFITS
Consolidated
Parent
2022
$’000
284
2021
$’000
218
2022
$’000
284
2021
$’000
218
Long service leave
Recognition and measurement
The liabilities 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.
NOTE 31. NON-CURRENT LIABILITIES – PROVISIONS
Lease make-good
Recognition and measurement
Consolidated
Parent
2022
$’000
258
2021
$’000
252
2022
$’000
258
2021
$’000
252
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 right-of-use asset and the provision. Reductions in the provision
due to exceeding the carrying amount of the asset will be recognised in profit or loss.
82
Australian Ethical Investment Limited and its Controlled Entities Notes To The Financial Statementsfor the year ended 30 June 2022ANNUAL REPORT 2022 NOTE 32. EQUITY – ISSUED CAPITAL
Consolidated
Ordinary shares – fully paid
112,387,138
112,387,138
2022
Shares
2021
Shares
2022
$’000
8,969
2021
$’000
10,676
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
Vesting of deferred shares in the
Employee Share Plan (730,200 shares)
1 September 2021
Vesting of deferred STI shares (5,193 shares)
1 September 2021
Purchase of deferred shares in the
Employee share plan – on-market
(274,762 shares)
16 September to
2 February 2022
–
–
–
$1.32
962
$4.53
23
$9.80
(2,692)
Balance
30 June 2022
112,387,138
8,969
On 1 September 2020, 730,200 shares that were granted to employees on 1 September 2018 vested
to employees as the performance hurdle had been met. 5,193 shares representing one third of the
deferred STI shares granted to the CEO on 1 September 2020 vested as the time-based hurdle for
those shares had been met. Between September 2021 and February 2022, 274,762 shares were
purchased for allocation to employees under the FY21 ESP.
The Company measures the value of deferred shares at the price at which the shares were purchased
on-market. The Company recognises these share purchases as a reduction in Issued Capital.
83
NOTE 32. EQUITY – ISSUED CAPITAL (CONTINUED)
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.
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.
NOTE 33. EQUITY – RESERVES
Share-based payment reserve
Fair value through other comprehensive
income (‘FVOCI’) reserve
Consolidated
Parent
2022
$’000
2,702
3
2021
$’000
1,033
1
2022
$’000
2,702
–
2021
$’000
1,033
–
2,705
1,034
2,702
1,033
84
Australian Ethical Investment Limited and its Controlled Entities Notes To The Financial Statementsfor the year ended 30 June 2022ANNUAL REPORT 2022 Share-based payment reserve
This reserve relates to shares granted by the Group to its employees under its share-based payment
arrangements.
Further information about share-based payments to employees is set out in Note 44.
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 2020
Shares vested under deferred share plan during the year
Employee deferred shares
Revaluation of investments
Balance at 30 June 2021
Shares vested under deferred share plan during the year
Employee deferred shares & rights*
Revaluation of investments
Balance at 30 June 2022
* Includes the employee share plan and ELTI rights
Parent
Balance at 30 June 2020
Shares vested under deferred share plan during the year
Employee deferred shares & rights
Balance at 30 June 2021
Shares vested under deferred share plan during the year
Employee deferred shares & rights
Balance at 30 June 2022
* Includes the employee share plan and ELTI rights
Share-based
payment
reserve
$’000
FVOCI
reserve
$’000
791
(1,120)
1,362
–
1,033
(985)
2,654
–
2,702
(7)
–
–
8
1
–
–
3
4
Share-based
payment
reserve
$’000
FVOCI
reserve
$’000
791
(1,120)
1,362
1,033
(985)
2,654
2,702
–
–
–
–
–
–
–
Total
$’000
784
(1,120)
1,362
8
1,034
(985)
2,654
3
2,706
Total
$’000
791
(1,120)
1,362
1,033
(985)
2,654
2,702
85
NOTE 34. EQUITY – DIVIDENDS
Dividends
Dividends paid during the financial year were as follows:
Final dividend for the year ended 30 June 2021 of 4.00 cents
(2020: 2.50 cents) per ordinary share – fully franked
Special performance dividend for the year ended 30 June 2021
of 1.00 cents (2020: 1.00 cents) per ordinary share
Interim dividend for the year ended 30 June 2022 of 3.00 cents
(2021: 3.00 cents) per ordinary share – fully franked
2022
$’000
2021
$’000
4,495
2,810
1,124
1,124
3,372
8,991
3,371
7,305
Since year end the Directors have declared a final dividend of 3.00 cents per fully paid ordinary share
(2021: 4.00 cents final dividend and 1.00 cents special dividend). The aggregate amount of the declared
dividend expected to be paid on 15 September 2022 out of profits for the year ended 30 June 2022, but
not recognised as a liability at year end, is $3,372,000 (2021: $5,619,000). All dividends paid during the
year were fully franked based on tax paid at 30.0%. The final dividend to be paid in September 2022 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% (2021: 30%)
2022
$’000
2021
$’000
10,716
5,982
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 35. 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 (FUM), 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.
86
Australian Ethical Investment Limited and its Controlled Entities Notes To The Financial Statementsfor the year ended 30 June 2022ANNUAL REPORT 2022 NOTE 35. FINANCIAL INSTRUMENTS (CONTINUED)
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
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 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 $4,369,000 (2021: $4,593,000).
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 Group 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.
87
NOTE 35. FINANCIAL INSTRUMENTS (CONTINUED)
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.
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 – 2022
Non-derivatives
Non-interest bearing
Trade payables and accruals
Deferred consideration
Total non-derivatives
Consolidated – 2021
Non-derivatives
Non-interest bearing
Trade payables and accruals
Income tax payable
Total non-derivatives
Parent – 2022
Non-derivatives
Non-interest bearing
Trade payables and accruals
Deferred consideration
Total non-derivatives
Parent – 2021
Non-derivatives
Non-interest bearing
Trade payables and accruals
Income tax payable
Total non-derivatives
13,489
1,300
14,789
–
–
–
–
–
–
–
–
–
13,489
1,300
14,789
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
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
10,939
1,300
12,239
–
–
–
–
–
–
10,939
1,300
12,239
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
Fair value of financial instruments
Unless otherwise stated, the carrying amounts of financial instruments reflect their fair value.
88
Australian Ethical Investment Limited and its Controlled Entities Notes To The Financial Statementsfor the year ended 30 June 2022ANNUAL REPORT 2022 NOTE 36. 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).
There were no transfers between levels during the financial year.
Relate to the Company’s nominal
holdings of shares in listed entities
held for advocacy purposes.
Relate to the Foundation’s
investment in the Social Ventures
Australia (SVA) Diversified Impact
Fund (DIF) unlisted unit trusts.
Relate to the Company’s
investment in Sentient Impact
Group.
89
NOTE 36. FAIR VALUE MEASUREMENT (CONTINUED)
On 9 December 2021, AEI acquired a stake in Sentient Impact Group Pty Limited (Sentient). Sentient
was established following the in-specie transfer of management rights for $200m of renewable
infrastructure assets from Impact Investment Group. Sentient is a start-up entity with an Impact
investing purpose aligned to AEI and is run by seasoned executives with capability in structuring and
distributing products to High-Net-Worth families and Institutions. AEI subscribed for a 10% interest,
paying fair value at acquisition of $5,200,000.
The Directors are of the view that at 30 June 2022 there is no change to the fair value since the
acquisition date. During the period to 30 June 2022, Sentient has progressed with the design and
planning of two new funds, has secured consulting and advisory engagements in line with its
established business plans and has not been adversely impacted by the economic uncertainties.
Sensitivity of fair value measurement
Although the Directors believe that the estimate of fair value is appropriate, the use of different
methodologies or assumptions could lead to different measurements of fair value. For the fair
value measurement in Sentient, a 5% favourable (unfavourable) effect of using reasonably possible
alternative methodologies for the valuation would increase (decrease) equity for the Group by
$260,000.
Consolidated – 2022
Financial assets measured at fair value
Investments
Total assets
Consolidated – 2021
Financial assets measured at fair value
Investments
Total assets
Parent – 2022
Financial assets measured at fair value
Investments
Total assets
Parent – 2021
Financial assets measured at fair value
Investments
Total assets
Level 1
$’000
Level 2
$’000
Level 3
$’000
Total
$’000
1
1
105
105
5,200
5,200
Level 1
$’000
Level 2
$’000
Level 3
$’000
5,306
5,306
Total
$’000
2
2
139
139
–
–
141
141
Level 1
$’000
Level 2
$’000
Level 3
$’000
Total
$’000
1
1
–
–
5,200
5,200
Level 1
$’000
Level 2
$’000
Level 3
$’000
5,201
5,201
Total
$’000
2
2
–
–
–
–
2
2
90
Australian Ethical Investment Limited and its Controlled Entities Notes To The Financial Statementsfor the year ended 30 June 2022ANNUAL REPORT 2022 NOTE 37. 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
2022
$
2021
$
2022
$
2021
$
Short-term employee benefits
4,914,352
4,432,079
4,749,673
4,276,365
Post-employment benefits
Long-term benefits
Share-based payments
279,537
184,353
244,708
73,937
263,069
184,353
229,915
73,937
336,883
389,926
336,883
389,926
5,715,125
5,140,651
5,533,978
4,970,144
Information regarding key management personnel’s remuneration and shares held in Australian
Ethical Investment Limited is provided in the Remuneration Report.
NOTE 38. 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:
Audit services – KPMG
Audit and review of financial statements –
Group
Audit and review of financial statements –
managed funds for which the Company acts
as Responsible Entity*
Audit and review of financial statements –
superannuation fund for which the subsidiary
entity acts as Responsible Superannuation
Entity*
Assurance services – KPMG
Consolidated
Parent
2022
$
2021
$
2022
$
2021
$
110,617
88,884
83,958
63,735
173,450
149,127
173,450
149,127
37,310
35,199
–
–
321,377
273,210
257,408
212,862
Regulatory assurance services – Group
40,089
42,312
44,852
42,312
Regulatory assurance services – managed
funds and superannuation fund*
Assurance services in relation to the
Sustainability Report
Other services – KPMG
Tax compliance and advisory services
Accounting advice
Total remuneration of KPMG
69,250
65,330
–
–
18,113
25,624
18,113
25,625
136,452
133,266
62,965
67,937
122,198
25,300
147,498
605,327
69,664
40,632
110,296
516,772
113,588
25,300
138,888
459,261
45,920
40,632
86,552
367,351
* These fees are incurred by the Company and are effectively recovered from the funds via administration or
management fees.
91
NOTE 38. REMUNERATION OF AUDITORS (CONTINUED)
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.
NOTE 39. COMMITMENTS
As at 30 June 2022, the Group did not enter into any capital commitments other than as disclosed in
Note 20.
NOTE 40. RELATED PARTY TRANSACTIONS
Parent entity
Australian Ethical Investment Limited is the parent entity.
Subsidiaries
Interests in subsidiaries are set out in Note 41.
KMP remuneration
Disclosures relating to key management personnel are set out in Note 37 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
• Australian Ethical High Conviction Fund (listed and unlisted)
• Australian Ethical Alternative Assets Fund – an unregistered Managed Investment Scheme
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.
92
Australian Ethical Investment Limited and its Controlled Entities Notes To The Financial Statementsfor the year ended 30 June 2022ANNUAL REPORT 2022 NOTE 40. RELATED PARTY TRANSACTIONS (CONTINUED)
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 impaired to nil after the
acquisition was completed.
Transactions with related parties
The following transactions occurred with related parties:
Consolidated
Parent
2022
$
2021
$
2022
$
2021
$
Receipts from Australian Ethical Superannuation Pty Limited:
Receipts from Australian Ethical
Superannuation Pty Limited:
Administration fees
Investment management fees
Principal investment advisory fee
Transactions between the parent and
subsidiary entities under tax consolidation
and related tax sharing agreement
Dividends from the subsidiary
–
–
–
–
–
–
–
–
–
–
9,219,458
6,637,628
26,483,078 20,645,569
4,278,309
–
3,357,440
1,001,705
764,982
1,721,210
Receipt from the Australian Ethical Managed Trusts:
Provision of investment management
services to the AETs as identified above in
accordance with the Constitution and PDS
Performance fee
20,599,317
15,897,398
20,599,317
15,897,398
375,278
2,894,953
375,278
2,894,953
Receipts from Australian Ethical Retail Superannuation Fund:
Provision of investment management /
administration services to AERSF
Provision of member administration services
to AERSF
43,625,200
34,391,528
4,729,633
4,143,696
–
–
–
–
Payments to Australian Ethical Foundation Limited:
Community grants paid to The Foundation
Government grant paid to The Foundation
–
–
–
–
1,509,368
1,299,759
–
100,000
93
NOTE 40. RELATED PARTY TRANSACTIONS (CONTINUED)
Receivable from and payable to related parties
The following balances are outstanding at the reporting date in relation to transactions with related parties:
Consolidated
2022
$
2021
$
Parent
2022
$
2021
$
Current receivables:
Amounts receivable from the AETs
358,057
307,096
358,057
307,096
Amounts receivable from the AETs
– performance fee
Amounts receivable from AES
375,278
2,894,953
375,278
2,894,953
–
–
9,767
1,397,761
Amounts receivable from AERSF
675,911
594,026
–
–
Current payables:
Amounts payable to AES
Amounts payable to The Foundation
–
–
–
–
(81,597)
(5,275)
(1,509,368)
(1,519,353)
Terms and conditions
All transactions were made on normal commercial terms and conditions and at market rates.
NOTE 41. 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
2021
%
2022
%
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%
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.
Refer to Note 45 for further details about the Foundation’s activities.
94
Australian Ethical Investment Limited and its Controlled Entities Notes To The Financial Statementsfor the year ended 30 June 2022ANNUAL REPORT 2022 NOTE 42. RECONCILIATION OF PROFIT AFTER INCOME TAX TO NET CASH FROM
OPERATING ACTIVITIES
Consolidated
Profit after income tax expense for the year
Adjustments for:
Depreciation and amortisation
Non-cash employee benefits expense -
deferred shares & rights
Reclassification of PPE from investing
activities
Dividend received from subsidiary
Change in operating assets and liabilities:
(Increase)/Decrease in trade and other
receivables
(Increase)/Decrease in lease assets
(Increase)/Decrease in prepayments
Increase in deferred tax assets
(Increase)/Decrease in other in current
receivable
Increase in trade and other payables
Increase in employee benefits
Increase in other provisions
Increase/(Decrease) in current tax liability
Increase/(Decrease) in deferred tax liability
Net cash from operating activities
NOTE 43. EARNINGS PER SHARE
2022
$’000
9,511
1,205
1,321
–
–
2,480
627
(437)
(437)
465
1,316
1,470
6
(1,364)
(1)
16,162
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
2021
$’000
11,118
1,169
1,157
(253)
–
554
(1)
263
(766)
(25)
1,820
689
6
512
10
Parent
2022
$’000
2021
$’000
9,947
10,602
1,205
1,321
–
(765)
1,857
627
(575)
(589)
465
3,412
1,483
6
(1,364)
(1)
1,169
1,157
(253)
(1,721)
(90)
(1)
280
(565)
(25)
1,039
653
6
512
10
16,186
17,029
12,706
Consolidated
2022
$’000
2021
$’000
9,511
11,118
Cents
8.57
8.47
Cents
10.06
9.90
Number
Number
111,013,492 110,485,465
1,276,329
1,857,910
112,289,821
112,343,375
95
NOTE 43. EARNINGS PER SHARE (CONTINUED)
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 44. SHARE-BASED PAYMENTS
In the current year, $2,692,000 (2021: $1,635,000) was paid to purchase deferred shares granted to
employees. The Board continues to retain discretion to issue new shares if required.
The below table provides a reconciliation of the number of deferred shares in the Employee Share
Trust.
2022
Grant date
Vesting date
01/09/2018
31/08/2021
01/09/2019
31/08/2022
01/09/2020
31/08/2021
01/09/2020
31/08/2022
Balance at
the start of
the year
730,200
636,238
5,193
5,193
01/09/2020
31/08/2023
396,310
01/09/2021
31/08/2022
01/09/2021
31/08/2023
01/09/2021
31/08/2024
Unallocated treasury shares
Granted
Vested
Forfeited
Balance at
the end of
the year
–
–
–
–
–
(730,200)
–
–
–
(21,653)
614,585
(5,193)
–
–
–
–
–
–
–
(9,299)
–
–
–
5,193
387,011
32,088
32,086
(14,457)
238,822
–
–
–
32,088
32,086
253,279
1,773,134
317,453
(735,393)
(45,409)
1,309,785
Total deferred shares in the Employee Share Trust at 30 June 2022
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
31/08/2021
01/09/2020
31/08/2022
01/09/2020
31/08/2023
Unallocated treasury shares
Granted
Vested
Forfeited
–
–
–
(1,003,700)
(102,500)
(40,497)
5,193
5,193
–
–
–
–
(4,665)
(18,645)
–
–
730,200
636,238
5,193
5,193
408,224
(1,494)
(10,420)
396,310
837,365
695,380
–
–
–
2,536,445
418,610
(1,148,191)
(33,730)
1,773,134
38,279
1,348,064
Balance at
the end of
the year
35,561
1,808,695
Total deferred shares in the Employee Share Trust at 30 June 2021
96
Australian Ethical Investment Limited and its Controlled Entities Notes To The Financial Statementsfor the year ended 30 June 2022ANNUAL REPORT 2022 NOTE 44. SHARE-BASED PAYMENTS (CONTINUED)
Employee unvested shares
As at 30 June 2022, the Employee Share Trust holds 1,348,064 shares (30 June 2021: 1,808,695
shares) on behalf of employees until vesting conditions are met.
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.
The following share-based payment arrangements existed as at 30 June 2022.
Deferred Shares - ESP
Under the long-term incentive employee share plan (ESP), participants are granted shares annually
based on a fixed percentage of their fixed remuneration. 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. The deferred shares are subject to 1- to 3-year vesting periods after which
time, the shares vest to the employee as ordinary shares. Vesting is subject to meeting specified
performance criteria over the performance period, service hurdles and Board approval.
Deferred Shares – STI
For certain employees a portion of their short-term incentive is also paid in deferred shares which
vest subject to meeting service conditions. Depending on the grant, deferred STI shares have a
3-year vesting period and no further performance hurdles. Other deferred shares granted to the
CEO and for performance fee sharing vest 1/3 per year over 3 years. All share vesting is subject to
Board approval.
Included under employee benefits expense in the Consolidated Statement of Comprehensive
Income is $1,443,000 (2021: $1,054,000) relating to the deferred shares granted under the long-term
employee share plan, and $845,000 (2021: $163,000) relating to the deferred portion of the short-
term incentive plan.
Executive Long-Term Incentives (ELTI)
A new long-term incentive plan was introduced to retain key senior talent and provide reward
for future outstanding performance to the period ending 30 June 2025. Under the plan, the CEO
and select senior executives invited to participate are issued with Hurdled Performance Share
Rights that represent the number of AEI shares that will vest subject to the achievement of certain
performance hurdles. If all minimum company performance hurdles are met at vesting date, then
the base level award will vest.
The hurdles are measured in the year ending and as at 30 June 2025 with vesting after the release
of the FY25 annual results, scheduled for 1 September 2025. The FUM target includes a multiplier
mechanism that provides a stretch target for AEI’s leadership team. Refer to the Remuneration
Report for additional details.
The aggregate base hurdled performance share rights issued at 1 December 2021 was 136,510
rights. The ELTI expense is based on the grant date of 1 December 2021. Each share right was fair
valued at $13.54, being the share price on 1 December 2021 discounted for forecast dividend yield.
These share rights will be equity settled at the end of the vesting period.
97
NOTE 44. SHARE-BASED PAYMENTS (CONTINUED)
During the vesting period, employees are not entitled to receive dividends nor hold voting rights.
Vesting is subject to meeting specified performance criteria over the performance period, service
hurdles and Board approval.
Included under employee benefits expense in the Condensed Statement of Profit or Loss and Other
Comprehensive Income is $339,000 (2020: nil) under the executive long-term incentives plan.
Additional details are available in the Remuneration Report on these employee incentive plans.
NOTE 45. 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 2022, 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:
Community grant payables
Trade payables
Net assets
Equity:
Retained earnings
FVOCI reserve
Total Equity
2022
$’000
2021
$’000
1,509
2
(1,580)
(17)
(86)
1
(85)
2022
$’000
652
1,509
1
105
1,619
3
(1,750)
(15)
(143)
6
(137)
2021
$’000
534
1,519
1
139
(1,815)
(1,660)
(17)
435
434
1
435
(14)
519
520
(1)
519
98
Australian Ethical Investment Limited and its Controlled Entities Notes To The Financial Statementsfor the year ended 30 June 2022ANNUAL REPORT 2022 NOTE 46. EVENTS AFTER THE REPORTING PERIOD
On 13 July 2022, Australian Ethical entered into a successor fund transfer (SFT) deed with Christian
Super that would see Christian Super members transfer into Australian Ethical Super. We anticipate
that the Christian Super SFT will complete by early 2023.
Apart from the Christian Super SFT and the dividend declared as disclosed in Note 34, no other
matter or circumstance has arisen since 30 June 2022 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.
99
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 2022 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 2022
Sydney
100
ANNUAL REPORT 2022
This is the original version of the audit report over the financial statements signed by the directors on 25 August 2022.
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 57 as opposed to pages 22 to 43 as outlined below.
Independent Auditor’s Report
Independent Auditor’s Report
To the shareholders of Australian Ethical Investment Limited
Report on the audits of the Financial Reports
To the shareholders of Australian Ethical Investment Limited
Report on the audits of the Financial Reports
Opinions
We have audited the Financial Report of
Australian Ethical Investment Limited (the Group
Opinions
Financial Report). We have also audited the
Financial Report of Australian Ethical Investment
We have audited the Financial Report of
Limited (the Company Financial Report)
Australian Ethical Investment Limited (the Group
In our opinion, each of the accompanying Group
Financial Report). We have also audited the
Financial Report and Company Financial Report are
Financial Report of Australian Ethical Investment
in accordance with the Corporations Act 2001,
Limited (the Company Financial Report)
including:
In our opinion, each of the accompanying Group
• giving a true and fair view of the Group’s and
Financial Report and Company Financial Report are
the Company’s financial position as at 30
in accordance with the Corporations Act 2001,
June 2022 and of their financial performance
including:
for the year ended on that date; and
• giving a true and fair view of the Group’s and
•
complying with Australian Accounting
the Company’s financial position as at 30
Standards and the Corporations Regulations
June 2022 and of their financial performance
2001.
for the year ended on that date; and
•
Basis for opinions
complying with Australian Accounting
Standards and the Corporations Regulations
2001.
The respective Financial Reports of the Group
and the Company comprise:
• Statements of financial position as at 30 June
2022;
The respective Financial Reports of the Group
and the Company comprise:
• Statements comprehensive income,
Statements of changes in equity, and
• Statements of financial position as at 30 June
Statements of cash flows for the year then
2022;
ended;
• Statements comprehensive income,
• Notes including a summary of significant
Statements of changes in equity, and
accounting policies; and
Statements of cash flows for the year then
ended;
• Directors’ Declaration.
accounting policies; and
• Notes including a summary of significant
The Group consists of Australian Ethical
Investment Limited (the Company) and the
entities it controlled at the year-end or from time
• Directors’ Declaration.
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 conducted our audits in accordance with Australian Auditing Standards. We believe that the audit
evidence we have obtained is sufficient and appropriate to provide a basis for our opinions.
Basis for opinions
Our responsibilities under those standards are further described in the Auditor’s responsibilities for the
audits of the Financial Reports section of our report.
We conducted our audits in accordance with Australian Auditing Standards. We believe that the audit
evidence we have obtained is sufficient and appropriate to provide a basis for our opinions.
We are independent of the Group and Company in accordance with the Corporations Act 2001 and the
ethical requirements of the Accounting Professional and Ethical Standards Board’s APES 110 Code of
Our responsibilities under those standards are further described in the Auditor’s responsibilities for the
Ethics for Professional Accountants (including Independence Standards) (the Code) that are relevant to
audits of the Financial Reports section of our report.
our audits of the Financial Reports in Australia. We have fulfilled our other ethical responsibilities in
We are independent of the Group and Company in accordance with the Corporations Act 2001 and the
accordance with these requirements.
ethical requirements of the Accounting Professional and Ethical Standards Board’s APES 110 Code of
Ethics for Professional Accountants (including Independence Standards) (the Code) that are relevant to
our audits of the Financial Reports in Australia. We have fulfilled our other ethical responsibilities in
accordance with these requirements.
87
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.
87
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.
101
Key Audit Matters
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.
This matter was addressed in the context of our audits of the Financial Reports as a whole, and in
forming our opinion thereon, and we do not provide a separate opinion on this matter.
Management Fees – ($55.2m), Performance Fees – ($0.4m) and Administration fees ($10.4m) –
Group; and
Management Fees – ($52.7m), Performance Fees – ($0.4m), Administration fees ($9.2m) and
Principal Investment Advisory fee – ($4.3m) - 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, Administration and
Principal Investment Advisory fees were a key
audit matter due to the:
Our procedures included:
For Group and Company:
•
•
•
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;
significance of the fees to the Group and
Company, constituting 93% and 96% of total
revenue, respectively;
the complexity of the computation of
performance fees involving comparison of
actual performance to benchmark being the
performance hurdle for revenue recognition
defined in the arrangements outlined in the
PDS.
Funds under management (“FUM”) used in the
calculation of fees is dependent on information
sourced from a third party service organisation
which is both the custodian and the administrator.
This required us to understand and assess the key
processes and controls in determining the FUM,
including that of the third party service
organisation.
• We assessed the appropriateness of the Group
and Company’s accounting policies against the
requirements of the Australian Accounting
Standards and our understanding of the
business and industry practice.
• 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 using the
fee percentages and funds under
management, obtained from each of the
Product Disclosure Statements and underlying
fund financial records respectively as a basis
for revenue recognition in accordance with the
Company’s accounting policy.
•
For Performance fees, we also evaluated their
recognition by comparing actual fund
performance with the benchmark as specified
as the performance hurdle in the PDS.
• We compared the independently calculated
Management, Performance and Administration
fee revenue to those of the Group and
Company and investigated significant
differences;
• We assessed funds under management
(“FUM”) by:
102
88
ANNUAL REPORT 2022
- testing key controls over the input of valuation
data into the Group and Company’s fund
management system such as daily price
movement checks performed by management;
- reconciling daily FUM sent by the custodian to
the FUM used by the Group and Company in
the calculation of revenue;
- Obtaining and reading the custodian service
organisation’s Guidance Statement 007 Audit
Implications of the Use of Service
Organisations for Investment Management
Services) assurance reports to understand the
processes and assess the controls relevant to
the determination of the FUM.
- 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 held by
underlying funds by comparing the value to
market data such as global and domestic
equity prices.
• We assessed the disclosures in the financial
reports using our understanding obtained from
our testing and against the requirements of the
accounting standard.
For Company:
• We read and understood the Management and
Administration fee arrangements in the
Investment Management, Trustee Service
Agreements and the Principal Investment
Advisory Agreement (collectively referred to as
Agreements) between the Company and its
subsidiary, Australian Ethical Superannuation
Limited (AES); and
• We performed a recalculation of the
Management, Administration and the Principal
Investment Advisory fees between the
Company and AES using the fee percentages
obtained from the Agreements and the FUM
as a basis for revenue recognition in
accordance with the Company’s accounting
policy. We compared the independently
calculated fee revenue to the fee revenue
recorded by the Company and investigated
significant differences.
89
103
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, Investment update,
Investment performance and Highlights 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.
Auditor’s responsibilities for the audit of the Financial Reports
Our objective is:
•
•
to obtain reasonable assurance about whether each of 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 opinions.
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 audits 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.
104
90
ANNUAL REPORT 2022
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 2022 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 43 in the Directors’ report
for the year ended 30 June 2022.
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 2022
91
105
Shareholder information
Shareholder information as at 1 September 2022
Security
Number of holders
Number on issue
Voting rights
Fully paid ordinary shares
17,127
112,387,138
One vote per share
Top 20 shareholders of fully paid ordinary shares
Shareholders
HSBC Custody Nominees (Australia) Limited
J P Morgan Nominees Australia Pty Limited
James Andrew Thier
Ms Caroline Le Couteur
Citicorp Nominees Pty Limited
Mr Eric Yin Wang Tse & Mrs Patty Bik Yuk Tse
Mrs Judith Margaret Boag
Mr Trevor Roland Lee
Mrs Ann Marion McGregor & Mr Bruce Allan McGregor
National Nominees Limited
Mr Howard Pender
Daisy Thier
HB Sarjeant & Assoc Pty Ltd
Pacific Custodians Pty Limited
Mr Anthony Scott Cook
BNP Paribas Noms Pty Ltd
Mr Phillip Andrew Vernon
Mr Michel Beuchat & Mrs Ann Beuchat
Dr Judith Ingrouille Ajani
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 Thursday, 1 September 2022:
• AEF shares closed at $6.06
Balance
8,311,712
6,183,062
5,066,920
4,160,855
3,583,930
2,699,500
2,300,000
2,250.000
2,014,827
1,944,933
1,822, 550
1,529,700
1,507,000
1,348,064
1,061,800
1,036,924
1,033,212
966,700
964,654
807,519
50,493,862
61,893,276
112,387,138
%
61.01
21.47
5.03
8.75
3.73
Securities
68,568,706
24,134,364
5,656,448
9,837,778
4,189,842
112,387,138
100.00
%
7.40
5.50
4.51
3.70
3.19
2.40
2.05
1.91
1.79
1.73
1.62
1.36
1.34
1.20
0.94
0.92
0.92
0.86
0.86
0.72
44.93
55.07
100.00
Holders
88
885
772
4,278
11,104
17,127
• Accordingly, 83 or more shares constituted a marketable parcel
• The Company had 1,164 shareholders whose holding was not a marketable parcel, these shareholders
owned a total of 66,978 shares
106
ANNUAL REPORT 2022
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
Share Registry
Link Market Services Limited
Locked Bag A14
Sydney South, NSW 1235
Phone +61 1300 554 474
Fax +61 2 9287 0303
Email registrars@linkmarketservices.com.au
linkmarketservices.com.au
Security Exchange Listing
Australian Ethical Investment Limited
is listed on the Australian Securities
Exchange ASX Code: AEF
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
Media enquiries
BlueChip Communication
Level 7, 333 George Street
Sydney NSW 2000
Contact us
Phone 1800 021 227
Email enquiries@australianethical.com.au
Reply Paid
GPO Box Centre Sydney
GPO Box 8, Sydney NSW 2001
australianethical.com.au
107107
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.
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.
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 2022 financial year.
Use of impact information
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.
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 2022. Data and analysis
tools provided by external sources (see below for more
information).
Calculation of sustainable impact and
investment in renewables & energy solutions
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 (88% of the companies we
invest in).
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, carbon footprint and investment in
renewables and energy solutions. We used the MSCI
tools and data for our calculations on 22 July 2022.
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
108
ANNUAL REPORT 2022 Image credits
COVER: Top right germane-jaws, Unsplash / Top left pixdeluxe, iStock / Bottom craig-strahorn, Unsplash
p1 Orbon Alija, iStock / p32 Fabrizio Conti, Unsplash / p3 graham-ruttan, Unsplash / p5 Aleksejs Bergmanis,
iStock / p15 fabrizio-conti, Unsplash / p16 marek-okon, Unsplash / p19 lindsay_imagery, iStock /
p107 saxon-white, Unsplash / p109 jeremy-lapak, Unsplash
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.
109
Find out more
Phone:
Email:
Website: australianethical.com.au
1800 021 227
enquiries@australianethical.com.au
This report is published on 100% recycled paper. The fibre source has been independently
certified by the Forestry Stewardship Council (FSC). Unless otherwise indicated, the
photographs and drawings of assets in the report are not real assets connected to the
Australian Ethical Managed Funds investment schemes (managed funds) or the Australian
Ethical Retail Superannuation Fund (Super Fund). Photographs and drawings of public
buildings, transport, or panoramic views do not depict Managed Funds or Super Fund assets.
Where used, photographs of the assets of the Managed Funds or Super Funds are the most
recent available. The information in this report is general information only and does not take
into account your personal financial situation or needs. You should consider obtaining financial
advice that is tailored to suit your personal circumstances. Any views or opinions expressed
are the author or quoted person’s own and may not reflect the views or opinions of Australian
Ethical. Copyright: No part of this publication may be reproduced, stored in a retrieval system
or transmitted in any form or by any means: electronic, mechanical, photocopying, recording
or otherwise without the permission of the publisher.