2023
Annual
Report
About the report
Welcome to the Australian Ethical Investment Limited
(Australian Ethical) Annual Report for 2023.
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 2022 to
30 June 2023 (‘FY23’) 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 Karen Hughes, Chief Risk Officer &
Company Secretary, Australian Ethical Investment
Limited on 0406 753 535 or at
khughes@australianethical.com.au.
Australian Ethical acknowledges the Traditional Owners of the country on which we work, the Gadigal people
of the Eora Nation, and recognise and celebrate their continuing connection to land, waters and culture.
We pay our respects to Elders past and present and thank them for protecting Country since time immemorial.
Our Corporate Governance Statement is available at australianethical.com.au/shareholder/
corporate-governance/
ANNUAL REPORT 2023 Contents
Message from the CEO
Message from the Chair
Financial year highlights
CIO’s Report
Investment performance
Key Management Personnel
Financial report
Shareholder information
Company directory
2
4
6
8
12
14
17
120
121
1
Message from the CEO
John McMurdo, Chief Executive Officer & Managing Director
This year marks the twentieth since scientists linked extreme
weather to climate change, and we’re seeing this play out
with devastating heat waves and forest fires in the Northern
Hemisphere, as well as severe floods which have left
thousands of people homeless.
World leaders agree that emissions must be reduced,
and that by 2030, annual investment for clean energy
alone will need to be running at around three times
the current pace. The International Energy Agency
(IEA) also said this pace would need to be maintained
through to 2050 to meet the net-zero commitment.1
This energy transition presents both risks and
opportunities from an investment perspective, and
we believe that we have a place to create a virtuous
cycle of investment. Good investment returns are
dependent on the continuing good health of the
planet and society. By investing in companies and
assets that we believe are part of the solution for a
sustainable economy, and restricting investments
in companies that aren’t, we see opportunities for
growth and lower risk in the medium to long term.
And the more we invest with heart and conviction,
the earlier we believe we’ll set in motion a cycle that
continuously reinforces and amplifies positive results,
for investors and planet, creating long-term prosperity
and sustainable outcomes.
So, while the macroeconomic conditions over the
past year weren’t kind to any investors, in particular
responsible ones, I’m proud that not only have we
stayed the course we’ve held for 37 years during
volatile market conditions but, with the cycle
beginning to turn in more recent months, we have
continued to deliver positive investment returns for
our customers.
Australian Ethical has grown significantly over
the past year through continued new customer
growth and positive net-flows, augmented by the
successful integration of the Christian Super fund.
To achieve 48% growth to reach $9.2 billion in funds
under management, is a clear demonstration of the
resilience of our business and the sound execution of
our growth strategy.
But it hasn’t just been about growth. We were
honoured, as the first public company in Australia
to achieve B Corp certification many years ago, to
be recertified on 13 July 2023 as the highest scoring
Certified B Corporation in Australia and Aetoroea New
Zealand. We’ve also won multiple industry accolades
and awards, and finished the year with a strong
balance sheet. And we’re delighted to have allocated
a further $1 million to the Australian Ethical Foundation
to continue to support our strategic grants, as well
as innovative early-stage projects that are all directly
working to combat climate change.
So, while the past year has presented an array of
challenges it has also reaffirmed our purpose. Our
commitment to doing good by people, animals, and
the planet has never been stronger, and we have
invested in our own business over recent years to
ensure we can scale and grow as we help lead the
charge toward a more sustainable future. We stand
at the forefront of ethical investing, driving change
through responsible allocation of capital. And, as we
look ahead, we remain resolute in our pursuit of a
more sustainable and ethical future, one where our
investments not only yield financial returns but also
contribute to a world that thrives for generations to
come.
I extend my heartfelt gratitude to our shareholders,
investors, super fund members, stakeholders, and
the entire team for their unwavering support and
dedication. Together, we shall continue to shape a
tomorrow that aligns with our values and paves the
way for a brighter future.
1 iea.org/reports/energy-efficiency-the-decade-for-action
2
ANNUAL REPORT 2023 And the more we invest
with heart and conviction,
the earlier we believe we’ll
set in motion a cycle that
continuously reinforces
and amplifies positive
results …
3
Message from the Chair
Steve Gibbs, Chair
This year marked a significant period of growth and expansion
for Australian Ethical, including the successful super fund transfer
of Christian Super into our superannuation business, assisting
us to reach record levels of both funds under management and
customer numbers. This, combined with our strategic investments
in technology, research and talent have allowed us to scale
our operations efficiently. We have successfully broadened
our investment offerings, while maintaining our rigorous ethical
standards in line with our Ethical Charter.
As an ethical investor, it was disappointing to see
some investment managers walk back their ESG
commitments following the short-term energy and
resources rally in the aftermath of the Russian invasion
of Ukraine. In the face of this same market volatility,
we steadfastly kept focus on our core strategy
of investing for a better world. It is true that our
alignment with positive, future-building companies
does not provide immunity from short-term volatility,
but for more than 37 years our approach has
demonstrated resilient performance over the longer
term. Indeed, the investment performance of many
of our funds and super options showed considerable
improvement in the second half of last financial year.
It is pleasing to see some governments taking
concrete action to transition away from fossil fuels.
The US ‘Inflation Reduction Act’ provisions US$783
billion to energy security and climate change. Europe
is undergoing an unprecedented shift in the scale
and ambition of its climate policy following the
announcement of the European Green Deal and the
passage of the European Climate Law.
In Australia, our new Federal Government has also
taken some positive steps with emissions’ reduction
legislation; tightening the emissions’ safeguard
mechanism on our 214 largest-polluting companies;
the establishment of a new Net Zero Authority and
changes to the Petroleum Resource Rent Tax. But I
have to say that overall the actions of the new Federal
Government around climate change has, in my view
been disappointing.
I have written and spoken about greenwashing for
many years. It is encouraging to see the increased
focus of regulators and some sections of the media
on the practice of some investment managers and
super funds claiming to invest in, or more usually not
invest in, companies and/or industries when the truth
is actually the opposite.
We continue to take our obligations to be transparent
about our ethical investment process very seriously
and strive to ensure that our disclosures remain fit for
purpose.
Our credentials as one of the leading ethical
investment management companies were recently
endorsed when Morningstar released their latest
assessment of asset managers’ ESG commitment
levels. Morningstar evaluated 108 firms globally and
only eight were crowned as ‘Leaders’ in the field. Not
only was Australian Ethical named as one of the eight,
and though others in the top eight have operations in
Australia, we were the only Australian company rated
as a global ‘Leader’ for ESG commitment.
Looking ahead, our purpose-driven model, the
global emphasis on sustainability and the increasing
awareness of responsible investing, provides us
with a fertile ground to cultivate positive change. As
we continue to expand our investment strategies,
embrace innovation, and collaborate with partners
who share our vision, we are confident in our ability
to navigate the evolving landscape and generate
meaningful, lasting value for all our stakeholders.
Whilst climate change is a major issue and one which
does have the potential to drastically affect human
and non-human life on the planet, as an ethical
investment manager and superannuation provider we
will continue to focus our investment activities across
a range of issues impacting people, animals and the
planet.
Thanks to our shareholders, our investors, our super
fund members, our Board of directors, our CEO and
his senior leadership team, all employees and our
service providers. Everyone should be proud to be
associated with Australian Ethical.
4
ANNUAL REPORT 2023 Looking ahead, our purpose-driven model,
the global emphasis on sustainability and the
increasing awareness of responsible investing,
provides us with a fertile ground to cultivate
positive change.
5
Financial year 2023 highlights
$0.65bn
Positive net flows
(excluding institutional)1
$0.47bn
Positive net flows
(including institutional)1
$0.60bn
Positive super net flows1
+48% growth
in FUM
to reach a record of
$9.2bn funds under
management
+15%
growth
$11.8 million in
underlying profit2
+54% growth
in customers to
>127,0003
The Christian Super SFT delivered
+28,000 members
+$1.93bn in FUM
Accolades
Financial Newswire Fund Manager
of the Year 2022 – Responsible
Investments (ESG) for International
Shares Fund
Finder – Green Superannuation
Fund of the Year 2020-2023
Morningstar – 1 of only 8 asset managers
globally to achieve ‘ESG Commitment
Level: Leader’4
RIAA – Responsible Investment Leader
(2019-2022)
B Corp – Highest scoring Certified
B Corporation in Australia & Aotearoa NZ
as at 13 July 20235
Top 10
NPS for super6
#4
70%
for customer advocacy6
employee engagement
1 Represents organic net flows. Excludes Christian Super uplift of $1.93bn
2 Attributable to shareholders
3 Includes funded super members and managed fund customers
4 The Morningstar ESG Commitment Level: Our assessment of 108 asset managers' white paper. © 2023 Morningstar, Inc.
All rights reserved.
5 We achieved a record score of 168.5 in our reassessment making us the highest scoring of the 560+ Certified B Corps in
Australia and Aotearoa New Zealand as at 13 July 2023.
6 Investment Trends Super Member Engagement Report 2023. Independent research with 25 major super funds
6
ANNUAL REPORT 2023 Our listed share portfolio
-78%
2.4x
4.3x
4.1x
78% lower
CO2 intensity
compared to
benchmark7,8
2.4x revenue
from sustainable
impact solutions
than benchmark7,9
4.3x revenue
from sustainable
water & agriculture
and pollution
prevention than
benchmark7,9
4.1x investment
in renewables and
energy solutions
than benchmark7,9
In pursuit of positive
change for planet,
people & animals
250+
companies
engaged for
change10
4 engagements
resulted in
divestment11
Our Foundation
$9m+
allocated to not-
for-profits in total12
$1.1m
provisioned to the
Australian Ethical
Foundation in FY23
7 Compared to a blended sharemarket benchmark of S&P ASX200 Index (for Australian and NZ shareholdings) and MSCI World
ex Australia Index (for international shareholdings). Based on shareholdings at 30 June 2023 and analysis tools provided by
external sources which cover 92% of the listed companies we hold shares in by value.
8 Carbon/CO2e intensity of listed companies whose shares we invest in across our funds and options, measured as tonnes CO2e
per $ revenue. This should not be considered representative of individual funds or options which will have their own mix of share
and other investments.
9 Based on the revenue from sustainable impact solutions earned by listed companies whose shares we invest in across our
funds and options, and the proportion of those listed share investments in renewables and energy solutions. This should not be
considered representative of individual funds or options which will have their own mix of share and other investments. Sustainable
impact data is provided by external sources and aims to measure revenue exposure to sustainable impact solutions and support
actionable thematic allocations in line with the U.N. Sustainable Development Goals (SDGs), EU Taxonomy of Sustainable Activities,
and other sustainability related frameworks. More information available at https://www.msci.com/documents/1296102/16472518/
ESG_ImpactMetrics-cfs-en.pdf/7a03ddab-46fd-cef7-5211-c07ab992d17b See pages 38 and 122 for more information.
10 We count one engagement where we engaged with a company on a topic or series of topics. There may be multiple
activities within that engagement. For example, our engagement with Westpac is counted as one engagement which
included meetings, emails and co-filing a shareholder resolution. We may count two engagements with a company if there
were separate activities on entirely separate topics. For example, we had one engagement with CBA in relation to its fossil
fuel exposure and a separate meeting with CBA to discuss its exposure to deforestation in Australia. See page 25.
11 Not including companies excluded from initial investment
12 Before deducting bonus and grant expense
7
CIO report
Ludovic Theau, Chief Investment Officer
I am delighted to present the Chief Investment Officer’s
(CIO) report to you for the first time on behalf of Australian
Ethical Investment. This report provides insights into our
investment strategies, portfolio performance, and vision for
the future. I feel privileged to have joined during this period
of robust growth and looking forward to building upon the
strong foundation laid by my predecessor, David Macri, and
Australian Ethical’s experienced and talented investment team.
Prior to my current role, I served as the Chief
Investment Officer of the Clean Energy Finance
Corporation (CEFC), the Australian Government-
owned ‘Green Bank’, for 10 years. In this role,
I focused on developing a diversified suite of
investments across various asset classes, particularly
in private markets, with a strong emphasis on
transitioning toward a more sustainable economy.
The strong alignment with Australian Ethical’s purpose
of investing for a better world meant joining Australian
Ethical as CIO was a logical and simple decision for
me.
2022-23 FY Investment Performance
Looking back at the financial year ending 30 June
2023, I am proud to report that Australian Ethical’s
suite of investment funds performed broadly in
line with expectations, and performed particularly
strongly in the latter half of the fiscal year that saw
attractive annual returns across the large- and small-
cap domestic equities, international shares, and fixed
income categories. This achievement was attained
despite market volatility and significant challenges
driven by high inflation and rising interest rates.
The financial year can best be described as
comprising two distinct investment environments
over two halves, underscoring the importance of
remaining composed under pressure and adhering
to our long-term investment objectives through
established principles and processes.
The first half was marked by increasing anxiety
over inflation, higher interest rates, and geopolitical
uncertainties, including the ramifications of the
continuing war in Ukraine on European economies.
This generated a perfect storm for responsible
investment firms due to three key factors:
• Resources and materials, where our investments
are underweight, saw stand-out performance.
• Bond prices dropped significantly as central banks
aggressively tightened policy.
• Valuation of growth stocks, particularly small-cap
stocks in the technology and healthcare sectors
faced pressure.
As the year progressed however, the market
responded positively to improvements in inflation
data, leading to the US Federal Reserve and Reserve
Bank of Australia (RBA) pausing their hiking cycles
to assess the impacts of their monetary policy
decisions to date. Market expectations of near-peak
rates coincided with a renewed demand for risk
assets, particularly in the US large-cap technology
and artificial intelligence sectors. A broadening of
market performance in the final quarter of the fiscal
year included smaller capitalised equities – where we
tend to be overweight – began to take hold resulting
in very favourable returns for our investors.
Fixed income markets also began to moderate during
this period. For example, the 10-Year US Bond Yield
peaked in late October 2022 at 4.25% and ended
the fiscal year at 3.88%. Similarly, Australian 10-year
bonds reached peak yields in October 2022 and
remained relatively stable for the rest of the year.
8
ANNUAL REPORT 2023 Resources and Material sectors enjoyed a reprieve
over the second half of the financial year as many
commodity markets experienced mean reversion.
For example, Crude Oil had fallen from US$81 to
$71 or -12% over the 12 months to June 30, 2023.
This represented a significant retracement from prices
over US$110 during May 2022, following the impacts
from the war in Ukraine.
Other commodities, including Wheat (-23.5%) and
Natural Gas (-51%), saw significant corrections over
the year as supply chain worst-case concerns did not
materialise and markets saw demand destruction.
We see the stronger performance in the latter part
of the year as an endorsement of our responsible
investment strategy and ethical approach, with this
rebound in performance a testament to the resilience
of our funds through investment cycles.
The Australian economy continues to slow, although
the probability of a recession remains lower than
in the Northern Hemisphere. The high levels of
immigration continue to support economic activity,
and we will continue to closely monitor the impact
of interest rates on consumer spending and overall
economic performance, particularly as many on fixed
mortgages come off historically low rates.
Portfolio Resilience
We have continued to bolster the resilience of our
investment portfolios over the last financial year to
maximise returns across market cycles and absorb
short-term shocks. We also embedded a new asset
allocation model for our multi-asset funds, and have
continued to follow a systemised and evidence-led
approach to understanding the opportunities and
risks across different asset classes with a focus on
reducing the magnitude of negative outcomes. By
identifying diversifying exposures and managing
meaningful risks, we have already reduced our
portfolio risk and improved our ability to take
advantage of our long-term investment horizon and
liquidity.
Allocations that have been introduced or increased to
diversify risk include:
• Insurance Linked Securities (ILS) – as an
uncorrelated asset class that provides defensive
income.
• Short-dated credit – to enhance risk adjusted
returns from our shorter dated fixed income
holdings.
• Global sovereign bonds – as higher interest rates
have increased the defensive features of bonds.
Although our base case remains a slowdown rather
than a recession for Australia, we believe that these
added levers will stand us in good stead if we do slip
into a recessionary environment.
Impact Investments
The Christian Super Successor Fund Transfer has
enriched our investment team with experienced
personnel and granted increased access to diverse
asset classes, including both growth and defensive
alternatives, and an increased portfolio of impact-
focused investments including:
• Triodos Microfinance Fund – a strategy investing
in companies or projects dedicated to creating
concrete and measurable positive social or
environmental impact through their products or
service in the developing world.
• Circularity Capital LLP – a strategy that seeks to
capitalise on an opportunity for value enhancement
in European small and medium enterprises (SME’s)
that are adopting or enabling the shift to a circular
economy focused on efficiency, and climate impact
through renewable energy and materials.
• Leapfrog Emerging Consumer III – a growth
strategy that invests in companies of SE Asia and
Africa providing relevant, affordable and high-
quality financial and healthcare products and
services to emerging consumers.
9
Opportunities
Looking forward, we continue to see demand
both locally and internationally for impact and
sustainable investment solutions. For example,
RIAA’s Responsible Investment Benchmark Report
Australia 2022 showed that the amount of Australian
assets managed using a leading rigorous approach
to responsible investment had risen to a record high
of $1.54 Trillion. An increasing number of investors
are interested in generating measurable positive
social and environmental impacts alongside financial
returns.
Government regulations are also driving meaningful
change within corporate actions and investments.
Governments worldwide have been implementing
policies and regulations to encourage sustainable
practices. These measures often include incentives
for green initiatives, carbon pricing, and reporting
requirements on environmental and social impacts,
creating a favourable environment for sustainable
investments. For example, in June 2023, the
Australian Government released the Australian
Carbon Credit Unit (ACCU) implementation plan to
ensure the scheme continues to help Australia reach
net-zero by 2050. Other jurisdictions have developed
regulated carbon markets to address emissions.
These developments represent both continued
global actions to address climate risk and potential
investment opportunities, which we are actively
evaluating.
We believe that Australian Ethical is uniquely
positioned to provide our investors with attractive
and innovative investment solutions within the
growing areas of impact investing, carbon transition,
renewable energy infrastructure, and sustainable
investments.
As a leader in ethical investing since 1986, we have
long been focused on supporting outcomes that
are beneficial to society. Furthermore, the overall
track record of our funds against their objectives
underscores our belief that investing ethically can
provide attractive risk-adjusted returns.
As we navigate these dynamic market conditions, I
assure you that our investment decisions will remain
firmly grounded in our ethical principles and focused
on achieving sustainable growth.
Thank you for your unwavering support and trust in
Australian Ethical. Together, we can continue to help
drive the positive change the world needs through
responsible investing.
10
ANNUAL REPORT 2023 We believe that Australian
Ethical is uniquely
positioned to provide our
investors with attractive
and innovative investment
solutions within the
growing areas of impact
investing, carbon
transition, renewable
energy infrastructure, and
sustainable investments.
11
Investment performance
Managed Funds returns to 30 June 2023#
Our Australian Shares Fund was above benchmark6 for all periods of five years or greater and our Emerging
Companies fund was above benchmark7 for all 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.
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
High Conviction (Wholesale)
Benchmark6
3.1
2.9
3.1
2.9
0.8
1.2
1.0
1.2
9.6
11.1
10.4
11.1
14.7
15.5
15.3
15.5
15.9
16.8
16.4
16.8
19.3
22.6
19.8
22.6
12.8
14.4
13.4
14.4
8.6
9.5
9.2
9.5
9.8
14.4
1.4
1.5
1.4
1.5
(5.3)
(4.8)
(5.1)
(4.8)
0.6
2.7
1.3
2.7
1.9
4.6
2.4
4.6
1.3
4.6
1.7
4.6
4.6
7.1
5.0
7.1
(3.7)
3.3
(3.1)
3.3
(8.6)
(8.8)
(8.2)
(8.8)
n/a
n/a
1.1
1.0
1.1
1.0
(4.1)
(3.5)
(3.8)
(3.5)
6.2
7.1
7.0
7.1
10.6
11.8
11.3
11.8
10.2
11.8
10.8
11.8
11.6
13.5
12.2
13.5
9.6
11.1
10.3
11.1
7.9
3.4
8.4
3.4
n/a
n/a
1.2
1.1
1.3
1.1
(0.3)
0.5
0.1
0.5
6.0
6.3
6.9
6.3
7.8
8.4
8.7
8.4
7.6
8.4
8.4
8.4
9.7
11.5
10.5
11.5
7.8
6.1
8.7
6.1
10.4
1.7
11.0
1.7
n/a
n/a
1.3
1.3
1.5
1.3
(0.2)
0.8
0.4
0.8
6.1
7.2
n/a
n/a
8.1
9.3
9.1
9.3
7.9
9.3
8.9
9.3
10.2
12.5
11.1
12.5
8.4
8.0
9.4
8.0
11.0
4.8
11.7
4.8
n/a
n/a
1.6
1.7
n/a
n/a
1.4
2.4
n/a
n/a
7.0
7.7
n/a
n/a
9.6
9.9
10.8
9.9
9.4
9.8
10.5
9.8
10.9
12.4
n/a
n/a
10.4
8.9
11.7
8.9
n/a
n/a
n/a
n/a
n/a
n/a
2.6
2.6
n/a
n/a
n/a
n/a
n/a
n/a
5.7
6.9
n/a
n/a
n/a
n/a
n/a
n/a
7.1
8.9
n/a
n/a
6.1
10.0
n/a
n/a
8.9
6.8
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
3.2
3.5
n/a
n/a
n/a
n/a
n/a
n/a
6.1
7.1
n/a
n/a
n/a
n/a
n/a
n/a
7.9
8.7
n/a
n/a
n/a
n/a
n/a
n/a
9.9
7.6
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
Past performance is not a reliable indicator of future performance.
References to ‘wholesale’ funds indicate the class of pricing above a minimum investment threshold, which varies by fund
# 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/ASX 300 Accumulation
7 S&P/ASX Small Industrials Accumulation
Note: Where benchmarks have changed, we have melded them together.
MSCI data is the property of MSCI. No use or distribution without written consent. Data is provided ‘as is’ without any warranties.
MSCI assumes no liability for or in connection with the data. For full disclaimer, please see australianethical.com.au/sources
12
ANNUAL REPORT 2023 Super and pension returns to 30 June 2023#
Our MySuper option (Balanced accumulation) outperformed its benchmark9 over 1, 5, 7 and 10 years, while our
Australian Shares accumulation option met or exceeded benchmark6 for all periods of three years or greater.
Accumulation options performance
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.
Defensive
Benchmark1~
Conservative
Benchmark8
Balanced (accumulation)
Benchmark9
Growth
Benchmark10
Australian Shares
Benchmark6~
International Shares
Benchmark5~
High Growth
Benchmark11
2.4
2.3
4.0
5.0
9.2
9.0
11.0
10.6
12.5
12.6
17.2
19.7
13.5
13.2
0.8
1.1
(1.8)
1.2
1.1
2.6
2.2
2.8
(2.4)
2.8
4.0
6.1
2.2
3.1
0.5
0.6
0.2
3.3
6.3
7.5
8.0
8.9
9.8
9.8
10.7
11.8
10.3
9.8
0.6
0.7
2.1
3.0
6.3
5.6
7.0
6.3
8.3
5.5
9.1
9.9
7.9
7.0
0.8
0.8
2.4
3.1
6.9
6.3
7.7
7.6
9.3
7.2
10.1
10.7
8.5
7.9
1.0
1.2
2.9
3.6
7.0
6.1
7.8
7.3
10.4
6.5
9.5
11.0
9.2
8.8
1.8
2.2
n/a
n/a
5.6
5.3
5.8
6.0
9.0
1.5
5.4
9.1
n/a
n/a
2.5
3.2
n/a
n/a
5.9
5.7
6.8
6.5
9.8
n/a
n/a
n/a
n/a
n/a
1 year
%
2 years
% p.a.
3 years
% p.a.
5 years
% p.a.
7 years
% p.a.
10 years
% p.a.
15 years
% p.a.
20 years
% p.a.
Pension options performance
Defensive
Benchmark1<
Conservative
Benchmark12
Balanced
Benchmark13
Growth
Benchmark14
Australian Shares
Benchmark6<
International Shares
Benchmark5<
2.7
2.6
4.3
5.1
8.5
7.8
12.7
12.2
13.8
14.1
19.1
22.3
0.9
1.2
(2.1)
0.8
0.2
1.8
1.9
3.1
(2.7)
3.0
4.1
6.8
0.6
0.7
0.2
3.3
4.9
5.6
8.6
9.6
10.5
10.8
11.3
13.2
0.7
0.8
2.2
3.1
5.4
4.5
7.5
6.9
9.0
6.0
9.6
11.1
0.9
1.0
2.6
3.3
6.0
5.0
8.4
8.2
10.1
7.8
10.8
12.1
1.1
1.3
3.1
3.9
6.5
5.5
8.4
7.9
10.9
7.2
9.6
12.0
2.2
2.3
n/a
n/a
5.5
5.0
6.6
6.5
9.8
2.1
4.9
9.8
2.9
3.3
n/a
n/a
6.0
5.6
7.5
7.0
10.7
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
13
Key Management Personnel
John McMurdo
Chief Executive Officer and Managing Director
MBA, GAICD
John brings more than 30 years’ experience in investment management, private
client advisory and wealth management across Australia and New Zealand,
including 20 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.
Karen Hughes
Chief Risk Officer and Company Secretary
BSc (Hons), ACA (ICAEW), GAICD, FGIA
Karen is Company Secretary and 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.
Ludovic Theau
Chief Investment Officer
MEng, GAICD
Ludovic joined Australian Ethical in April 2023 as Chief Investment Officer. He has
over 30 years of experience in ESG investing, funds management, commercial
and investment banking and financial advisory.
Prior to joining, Ludovic was the Chief Investment Officer for the Clean Energy
Finance Corporation, Australia’s Green Bank. He also had previous roles at
Hastings Funds Management, Westpac, ABN AMRO, Macquarie Bank, UBS and
BNP Paribas.
Ludovic holds a Master of Engineering from Ecole Centrale de Paris, France, and
is a graduate of the Australian Institute of Company Directors.
Maria Loyez
Chief Customer Officer
MEng
Maria is responsible for sales, marketing and customer experience to help drive
business growth, which in turn increases positive impact on society. Maria has
more than 20 years’ strategic marketing, CX and leadership experience having
previously held senior roles at neo-bank Volt, SocietyOne, OFX, AMP, Optus and
Virgin.
14
ANNUAL REPORT 2023 Mark Simons
Chief Financial Officer
B Bus, CA, GAICD
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.
Marion Enander
Chief Strategy & Innovation Officer
BCom, MBA
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).
Ross Piper
Chief Executive, Superannuation
GradDipEd, MBA
Ross has end-to-end responsibility for Australian Ethical’s superannuation
offering, with a focus on growth and profitability; and building the operational
backbone for the broader business. Ross has more than 25 years’ executive
leadership experience, including in investment management, having previously
held senior roles within Macquarie Bank, World Vision, Christian Super and
AgroInvest.
He currently sits on various other boards for organisations focused on social
enterprise and technology and is the Chair of the Responsible Investment
Association of Australasia (RIAA).
15
Extended leadership team
Alison George
Head of Impact and Ethics
CA (Fellow), M (Env), BA (Juris)
Alison joined Australian Ethical in May 2023 to ensure our investments continue
to meet our Ethical Charter and grow our positive outcomes for animals, people,
and planet.
Alison has more than 20 years’ experience in responsible investment and
stewardship, working with numerous industry leaders in her prior roles with
Pendal and Regnan. A Chartered Accountant, Alison also completed a Master of
Environment and was previously a corporate sustainability advisor with EY.
Conrad Tsang
Chief Technology Officer
BEng (Hons)
Conrad is responsible for developing Australian Ethical’s technology and data
capabilities, and aligning them to deliver positive impact and client outcomes. He
has extensive experience in Investment Management, OTC Markets, Securities
Services and Retail Banking having previously held roles in HSBC, Credit Suisse
and UBS.
Eveline Moos
Chief People & Culture Officer
BCom
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.
16
ANNUAL REPORT 2023 Australian Ethical Investment Limited and
its Controlled Entities
Financial Report
30 JUNE 2023
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
ABN 47 003 188 930
18
45
72
73
74
75
77
78
114
115
Directors’
Report
The directors present their report,
together with the financial statements,
on the consolidated entity (referred
to hereafter as the ‘Group’) consisting
of Australian Ethical Investment
Limited (referred to hereafter as
‘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 2023.
18
ANNUAL REPORT 2023 Directors
The following persons were directors of Australian Ethical Investment Limited during the
whole of the financial year and up to the date of this report, unless otherwise stated:
Steve Gibbs
Non-Executive Director since 2012 and Chair since 2013
BEcon, MBA
Steve chairs the People, Remuneration and Nominations Committee, is a
member of the Product Disclosure Statement Committee and the Australian
Ethical Investment Limited and Australian Ethical Superannuation Pty Limited
Audit, Risk & Compliance Committees. He is Chair of Australian Ethical
Superannuation Pty Limited and Australian Ethical Foundation Limited.
Steve is also the Non-Executive Chair of Netlinkz Limited. Steve has extensive
experience at both an executive and non-executive level in the investment and
superannuation industries, including being a former CEO of the Australian Institute
of Superannuation Trustees, a former CEO of what is now Commonwealth
Superannuation Corporation and a non-executive director of Hastings Funds
Management and Westpac Funds Management. Steve has been recognised for
his commitment to, and expertise in, ethical and responsible investing.
Mara Bûn
Non-Executive Director since 2013
BA (Political Economy), GAICD
Mara is a Member of the People, Remuneration and Nominations Committee,
the Investment Committee and the Australian Ethical Investment Limited
and Australian Ethical Superannuation Pty Limited Audit, Risk & Compliance
Committees. She is a Director of Australian Ethical Superannuation Pty Limited
and Australian Ethical Foundation Limited.
Mara brings executive experience from Green Cross Australia, Choice,
CSIRO, Macquarie Bank and Canstar. She is a Founder of The Salmon Project,
specialist advisors to Climatetech and Agritech scale-ups advancing Series B
venture funding through deep tech R&D. She is the Non-Executive Chair of 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
Non-Executive Director since 2013
BEc, FCA, GAICD
Kate is Chair of the Australian Ethical Investment Limited and Australian Ethical
Superannuation Pty Limited Audit, Risk & Compliance Committees and is
a Member of the People, Remuneration and Nominations Committee and
the Product Disclosure 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.
19
Australian Ethical Investment Limited and its Controlled Entities
Directors’ Report
for the year ended 30 June 2023
Sandra McCullagh
Non-Executive Director since 2023
BA, BSc, GAICD, MBA
Sandra is Chair of the Investment Committee and a Member of the People,
Remuneration and Nominations Committee. Sandra is a director of Workcover
Queensland and is on the New Zealand Stock Exchange Corporate Governance
Institute.
She has a strong background in ESG and experience on both the buy-side
and sell-side. She was the former top-rated head of ESG and utilities equities
research at Credit Suisse Australia. Sandra was a former trustee and Chair of the
Investment Committee of QSuper, leading up to its merger with SunSuper.
Sandra is a former director of the Board of the Investor Group on Climate Change,
whose scope includes Australia, New Zealand and Asia. Sandra is a Graduate of
the Australian Institute of Company Directors and a member of Chief Executive
Women.
Julie Orr
Non-Executive Director since 2018
BEc, MCom, MCom(Hons), CA, GAICD, FGIA
Julie is a Member of the People, Remuneration and Nominations Committee, the
Audit, Risk & Compliance Committee and the Investment Committee. She is also
a director of Australian Ethical Foundation Limited and AvSuper and a member of
the NSW Biodiversity Conservation Trust and SAAFE Audit and Risk Committees.
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 as 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), Masters
Swimming NSW and Tax Payers Research Foundation.
John McMurdo
Chief Executive Officer and Managing Director, appointed February 2020
MBA, GAICD
John joined the Australian Ethical Board in February 2020 as Chief Executive
Officer and Managing Director. He brings more than 30 years’ experience in
investment management, private client advisory and wealth management across
Australia and New Zealand, including 20 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.
20
ANNUAL REPORT 2023 Company secretary
Karen Hughes
BSc (Hons), ACA (ICAEW), GAICD
Karen is the Company Secretary and 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 to 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.
21
Year in review
Soaring energy and food prices, spiralling inflation
and the monetary tightening policies meted out
by central banks in response, were the economic
hallmarks of FY23. Sanctions by the West on Russia,
one of the largest fossil fuel producers in the world,
drought in Europe and China, along with broader
supply chain disruptions amplified by protracted
Covid-zero lock-downs in China, made food and
energy harder to access and more expensive. This
contributed to burgeoning inflation across much of
the globe. Central Banks around the world responded
to this challenging environment with the fastest
monetary tightening in recent history. In Australia,
after increasing rates in May 2022 for the first time
since November 2010, the Reserve Bank of Australia
raised interest rates 10 times in the 2023 financial year
from 0.85% to 4.10%. Similarly, as it battled to stabilise
prices, the US Federal Reserve raised rates from near
zero (0.08%) in February 2022 to 5.08% by the end of
FY23, the highest level in 16 years.1
Significantly higher food and energy prices,
along with the ratcheting up of mortgage and rent
payments, placed great stress on households and
communities in Australia and internationally. To add
insult to injury, many of these citizens were also
dealing with the destruction of their homes and
communities through the impact of war, floods or
wildfires.
The year was also a demanding one for investors
as the ballooning interest rates impacted equity
valuations and dampened the bond market. Of
all sectors, fossil fuels and resources performed
better than others, making the first half of the year a
challenging one for ethical investors. The recovery of
China after Covid Zero proved slower than expected,
interest rates continued to bite and by March there
were concerns of recession and of more banking
failures in the US and Europe.
We maintain our long-held view that the transition to
renewable energy is a compelling economic as well
as ethical proposition. Indeed, by its illegal actions,
Russia has served to highlight that dependence on
fossil fuel imports is an untenable security risk for
many countries, and has helped to supercharge
investment in renewable energy around the world.
The International Energy Agency (IEA) tells us that
2023 will be remembered as a tipping point: the year
global investment in renewables exceeded that of
fossil fuels for the very first time.2
Even more than Covid or the war in Ukraine, climate
change has the potential to destabilise the normal
functioning of the financial markets for decades
to come. We continue to see more frequent and
severe weather events, rising ocean temperatures
and environmental changes leading to significant
losses for citizens, insurance companies, banks
and other finance organisations and the planet's
ecosystem. Many of the most populated areas
of the world are low-lying and according to the
Intergovernmental Panel for Climate Change (IPCC)3,
there is no question that sea levels will rise by more
than 0.8 metres, the only question is whether this will
happen before or after 2100. As we enter a year of
predicted El Nino climate conditions and the potential
of the globe being temporarily pushed above
1.5-degree warming,4 we must keep our eyes firmly
on the big picture.
In the face of the market volatility we have further
diversified our portfolio to include a broader array
of asset classes, including additional defensive
assets aligned to our Ethical Charter. We maintain our
1 macrotrends.net/2015/fed-funds-rate-historical-chart
2 iea.org/news/clean-energy-investment-is-extending-its-lead-over-fossil-fuels-boosted-by-energy-security-strengths
3 Summary for Policymakers. In: IPCC Special Report on the Ocean and Cryosphere in a Changing Climate [H.-O. Pörtner, et al
(eds.)]. (2019).
4 public.wmo.int/en/media/press-release/global-temperatures-set-reach-new-records-next-five-years
22
ANNUAL REPORT 2023 steadfast focus on the longer-term trend towards
decarbonisation – not just by restricting investment
in mining and energy stocks, and our advocacy
activities with banks who lend to the energy sector
– but by positioning the portfolio to capitalise on the
companies and projects that are at the forefront of
this trend.
In the second half of the year – and in particular the
last three months – market sentiment demonstrated
an increased appetite for risk assets, especially the
Artificial Intelligence (AI) and specialist technology
sector. This positive sentiment flowed on to other
industries aligned with our Ethical Charter and as a
result, we were able to deliver positive performance
for all our investments over the full year.
Greenwashing, the practice of misleading
consumers by promoting environmentally-friendly
initiatives or products that do not fully deliver on
those claims, is a growing global concern for
the financial services industry as a whole, and
responsible investors in particular. Not only does
greenwashing erode consumer confidence in
responsible investment products,5 but it means
money is supporting investments with less beneficial
outcomes for people, the planet and animals.
We were therefore encouraged to see the Australian
Securities and Investments Commission (‘ASIC’), the
Australian Competition and Consumer Commission
(‘ACCC’) and the Australian Prudential Regulation
Authority (‘APRA’) make greenwashing an area of
focus for their 2023 enforcement and compliance
priorities.
ASIC in particular, issued stricter guidelines on
how to avoid greenwashing when communicating
financial products, and has carried out 35
interventions this financial year to 31 March 2023,
including initiating civil penalty proceedings.
As a pure-play ethical fund operating under strict
frameworks reflecting our Ethical Charter, we are
mindful of the need to carefully explain our ethical
approach to prospective and existing investors.
We work hard to continuously improve the quality
of our communications and the transparency of our
disclosure.
Review of operations
Through these challenging times we, as always,
remain firmly focused on our key principles. Ethical
investing is all we do, and we’ve been investing
this way since 1986, through all market cycles. Our
long-term performance helps demonstrate the
power of this conviction. Our flagship wholesale
Australian Shares Fund (‘ASF’) remains above the
Benchmark6 for all periods of five years or greater and
our wholesale Emerging Companies Fund continues
to outperform its Benchmark7 for all periods of two
years and above, whilst ranking in the third quartile
compared to peers for one year and three years.8 For
our super members the Balanced option performed
on or above Benchmark9 for the full year and for every
time period of five years and above.
Australian Ethical continued to experience strong
growth, more than doubling our funds under
management (‘FUM’) in just over two and a half years
since November 2020. In FY23 we reached the
significant milestones of more than $9 billion in FUM
across all product types, with more than $7 billion of
that in super alone. This was the largest absolute
one-year growth in FUM in Australian Ethical’s long
history.
Though the volatility of the last 12 months presented
challenges for investment teams everywhere, it also
provided an opportunity for us to seek out value
in the future-building sectors that we support. The
Christian Super Successor Fund Transfer (‘SFT’) and
subsequent expansion of diversified asset classes
for super members during FY23 also contributed to
positive returns.
5 Banhalmi-Zakar, Z & Parker, E. 2022. From Values to Riches 2022: Charting consumer demand for responsible investing in
Australia, RIAA, Melbourne
6 S&P/ASX 300 Accumulation index. References to ‘wholesale’ funds indicate the class of pricing above a minimum investment
threshold, which varies by fund
7 S&P/ASX Small Industrials index. References to 'wholesale' funds indicate the class of pricing above a minimum investment
threshold, which varies by fund
8 Mercer quarterly performance survey – June 2023
9 SuperRatings SR50 Balanced (60-76) Index as at 30 June 2023
23
Christian Super SFT
The Christian Super SFT completed in November
2022 was our major strategic deliverable for the
financial year. The transaction grew our FUM by $1.93
billion, added 28,000 superannuation customers and
enhanced our asset allocation to alternative assets.
Pleasingly, more than six months in, member
and FUM retention remains above our original
expectations. We have been able to quickly pass
on the benefits of our greater scale through fee
reductions to all our 110,000+ members, further
increasing our competitiveness. Our larger scale has
also enabled reinvestment in initiatives to improve
our customer experience and accelerate our ongoing
growth and impact.
The retained Christian Super capability has
boosted our alternatives investment capability,
supported high member engagement standards
in the contact centre team, underpinned employer
channel retention, enhanced product management
capability and investment administration to support
increased transaction volumes, and strengthened risk
management and governance.
In addition, the transaction has enhanced our
merger and acquisition capability, giving us further
confidence in executing future acquisitions in line
with our inorganic growth strategy.
With the initial integration program delivered
according to plan, we have now consolidated into a
single investment management platform, operating
under Australian Ethical’s brand with all investments
guided by the Australian Ethical Charter.
Our focus now turns to leveraging middle and
back-office synergies, initially through the transition
of the two incumbent superannuation administrators
to a single provider. As we announced in June 2023,
GROW Technology Services Ltd (‘GROW’) has been
selected as our new superannuation administrator.
This decision was based on the strong alignment of
the two companies’ innovative cultures and GROW’s
modern technology stack. This solution is expected
to deliver an enhanced member experience,
compelling commercial rate-card and the flexibility
to support Australian Ethical’s ongoing growth. The
multi-year project is underway, with all members
expected to transition to GROW’s platform by FY25.
Strategic highlights in FY23
The growth strategy we highlighted in FY21 is now
reaping genuine benefits and presents a much brighter
future. This strategy identifies four key pillars and one
foundation that we are investing in and pursuing in
tandem, to strengthen our business for impact and
leadership. While our major strategic milestone in FY23
was the successful completion of the Christian Super
SFT, we continue to make significant progress against
our many strategic deliverables.
The capability of our business has lifted materially
during the year and continues to improve, as we
invest in and embed new talent, systems and
processes, and drive the cultural shifts required to
deliver our aspirational growth targets. This year we
have created a stronger executive leadership team
and enhanced governance at the Board level with
the addition of a new Australian Ethical Super board
member and changes to our Investment Committee.
Our key strategic highlights are outlined below:
Principled investment leadership
We have brought strong new leadership to the
investment team with the appointment of Ludovic
Theau as Chief Investment Officer in April 2023.
Ludovic brings more than 30 years’ experience
in ESG investing, including private markets, funds
management, commercial and investment banking
and financial advisory. Prior to joining, Ludovic was
the Chief Investment Officer for the Clean Energy
Finance Corporation, Australia’s Green Bank.
We have also refreshed our ethics capability with the
appointment of Alison George as Head of Impact
and Ethics. Alison’s role is key to ensuring our
investments continue to meet our Ethical Charter and
grow our positive outcomes for animals, people, and
planet. Alison has more than 20 years’ experience
in responsible investment and stewardship, working
with numerous industry leaders in her prior roles with
Pendal and Regnan. Dr Stuart Palmer has taken on the
role of Ethical Futures Lead, continuing to be a strong
voice for more sustainable business and investment
models and practices.
This new capability, together with an expanded
investment committee, positions us to even
more strongly adapt to and present investment
opportunities in asset classes, and solutions that
are part of what we expect to be a vastly changing
investment landscape as the world responds to
climate change and other existential threats.
24
Australian Ethical Investment Limited and its Controlled Entities Directors’ Reportfor the year ended 30 June 2023ANNUAL REPORT 2023 DHFKSJHDFS
level of engagement and therefore announced our
divestment from Lendlease in March 2023. This
announcement reached a potential audience of
8.5 million Australians through 110 unique pieces of
earned media coverage, including the ABC, Channel
9 News, the Guardian, The Australian and Bloomberg.
Following our request for support, 1,795 people
copied us in on their letters to the NSW Minister for
Environment and Heritage, James Griffin, requesting
a public consultation regarding the proposed koala
corridors at Mt Gilead. We have continued to engage
on the issue post divestment, including with the
incoming NSW Government.
We commissioned the research ‘A little goes a long
way’ with the UTS Business School and Lonergan
Research to uncover Australians’ perceptions of
the carbon challenge and to help identify effective
ways to contribute to a reduction of an individual’s
carbon footprint. Coverage generated by the
research reached a potential audience of four
million Australians through 153 articles and mentions
including the front page of the Money section of the
Sydney Morning Herald / The Age. The associated
marketing campaign reached a total of two million
people, across YouTube and social media.
The first Australian Ethical Reconciliation Action
Plan (‘RAP’) was submitted to and approved by
Reconciliation Australia in the financial year. This
largely wraps form and structure around a number
of activities that we have been carrying out for many
years.
During the period, we were also able to provision
$1.1 million for the Australian Ethical Foundation, to
enable its future work supporting innovative and
effective charities combatting climate change in
Australia and overseas. Utilising funding provisioned
in FY22, the Foundation made 20 strategic grants
totalling over $1 million and 12 Visionary Grants
totalling $500,000 during the period. These grants
were made to a variety of projects across the
Foundation’s focus areas: Stopping Sources of
Carbon, Supporting Carbon Sinks and Empowering
Women and Girls.
Meanwhile our Head of Asset Allocation, John
Woods, was promoted to Deputy Chief Investment
Officer and Head of Multi-Assets and we further
bolstered our alternatives capability through the
appointment of two new senior investment analysts.
During the period, we also undertook a significant
project to in-house and uplift our asset allocation
methodology and capability. Further, we enhanced
our asset allocation through greater exposure to
alternatives post the SFT. This provides greater
diversification and enables flexibility for future
product design.
We continued to work on our product pipeline, with
our new Moderate Fund due to launch in early FY24.
This new product will enhance our current multi-asset
product suite, by offering a compelling lower-growth
asset allocation fund to address the requirements
of advised, direct, high net worth and mezzanine
investors with a medium risk profile.
In November 2022, our custodian NAB Asset
Servicing (‘NAS’) announced its intention to wind
down operations by end of 2025. In response, we
mobilised a custody migration project to seek a
scalable long-term partner to provide ongoing
support to our Investment Management platform.
And, as already mentioned, we are particularly
pleased with the solid investment performance we
achieved for the year in one of the most tumultuous
periods for a true-to-label responsible investment
manager.
Advocates for a better world
In FY23 we made a deliberate choice to be more
focused with our stewardship, delivering more
than 250 engagements for people, animals and
the planet. To provide a detailed account of our
stewardship activities we extended the content of
our sustainability reporting with our first dedicated
Stewardship Report.
Our ongoing Stewardship engagement with
Lendlease regarding its housing development at
Mt Gilead and the impact on one of the last healthy
koala colonies in NSW, has been a key focus area
for our Ethics Research team. Despite multiple
engagements with the company, encouraging
them to improve their plans for koala corridors,
which did lead to some improved outcomes for
the koalas, we were ultimately dissatisfied with the
25
Uplifting our digital experience
Our technology backbone is a critical part of our
investment roadmap to support our growing scale.
Our aspiration is to provide direct customers with
a best-in-class digital experience to manage their
super and investments.
Conrad Tsang joined us in the new role of Chief
Technology Officer in October 2022 and is
responsible for developing and overseeing a
sustainable technology strategy across the business.
With more than 20 years’ IT experience across
a variety of financial sectors, including banking,
markets and funds management, Conrad is well-
placed to drive these enhancements across our
technology stack to enable our five-year growth
strategy.
Our transformational transition to GROW super
administration will deliver an improved member
experience and deliver further synergies following
the Christian Super SFT.
Compelling client experience
Delivering a compelling client experience that
consistently lives up to customers' expectations
is a critical component of our growth strategy. We
continue to build our internal and external capabilities
and develop our systems so we can deliver on this
promise every time.
In December 2022 we welcomed Ross Piper as the
new Chief Executive, Superannuation. Ross brings to
the role more than 25 years of executive leadership
experience, having previously held senior roles
within Macquarie Bank, World Vision, and Christian
Super. Ross has end-to-end responsibility for
Australian Ethical’s superannuation business, along
with oversight of the ongoing transformation of the
operational backbone of the broader business.
As testament to his sustainable investing credentials,
Ross was appointed Chair of the Responsible
Investment Association of Australasia (‘RIAA’) in
November 2022.
There has been a significant emphasis this year
on enhancing our Contact Centre leadership,
resourcing, process automation and telephony. We
have listened deeply to customer feedback and
are measuring outcomes more tightly. Pleasingly, in
recent months, post integration of the Christian Super
business and despite record levels of interaction, our
grade of service, quality measures and abandonment
rates are back at high-quality pre-SFT levels.
Our most recent sustainability report is a detailed
and thoughtful representation of our brand and
purpose. When combined with recent improvements
to member statements, investment commentary and
other communications to our customers, we continue
to lift and enhance the quality of our customer
engagement.
In recognition, our Net Promoter Score (‘NPS’) and
customer advocacy rankings remain in the Top 10 in
Australia for super members.10
10 Investment Trends Super Member Engagement Report 2022. Independent research with 25 major super funds
26
Australian Ethical Investment Limited and its Controlled Entities Directors’ Reportfor the year ended 30 June 2023ANNUAL REPORT 2023 Building a larger and more impactful business
In support of the adviser channel, we delivered
a number of initiatives including an online CPD-
accredited Ethical Investing Masterclass, which
brought together leading industry professionals to
share insights, analyse the significant opportunities in
responsible investing and discuss the implications for
advice. We launched a new ‘Advisers’ Voice’ series
on LinkedIn which was supported by paid, organic
and in-trade press, and saw a pleasing number of
views and click-throughs. We also continued to
sponsor or present at a number of important adviser
events throughout the year.
These efforts have been paying off and we have
seen significant improvements in the latest adviser
research results from Investment Trends11, with our
overall brand profile rank climbing 23 places from
two years ago, a continued increase in advertising
recall and solid improvements in key attributes such
as investment excellence, communication and
innovation.
Our growth strategy recognises brand as critical
building block to scale our business. We continue to
build our brand through high impact campaigns that
communicate our unique value proposition and as a
result we have seen further uplifts in awareness and
consideration.
Overall, we believe we have taken a big step forward
in how we present ourselves to market across a
number of dimensions including brand identity,
website, collateral, advertising, adviser material and
member communication.
Our growth remains strong. In FY23 we achieved
a significant 48% uplift in FUM from both organic
and inorganic growth. This was a remarkable
achievement considering our lack of exposure to the
strongly performing sectors of the period – mining
and energy.
As we operate in an increasingly competitive direct
acquisition space, we continue to optimise our
existing channels whilst building greater channel
diversity for future growth. As such, we continue
to explore new channels to reach prospective
customers. During the year we partnered with a
number of employment platforms as a channel
diversification opportunity for super growth. These
platforms enable us to engage with prospective
customers as they change employer, a common
trigger point for switching, mitigating the potential
impact of super ‘stapling’ laws in reducing member
choice. We have decided to narrow our focus to
a single provider, to maximise ongoing financial
viability.
We are also increasing our sales focus on ‘values-
aligned’ organisations, not-for profits including
charities and foundations as well as values-aligned
businesses and have created a new role to lead
this channel. They will be managing a panel of
values aligned organisations as well as ultra-high
net worth individuals and will be prospecting for
new opportunities. We believe our new Moderate
Fund, described above, will assist the growth of this
channel and we are exploring other new product
offerings which will be attractive to this segment.
The adviser channel achieved positive, but modest
flows this year, reflective of challenging market
conditions. Net flows of $87 million have contributed
to growth in the adviser channel FUM to exceed
$1.5 billion. We have a capable team, clear strategy
and strong execution in the adviser channel. The
team has achieved more than 50 significant additions
to the Approved Product Listings and model
portfolios of national dealer groups, boutique dealer
groups and large IFA practices during FY23, a great
outcome.
11 2022 Investment Trends Adviser Product and Marketing Needs Report
27
Awards and accolades
Australian Ethical continues to receive awards
and accolades recognising our leadership in the
responsible investment space. RIAA identified us
in their elite list of Responsible Investment Leaders
2022. Further awards included Winner Responsible
Investments (ESG) for the International Shares Fund
in the Financial Newswire Fund Manager of the Year
2022 - awards; Finder Awards Green Superannuation
Fund of the Year 2023 (for the fourth year in a row);
productreview.com.au’s Best Retail Super Fund
2023 and one of the Financial Review Sustainability
Leaders 2022. In addition, SQM Research provided
our Balanced Fund with a ‘Superior’ Four-Star rating.
We were honoured to again receive one of the
highest accolades for a responsible investor: the
‘Leader - ESG Commitment’ by Morningstar. We were
one of only eight chosen from the long list of
94 global asset managers that were assessed.12
As a founding B Corporation (‘B Corp’) member and
the first listed B Corp in Australia in 2014, we were
delighted to achieve a record score of 168.5 in our
reassessment in 2023. This made AEI the highest
scoring Certified B Corp in Australia and Aotearoa
New Zealand as at 13 July 2023.
Leadership and innovation
Our purpose is investing for a better world – helping
to support a sustainable future where people
and nature thrive, by investing in companies and
assets that we believe are part of the solution for a
sustainable economy, and restricting investments in
companies that aren’t.
For many, it stands to reason that there is a
compelling investment thesis for companies that
are well positioned for this transition. By creating as
well as meeting increased demand for responsible
investing, we believe we can help set in motion a
cycle that continuously reinforces and amplifies
positive results for investors and planet, driving
long-term prosperity and sustainable outcomes.
As temperature records are broken all over the world,
and thousands of people have been affected by
fires and floods globally, this shift can’t come soon
enough. We therefore continue to build our capability
and scalability to continue to take a leadership
position in term of our investment approach including
the influence we can create outside our FUM through
our advocacy with markets, companies, governments
and general public.
To that end, we made a number of significant
strategic hires during the period. Along with those
already mentioned, we have made several additions
to our expert inhouse investment team to manage
a larger and more diversified portfolio, including
expansion of our unlisted and impact investing
capability.
Our people
Our purpose-driven, high-performance culture
allows us to attract and retain top talent and is led
from the top. As set out in our Corporate Governance
Statement, our Board plays a critical role overseeing
all aspects of our human capital. The Board’s People,
Remuneration and Nominations Committee (PRN
Committee) has been tasked by the Board to fulfil
its responsibilities to shareholders and regulators in
relation to our key people governance activities.13
The PRN Committee therefore oversees the people
and culture policies and practices designed to
attract, retain, develop and motivate employees.
It reviews and oversees the effectiveness of initiatives
designed to achieve our desired organisational
culture. From a diversity and inclusion perspective,
the PRN Committee sets the targets, monitors our
ongoing progress and assesses the effectiveness of
our diversity and inclusion policy and initiatives.13
In FY23 we continued to nurture our culture by
embedding a flexible hybrid working structure.
Demonstrating our commitment to diversity, equity
and inclusion, we introduced Flexible Public Holiday
Leave. This allows employees to apply to work on a
gazetted public holiday and swap it for another day
that better reflects their beliefs or observations. This
has been very well received by our staff and places
us at the forefront of this work-place evolution.
12 Morningstar Manager Research and Morningstar Direct. At 30 November 2022
13 The full PRN charter is available at: australianethical.com.au/shareholder/corporate-governance/
28
Australian Ethical Investment Limited and its Controlled Entities Directors’ Reportfor the year ended 30 June 2023ANNUAL REPORT 2023 We continue to invest in our people and high-
performance culture with the rollout of further
leadership training across the business. Our
Leadership residential programs have been
incredibly powerful in teaching skills and conveying
mindset learning. Approximately 80% of our
employees have participated in this program.
Board changes
In March 2023, Michael Monaghan retired from the
Boards of Australian Ethical Investment Ltd and
Australian Ethical Superannuation Pty Ltd. Sandra
McCullagh, already an independent member of
the Australian Ethical Investment Committee was
appointed as an independent and non-executive
director of Australian Ethical Investment Ltd on
1 March 2023 and succeeded Michael as the Chair
of the Investment Committee on 1 April 2023.
Sandra brings 15 years of financial services
experience. She is presently a board member of
WorkCover Queensland and the New Zealand Stock
Exchange Corporate Governance Institute.
Michael Anderson joined the Australian Ethical
Investment Committee in March 2023 and is also an
independent non-executive director of Australian
Ethical Superannuation Pty Ltd. Michael brings 37
years of investment management experience and
significant board and governance experience.
A stronger Investment Committee, our new Valuation
Committee and our relatively new Unit Pricing
Committee are all indicators of an organisation
seeking to continuously improve their risk
environment and culture.
Australian Ethical strives for diversity at all levels of
our business. The Australian Ethical Investment Board
has 67% female membership and the Executive
Leadership team is comprised of 50% female team
members.
Overall, FY23 has seen us build a much stronger
and more capable business, with a much stronger
performance orientation culture.
Profit
After excluding SFT integration costs and the Sentient
investment fair value adjustment, underlying profit
after tax was $11.8 million, up 15% compared to the
prior corresponding period, and up 17% on prior
period excluding the impact of performance fees.
The net profit attributable to shareholders was
$6.6 million, compared with $9.6 million for the
12 months to 30 June 2022. The net profit for the
Group amounted to $6.6 million.
To execute our growth strategy, we continue to
invest in our business and capability to seize the
opportunities presented by a growing shift towards
responsible investment, and to build a robust
business platform capable of supporting a much
larger business.
Despite these increased expenses and the
challenging operating environment which tempered
FUM and revenue growth in the first half, subsequent
stronger revenue and FUM growth along with
disciplined cost management have contributed to
the emergence of operating leverage and underlying
profit increase in the second half. Second half UPAT
was 38% higher than the first half FY23.
In FY23, though down on FY22, we were able
to donate $1.1 million to the Australian Ethical
Foundation, which will allow the Foundation to
continue its impactful philanthropic work delivering
positive impact via its Visionary Grant programme
and other initiatives.
Sentient Impact Group
On 9 December 2021, we acquired a minority equity
stake (10%) in the start-up Sentient Impact Group
for $5.2 million. This investment was undertaken to
extend our capability in the impact investing arena.
As a result of slower than anticipated FUM growth
and refinement of its strategy, a fair value decrement
of $2.6 million was recognised in the first half.
In determining the change, we adopted a similar
valuation process as that applied to the assets held
in our funds supported by an external expert valuer’s
assessment. We continue to monitor the asset's fair
value and remain informed on Sentient's updated
strategy.
29
In terms of the SFT, further synergies are expected
to be realised in the medium term as third-party
providers are integrated and other operating
efficiencies are implemented.
Key drivers of our cost base in FY23 were:
Employee expenses
Employee expenses increased 9% following several
strategic executive hires and talent acquisition as
part of the growth strategy as we continue to build
capability in the areas of investment excellence,
offering a compelling client experience and building
an impactful business. FTE increased from 99 at
30 June 2022 to 118 at 30 June 2023.
The employee expense increase reflects both new
hires during the period, retained Christian Super
employees as well as the run rate of hires in FY22.
In addition, employee remuneration increases
contributed to the overall increase.
Fund-related expenses
Fund-related expenses increased by 38%,
representing half of the 15% growth in overall
expenses. This was driven by higher customer
numbers and FUM, offset by savings achieved
through reaching scale thresholds.
Marketing
As we continue to drive growth to achieve a much
larger, more impactful business, marketing costs
have increased to support this strategic focus.
Marketing costs have increased 29% year on year
(which accounts for approximately a third of the uplift
in overall expenses). The increase is driven by:
• acquisition costs in the new employer platform
channel
• higher spend on brand to continue to drive greater
brand awareness
• offset by lower marketing spend on direct
acquisition as we rationalised spend during
challenging market conditions
Revenue
Operating revenue increased by 15% over the
period to $81.1 million driven by higher average FUM
following the SFT, and continued positive net flows
and solid investment performance. Second half
revenue at $44.5 million, was up 22% compared
to the first half of FY23, primarily driven by the
full impact of the Christian Super SFT, which was
completed towards the end of the first half, as well
as significantly higher investment performance in the
second half, and continued growth in positive net
flows.
Revenue growth was partially offset by fee reductions
that were delivered to members to improve member
experience and increase the competitiveness
of Australian Ethical’s offering in line with our fee
strategy.
In September 2022, we reduced the dollar-
based administration fee for super and pension
members. Following the Christian Super SFT, the
increased scale allowed further fee reductions to
be implemented for all members. We will continue
to monitor our fees compared to competitors on
an annual basis with the aim of sharing the benefits
of scale with all stakeholders and accelerating
profitable growth of our business. Since 2015 we have
seen FUM increase almost eight-fold as our total fee
margins have reduced by 99 basis points.
The revenue margin across all products reduced
from 1.05% at 30 June 2022 to 1.00% at 30 June 2023
reflecting the fee reductions and product mix.
Expenses
Expenses, excluding Christian Super SFT integration
costs and the Sentient fair value adjustment,
increased by 15% reflecting the retained Christian
Super employees, additional capability costs,
variable fund-related expenses, increased customer
acquisition costs relating to the new employment
platform channel and inflationary increases.
As market volatility continued, we conducted a
prudent assessment of our cost base to enable
disciplined cost management, while continuing
to focus discretionary investment in areas that will
generate medium term growth.
30
Australian Ethical Investment Limited and its Controlled Entities Directors’ Reportfor the year ended 30 June 2023ANNUAL REPORT 2023
Funds under management
We were very pleased to see FUM grow 48% over the
year to finish the year at $9.20 billion – an increase
of $3 billion since 30 June 2022. We also achieved a
new milestone in super with FUM exceeding $7 billion
for the first time. The key drivers of this growth were
the successful completion of the Christian Super
SFT, ongoing positive net flows and solid investment
performance.
Despite very challenging market conditions we
achieved organic net flows of $467 million for the
year – this included a $183 million redemption by an
institutional client early in the year, that internalised
the management of its sustainable option following
its successor fund transfer into another fund – the
loss of this client was reported in FY22, however the
redemptions were phased, with the final redemption
occurring in early FY23. Excluding this redemption,
net flows were $650 million.
Whilst super net flows remained strong, managed
funds flows have been impacted by the cautious
market sentiment relating to the market volatility.
Super net flows were $605 million with managed
funds flows of $45 million (excluding the institutional
redemption). Our well diversified product set has
ensured we remain resilient during the challenging
market conditions and continue to grow total FUM.
Investment performance
Australian Ethical’s suite of investment funds
delivered strong performance in the second half of
the fiscal year, resulting in attractive annual returns
across large-cap domestic, small-cap domestic,
international shares, and fixed income categories.
This was achieved despite overall market volatility
and significant challenges driven by high inflation,
rising interest rates and lack of exposure to the
rally in commodity prices. These factors directly
impacted investors, leading to increased living costs,
including higher mortgage payments, rent, energy,
and grocery prices. As a result, a more pessimistic
outlook prevailed throughout most of the year, and
the markets experienced slowing economic activity,
heightened volatility, and the failure of several US
regional banks and Credit Suisse.
However, following the US banking issues in
March 2023, the market anticipated the end of
peak interest rates, a sentiment further supported
by the US Federal Reserve’s decision to pause in
June and the Reserve Bank of Australia’s pause in
early July regarding interest rate policy. Although
inflation remains a concern, there have been notable
improvements over recent quarters. Market sentiment
began to shift, particularly in the final three months of
the financial year, with an increased appetite for risk
assets emerging. Initially, this trend was evident in the
Artificial Intelligence (‘AI’) and specialist technology
sectors but gradually extended to other industries.
For the year ended 30 June 2023, our Australian
Shares Wholesale Fund (‘ASF’) achieved a return
of 13.4%, 1.0% below its benchmark over one year
but above the benchmark14 for all periods of five
years or greater. In the last quarter of the year, ASF
outperformed its benchmark by 5.2%, indicating a
shift in sentiment, particularly within smaller-cap
technology.
Our Emerging Companies Wholesale Fund returned
9.2% over one year, just 0.3% lower than its
benchmark15 and has outperformed its benchmark
for all periods greater than two years. Our Diversified
Shares, International shares and Income Funds
delivered strong returns over one year of 16.4%
(vs 16.8% benchmark), 19.8% (vs 22.6% benchmark)
and 3.1% (vs 2.9% benchmark), respectively (all
wholesale). Lastly, our Balanced Wholesale Fund
delivered a first quartile16 return of 10.4% for the
financial year.
Christian Super SFT and the subsequent expansion
of diversified asset classes for super members during
FY23 also contributed to positive returns. According
to SuperRatings, a leading source for Superannuation
performance; the Balanced option ranked 17th out 47
Australian balanced funds for the 12-month period
ended 30 June 2023 in the SR50 Balanced (60-76)
Index.
14 Benchmark changed from S&P/ASX Small Industrials Index to S&P/ASX 300 Accum Index from 13 Aug 2019.
The historical benchmark returns are calculated by linking two indices. References to ‘wholesale’ funds indicate the class of
pricing above a minimum investment threshold, which varies by fund
15 S&P/ASX Small Industrials. References to 'wholesale' funds indicate the class of pricing above a minimum investment
threshold, which varies by fund
16 Mercer June 2023 quarterly performance report – Wholesale Funds. References to 'wholesale' funds indicate the class of
pricing above a minimum investment threshold, which varies by fund
31
For our super members, our Australian Shares option
ranks 1st of 43 funds rated over 10 years (10.46%)
in the SuperRatings SR50 Australian Shares Index
and has outperformed the same SuperRatings SR50
index over five years. Further, the Australian Ethical
Balanced option has outperformed its benchmark,
the SR50 Balanced (60-76) Index over 1, 5, 7 and
10 years.
Despite disappointing claims of 'responsible
investing' credentials by those who are at best
confused about what Responsible Investing is and
at worst are deliberately greenwashing, the category
of those using a 'Leading Responsible Investment'
approach continues to grow. According to RIAA,17
Australian assets managed using a rigorous, leading
approach to responsible investment has hit a record
value of $1.54 trillion. Further, government policy
initiatives both globally and locally are expected to
support continued focus on ESG metrics, particularly
on climate issues, and therefore introduce potential
areas of investment. For example, The Australian
Carbon Credit Units (‘ACCUs’) Implementation Plan
was announced in June of 2023 by the Australian
Government to ensure the scheme continues to help
us reach net zero by 2050. While carbon markets
have been developed globally, this ACCU scheme
increases the prospects of establishing a local
carbon market, an area of continued research for our
investment team.
Australian Ethical is well positioned to provide our
investors with attractive and innovative investment
solutions within the growing areas of transition, new
energy infrastructure, and sustainable investments.
Material business risks
Australian Ethical’s approach to risk management
is based on the Risk Appetite Statement set by
the board, which sets out the overall appetite and
tolerance levels and defines limits for each material
risk category.
The board holds the ultimate responsibility for setting
strategic direction, the risk management framework
(‘RMF’) and determining the risk appetite/tolerance
for the activities of the business. The board forms a
view of the risk culture of the Group and any desirable
changes required and monitors implementation of
these changes.
The Board recognises that risk management is an
integral part of good management practice and is
integrated into the Australian Ethical philosophy,
practices and business planning processes. A risk
aware culture and operation within the Boards’ risk
appetite and tolerances is promoted throughout the
organisation through regular communications from
management and within the provision of training and
ongoing support from the Risk and Compliance team.
The Audit Risk and Compliance Committee (‘ARCC’)
oversees and reviews the RMF, and reviews internal
and external audit results. This oversight includes the
identification, treatment and monitoring of:
• The use of risk appetite
• Current and emerging material risks, including (but
not limited to) investment, data, technology and
cyber risks
• Exceptions, incidents and breaches
• Complaints
• The results of control testing
The full ARCC charter (and other board charters) can
be found on the Australian Ethical website at:
australianethical.com.au/shareholder/corporate-
governance/
The RMF is supported by the Three Lines of Defence
model with the first line being Senior Leadership
Team (‘SLT’) who foster and enhance development
of risk culture within the Group, monitor risks, report
breaches and review risk register. The SLT have
day to day responsibility and accountability for risk
management in their area and ensure an appropriate
risk culture.
Australian Ethical's (‘AE’) second line, the Risk and
Compliance team, facilitates the RMF, including
review and update of the risk register and RMF,
reports on exceptions and control effectiveness.
The third line of defence is Internal Audit, (which
is outsourced to PricewaterhouseCoopers in
accordance with ARCC approved annual audit
program) who provides assurance over the RMF and
independent review of the design and operation of
the control environment, as well as External Audit
(KPMG) who provide assurance, through the annual
audits and reviews as required by SPS 310 and
the Corps Act, that internal controls are designed
appropriately and operating effectively.
17 Responsible Investment Benchmark Report Australia 2022, RIAA
32
Australian Ethical Investment Limited and its Controlled Entities Directors’ Reportfor the year ended 30 June 2023ANNUAL REPORT 2023 Risk category
Risk description/impact
Risk mitigants
Risk Management
Risk that AE breaches its corporate,
fund and superannuation regulatory and
legal obligations or industry standards
(including licence conditions, governing
documents).
Risk that AE’s insurance policies are not
appropriate to cover business risk levels.
Financial
Risk that AE’s profitability, capital
reserves or liquidity are inadequate to
support ongoing business activities.
This includes inappropriate accounting,
financial reporting and related
disclosures (for both the funds and
corporate entities), as well as incorrect
calculation and payment of tax, and
poor financial control and operational
processes.
Risk arising from low netflows or poor
investment performance as a result of
exposure to equity markets resulting in
potentially volatile earnings (revenue
linked to FUM), and poor customer
outcomes.
Environmental,
Social and
Governance
(‘ESG’)
Risk arising from inadequate or
inappropriate ESG considerations in
business and investment decision-
making. Risk may arise due to
unclear employee accountabilities,
inadequate board reporting, inadequate
identification and management of
conflicts, non-compliance with ethical
charter, inadequate experience levels of
staff and board.
• Dedicated risk and legal teams
• Internal & external reviews of public documents
• Mandatory compliance training for all staff
• Policies, procedures and clearly defined roles
and responsibilities
• Embedded controls assurance framework
• Compliance obligations are documented and
monitored
• Independent assurance
• Annual review of insurance program
• Annual budgeting, regular forecasting
• Regular reconciliation and review processes
• Regular monitoring of regulatory capital
requirements
• Appropriate policies and procedures, quality
control, management approval frameworks
• Appropriate financial control processes,
including monitored cashflows and cash
position
• Internal and external audit, professional reviews
• Scenario planning processes
• Agile management of resource allocation,
prudent cost control
• Regular monitoring of key financial metrics
• Monitoring of external market drivers eg interest
rates, inflation, and refinement of business
activities in response
• AE’s Ethical Charter forms part of AE’s
constitution and informs all aspects of company
operations
• All investments are screened through the
positive and negative Ethical Charter screens
• Embedded governance framework including
board and committee charters and key policies
and controls, board and committee reporting
• Board oversight responsibilities are underpinned
by the Ethical Charter, which is embedded in
Board Charter. In addition, Ethics is a regular
Board agenda item
• Ongoing compulsory employee training on key
policies
• B Corp certification status maintained
33
Risk category
Risk description/impact
Risk mitigants
Investment &
ethical screening
Risk arising from inappropriate
investment strategies, non-adherence to
investment governance, non-adherence
to fund governing documents, non-
adherence to ethical criteria and
screening or inadequate management
of market, credit and liquidity risks within
the funds.
• Disciplined ethical screening and investment
processes
• Regular ethical reviews of investments
• Embedment of Ethical Charter
• Segregation of Ethical Research and Investment
Teams
• Established investment governance frameworks
Risk arising from underperformance
of Managed Funds and Super Options
relative to stated investment objectives.
in place
• Embedded policies
Customer
Risk arising from inaccurate, misleading
or inadequate PR, marketing, brand,
sustainability reporting or advocacy
activities leading to reputational
damage, regulatory penalties and
negative stakeholder sentiment.
Risk arising from inadequate processes,
systems, outsourced suppliers, quality
standards, product offering resulting in
poor customer experience, reputational
damage and financial impacts.
Strategic
Risk arising from poor strategic
decisions, inadequate development and
execution of strategic initiatives, a lack
of responsiveness to regulatory change
or external market and economic trends
that could affect Australian Ethical's
offering or market position.
• Investment performance analytics
• Stress testing
• Reviews, reconciliations and monitoring of key
metrics
• Investment Committee (‘IC’) in place with
independent members appointed
• Quarterly review of performance (including
attribution) by IC
• Annual review and approval of Strategic Asset
Allocations
* IC approved Trust Investment Parameters
• Regular monitoring of brand awareness
• Media monitoring
• Policies including ESG policy, Outsourcing
policy
• Mature ethical stewardship activities embedded
• Embedded reviews and quality assurance
controls
• Vendor & supplier monitoring
• Monitoring of key metrics
• Employee training
• Comprehensive insurance program
• Product guidelines, frameworks and policies
• Robust and embedded strategy and business
planning processes
• Dedicated Chief Strategy & Innovation Officer
role
• Dedicated PMO and program management
framework for effective execution of strategic
and regulatory initiatives
• Senior Leadership variable remuneration linked
to strategic metrics
• Regular monitoring of progress against strategy
through reporting to Senior Leadership Team
and Board, incorporating agile reprioritisation of
initiatives
• Regular review and monitoring of external market
trends and metrics
34
Australian Ethical Investment Limited and its Controlled Entities Directors’ Reportfor the year ended 30 June 2023ANNUAL REPORT 2023 Risk category
Risk description/impact
Risk mitigants
Operations
Risk arising from inadequate processes,
systems, quality standards, data
management or from external events.
This includes (but is not limited to)
processing errors, human error, fraud,
unauthorised advice or an event which
disrupts business continuity.
Risk that AE enters into untenable
contracts and servicing agreements
with vendors and suppliers, or selects
an unsuitable vendor or supplier.
Risk that services provided by external
service providers are not managed in
line with contractual obligations and
service level agreements.
• Embedded policies, methodologies,
procedures, roles and responsibilities
• Board subcommittees e.g., PDS committee
• Robust documented risk management
processes for new product delivery and product
management (including regulatory compliance)
• New vendor due diligence processes
• Embedded outsourcing policy
• Controls assurance framework
• Effective issues management processes
• Embedded reviews, reconciliations and quality
assurance controls
• Business continuity planning and disaster
recovery programs (including by outsourced
providers)
• Independent assurance program
• Comprehensive insurance program
• Employee training
• Segregation of duties
• Robust recruitment screening processes
• Monitoring of key metrics, contractual
arrangements and service delivery
Unit Pricing
Risk arising from incorrect unit prices for
Managed Funds and Super Options
• Regular reconciliation and review processes for
units on issue and applications/ redemptions
• Appropriate policies and procedures for asset
valuations, distributions, fees and expenses,
management approval frameworks for unit prices
• Appropriate segregation of duties
• Periodic Internal audit reviews of unit pricing
controls
• Confirmation and recording of asset valuations
including Valuation Committee for unlisted
assets
• Unit Pricing oversight model including Unit Price
Committee
35
Risk category
Risk description/impact
Risk mitigants
IT & Cyber security Risk arising from inadequate, failed,
• Embedded IT security policies and procedures
breached or corrupted IT systems
resulting from poor infrastructure,
data management, applications,
cloud services, business continuity
plans, security controls, IT support or
unauthorised access. Includes (but is
not limited to) confidentiality or privacy
breaches, loss of data integrity, loss
of sensitive or critical data as well as
business disruption or financial loss
resulting from a cyber security event,
disaster or failure of technology service
provider to meet business needs.
People
Risk arising from an inability to hire,
engage, develop, empower and retain
quality and appropriate capability
(including Senior Leadership and Board)
to meet performance objectives and
execute AE’s business strategy.
Risk arising from inadequate work health
and safety (‘WH&S’) practices.
Risk arising from unethical conduct
by directors or employees, or from
behaviours that are not aligned with
Australian Ethical’s values, culture and
expectations.
• Mandatory IT policy compliance training
• Operational technology security in place
(including firewalls and antivirus)
• IT system penetration testing; Password integrity
testing
• Cyber security is a key risk focus area which has
regular board oversight
• Business continuity planning and disaster
recovery programs including testing (including
service providers), incident response plans
• AEI Board monitors IT Disaster Recovery Plans
and Business Continuity Plans and annual testing
• The Board and/or ARCC receives reports
on cyber risk, threats, uplift programs, cyber
incidents (if any), and information security testing
results that identify material information security
control deficiencies requiring remediation (if any)
• Independent assurance over the integrity of our
cyber security infrastructure
• Embedded People policies and procedures
(including WH&S policies, procedures and
training)
• Succession planning, talent identification
programs, retention and hiring strategies,
embedded performance review processes,
remuneration benchmarking and reporting to
the People, Remuneration and Nominations
Committee
• Mandatory compliance training
• Remuneration framework to ensure senior
management alignment to medium- and longer-
term strategic goals.
• Investment team remuneration structure aligned
to performance objectives and retention
• Regular employee engagement and turnover
monitoring; dedicated employee engagement
business representatives
• Employee assistance program
• Inclusion of risk metrics and thresholds as well
as values alignment assessment in performance
management framework
36
Australian Ethical Investment Limited and its Controlled Entities Directors’ Reportfor the year ended 30 June 2023ANNUAL REPORT 2023 Climate change
Strategic implications
Climate change awareness is contributing to growth
in responsible and ethical investing, leading also
to both competition and regulation accelerating.
There is also rapid growth in climate investment
opportunities both in decarbonisation and adaptation.
Imperfect information on climate attributes creates
challenges to investment management as well as
opportunities for outperformance.
Our growth strategy recognises that our strong early
position on climate change is core to our brand and
reputation, with customers, partners and employees.
Under our strategic pillar ‘advocates for a better
world’ climate change is a priority topic.
While we consider our business is well positioned
under both low and high temperature scenarios, we
believe that sustainable, risk adjusted returns will
be greater in a low-warming world overall. High-
temperature scenarios are expected to bring lower
overall economic output and higher variability of
returns, undermining trust in investment markets and
demand for investment management.
Our approach to climate change
All of our investments are made considering
our Ethical Charter, which is embedded in our
Constitution and overseen by our Board. The
Charter’s 23 principles are applied using our ethical
frameworks, policies and measurement systems.
These ensure we prioritise action to avoid dangerous
climate change and its serious impacts on the planet,
people, and animals. This priority is pursued through
the way we invest, including through negative and
positive screening, engagement and advocacy, and
climate performance measurement and reporting.
Our investment screening and company engagement
guides us to sectors and companies which are
aligning their businesses with the transition needed
to limit climate change consistent with the global
goals set out in the Paris Agreement. We believe
these investments are better positioned to manage
many climate-related risks, such as the risk of
introduction or increase in carbon pricing. Our
approach can also strengthen specialist investment
capabilities to navigate technological change
associated with climate disruption and transition.
While our investment approach focuses on the need to
reduce emissions to limit dangerous climate change,
we also recognise it is crucial that companies have
business models and strategies which are adaptable
to the physical impacts of current and future climate
change. Real estate and infrastructure are particularly
exposed to many physical impacts of climatic change.
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
sustainability reporting.
Responsibilities
Our Chief Investment Officer and Head of Impact
& Ethics 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.
We report quarterly to the Board, via the IC, of
changes to frameworks and critical ethical issues.
Climate change related topics are regular agenda
items and the board includes members with climate
change expertise.
Our ethics research team applies our Ethical Charter
on a day-to-day basis in our investment processes.
The team includes members with expertise in
climate change. Using diverse company, industry,
government, responsible investment, scientific,
civil society and news 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.
37
The below diagram outlines our investment approach:
Emissions profile
Our climate ambition
We report portfolio carbon footprint measures for our
share investments in our sustainability report annually.
While data is not available across all our investments,
and involves some limitations (discussed in our
reporting), we believe this measurement remains
a useful demonstration that our Ethical Investing
approach – which is applied consistently across all
investments – results in our portfolio maintaining
an emissions intensity well below the relevant
benchmark.
Beyond our investments, our operations produce
a small amount of emissions (e.g., from our offices
and staff travel). We measure and report these
(scope 1, 2 and 3) in our annual sustainability report.
We seek to first minimise emissions (for example
by purchasing renewable energy), and fully offset
residual emissions. When offsetting our operational
emissions, we look for opportunities for carbon
abatement which also deliver additional benefits to
people, planet and animals.
Through our investments and stewardship we are
working towards the emissions reduction needed to
achieve a 1.5°C temperature limit – consistent with
the most ambitious aims of the Paris Agreement.
We report on the action we are taking to pursue our
climate ambition, including indicators of progress, in
our annual sustainability report, which is developed
with reference to the recommendations of the Task
Force on Climate-Related Financial Disclosures
(‘TCFD’).
Action in pursuit of our climate ambition includes:
• Engagement and advocacy to help stop finance for
expansion of the fossil fuel sector; to help stop and
reverse land clearing and deforestation for animal
agriculture; to help increase the development and
use of low carbon building materials supporting the
net zero transition of the real estate sector.
38
Australian Ethical Investment Limited and its Controlled Entities Directors’ Reportfor the year ended 30 June 2023ANNUAL REPORT 2023 • Seeking to leverage the collective power of
aligned investors by leading and participating in
collaborative engagements with high emissions
companies, including through the global initiative
Climate Action 100+.
• Work to encourage better government climate
policy, including contributing to the policy
engagement and advocacy of the Investor Group
on Climate Change.
• Applying and communicating our climate-related
Ethical Criteria for investment in key sectors
including the energy, finance, food, transport and
mining sectors.
The impact of these actions is uncertain, and it
is uncertain whether we will achieve our climate
ambition. There are many factors outside our control
including climate policy and regulation in Australia
and globally, as well as the action of companies,
other investors and individuals. While we aim to
influence stronger climate action by others, we do
not control their actions.
Obstacles to achievement of our climate ambition
include the current lack of climate ambition and
action from many companies and governments.
Analysis by expert groups like the IPCC and IEA
makes clear the world is falling short of the scale of
action needed for global net zero by 2050. We’re also
concerned by the risk of greater emissions increase
and climate disruption than has been predicted by
many climate models.
Despite these obstacles, there are more ambitious
decarbonisation pathways which would support
achievement of our climate ambition. Pathways
where we see more urgent transformation of
our energy and transport systems; where land is
restored to capture carbon and boost sustainable
agriculture; where innovative building materials and
techniques radically lower the footprint of our homes
and infrastructure. Investors have a key role to play
supporting and accelerating these pathways and
transformations. These pathways and transformations
also create low carbon investment opportunity for
investors seeking to accelerate the decarbonisation
of their own portfolios.
Outlook
The medium-term market opportunity remains
compelling as we build the path that will help deliver
our aspirational FUM growth targets. We expect
that the challenging market conditions of FY23 will
continue in FY24, but even so, are targeting $100
million in annualised revenue by the end of FY24,
driven by the full-year revenue effect of the SFT,
ongoing positive flows and market performance –
subject to market conditions.
Having achieved the milestone of $9 billion in FUM,
our larger scale presents us with a range of additional
opportunities. With disciplined prioritisation of effort,
resources and diligent cost control, we believe we
can invest judiciously to capture the future growth
opportunities, whilst also delivering further operating
leverage as we target a lower cost to income ratio in
FY24 and look ahead to solid profit growth in FY24.
In FY24 our investment focus will be on a handful
of critical inflight projects. These include selection
and transition planning to a new custody and
investment administration provider as our current
custodian exits the market; progression of day-two
SFT activities which will help deliver synergies along
with a new modern technology stack and customer
experience uplift through the transition to GROW. This
transformational piece of work will be led by our new
Chief Executive Superannuation, Ross Piper, with full
transition expected to be completed in FY25.
We plan to roll out the next stage of our Data
and Technology strategy to further enhance our
technology infrastructure, deliver greater internal
efficiencies, enhance the use of data and business
intelligence and continue to enhance cybersecurity
to continue to manage this risk in the rapidly evolving
external environment.
39
Many values-aligned organisations are investing
their assets with Australian Ethical in order to meet
their financial needs, whilst seeking to avoid harm
and create positive change to align with their values
and mission. We aim to capitalise on this opportunity
by expanding our distribution capability with a
dedicated ‘Values-Aligned’ organisations channel.
This initiative will have a continued focus on retention
of existing clients as well as drive further growth in
not-for-profit organisations including universities,
foundations, and religious organisations.
We will progress our new product pipeline with the
delivery of new products to address adviser and
‘values aligned’ organisation demand, including
further impact investment vehicles to build on
the capabilities which were bolstered during the
Christian Super SFT. We also plan to invest further in
our brand to maintain our reach and to underpin our
ambitious growth strategy across all segments.
Investment capability is key to our ambition, and
we will be further investing in this area to build on
our ethical investing competitive advantage and
enhance our investment management platform.
This will continue to enhance operational, product
development and trading capability and systems,
fitting for an investment management business of
much larger scale. We believe this will translate into
an enhanced investment capability across all asset
classes, strong investment performance outcomes
as well as increased innovation through new
investment products and business initiatives. This
initiative will be a major focus of the business through
FY24 and FY25.
Overall, we expect these initiatives to result in a more
diversified platform for growth going forward. And, as
a business, we remain well-positioned with no debt,
well-managed cash flows and significant momentum,
and look forward to the opportunities that lie ahead in
FY24.
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:
Due diligence costs in relation to mergers & acquisition activity
Change in fair value of investment
SFT integration costs (refer Note 16)
Tax on adjustments
Underlying profit after tax (UPAT) including performance fee
Performance fee (after tax and community grant)
Underlying profit after tax (UPAT) excluding performance fee
Diluted EPS on NPAT attributable to shareholders (cents per share)
Diluted EPS on UPAT attributable to shareholders (cents per share)
2023
$’000
6,576
–
6,576
–
2,600
3,733
(1,120)
11,789
–
11,789
5.84
10.46
2022
$’000
% Increase
(Decrease)
(31%)
(31%)
15%
17%
9,511
86
9,597
982
–
–
(295)
10,284
(240)
10,044
8.55
9.16
* refer to Note 46 for additional details in relation to The Foundation’s financial results.
40
Australian Ethical Investment Limited and its Controlled Entities Directors’ Reportfor the year ended 30 June 2023ANNUAL REPORT 2023 Dividends
Dividends paid during the financial year were as follows:
Final dividend for the year ended 30 June 2022 of 3.00 cents
(2021: 4.00 cents) per ordinary share – fully franked
Special performance dividend for the year ended 30 June 2022
of nil cents (2021: 1.00 cents) per ordinary share
Interim dividend for the year ended 30 June 2023 of 2.00 cents
(2022: 3.00 cents) per ordinary share – fully franked
2023
$’000
3,372
–
2,256
5,628
2022
$’000
4,495
1,124
3,372
8,991
Since year end the Directors have declared a final dividend of 5.00 cents per fully paid ordinary
share (2022: 3.00 cents final dividend). The aggregate amount of the declared dividend expected to be paid on
21 September 2023 out of profits for the year ended 30 June 2023, but not recognised as a liability at year end,
is $5,639,000 (2022: $3,372,000).
All dividends paid during the year were fully franked based on tax paid at 30.0%. The final dividend to be paid in
September 2023 will be fully franked at 30.0%.
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 2022
Shares
112,387,138
Weighted
Average
issue price
$’000
8,969
Vesting of deferred shares in the Employee
Share Plan (525,972 shares), and deferred STI
shares (88,613 shares) to the Investment team
Vesting of FY20 deferred STI shares
(5,193 shares) – CEO
Vesting of deferred STI shares (24,626 shares) for
FY20 Performance fee, and FY21 deferred
STI shares (7,459) for the CEO
1 September 2022
1 September 2022
1 September 2022
Purchase of deferred shares in the Employee
Share Plan – on-market
30 September to
6 October 2022
–
–
–
–
$2.15
1,322
$4.53
24
$9.80
314
$5.26
(349)
Issue of deferred shares to the Employee
Share Plan
Vesting of deferred shares in the Employee
Share Plan (5,131 shares)
Vesting of deferred shares in the Employee
Share Plan (2,959 shares)
Vesting of deferred shares in the Employee
Share Plan (22,496 shares)
Vesting of deferred shares in the Employee
Share Plan (8,308 shares)
13 December 2022
394,914
$5.29
16 December 2022
16 December 2022
20 February 2023
20 February 2023
–
–
–
–
$4.53
$9.80
$4.53
$9.80
–
23
29
102
81
Balance
30 June 2023
112,782,052
10,515
No amounts are unpaid on any of the shares. Refer to Note 45 for additional information and a detailed
breakdown of the shares vested during the year.
41
Significant changes in the state of affairs
The Christian Super SFT was completed in November 2022. The SFT added $1.93 billion to our funds under
management, 28,000 new superannuation customers and enhanced our asset allocation to alternative assets.
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 dividend declared in Note 35, no other matter or circumstance has arisen since 30 June 2023
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.
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
2023, 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
Sandra McCullagh
12
12
12
9
12
12
3
12
12
12
8
12
12
3
8
8
8
6
8
–
2
8
8
8
6
8
–
1
5
6
6
–
6
–
–
5
6
6
–
6
–
–
Product Disclosure
Statement Committee
Investment Committee
Eligible
Attended
Eligible
Attended
Steve Gibbs
Kate Greenhill
Mara Bûn
Michael Monaghan
Julie Orr
John McMurdo
Sandra McCullagh
6
–
–
6
–
–
–
6
–
–
6
–
–
–
–
–
6
–
6
–
6
–
–
6
–
6
–
6
42
Australian Ethical Investment Limited and its Controlled Entities Directors’ Reportfor the year ended 30 June 2023ANNUAL REPORT 2023 Indemnity and insurance of officers
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.
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.
Indemnity and insurance of auditor
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 has not paid a premium in respect of a contract to insure the auditor of
the Company or any related entity.
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 39 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 39 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.
43
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
24 August 2023
Sydney
44
Australian Ethical Investment Limited and its Controlled Entities Directors’ Reportfor the year ended 30 June 2023ANNUAL REPORT 2023
Remuneration
Report
45
Remuneration
Report
For the year ended 30 June 2023
Dear Shareholder,
On behalf of the Board, I am pleased to present our
Remuneration Report for the financial year ended
30 June 2023 (FY23).
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
and beyond.
Financial year 2023 was a challenging one to
navigate. In the early part of the year global instability
contributed to some sectors that Australian Ethical
does not invest in e.g., oil and gas, performing
relatively well, meaning our short-term investment
performance initially lagged. In the second half our
performance was very strong, enabling Australian
Ethical to deliver another year of positive investment
returns, and further cement our reputation as an
Investment Manager able to deliver strongly through
various investment cycles.
Volatile financial markets generally, caused many
investment managers to record outflows and decline
in overall funds under management over the last year.
Australian Ethical by contrast has been resilient. The
business has continued to grow organically, and the
completion of the Christian Super Successor Funds
Transfer (SFT) in November 2022 has contributed to
us finishing the year with record customer numbers
and a remarkable 48% growth in funds under
management to a new record high of $9.2bn.
46
These results have been achieved through the
incredibly disciplined performance of our staff, and
with high levels of engagement, a testament to the
shared purpose that underpins the strength of our
business, and the commitment of our people.
Each year, the Board and its People, Remuneration
& Nominations Committee (‘PRN’) 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. There are no significant
changes to compensation structures contemplated
for FY24, and none made in FY23. The short and
long-term incentive programs currently in place drive
our growth aspirations which will amplify our impact
and realise our purpose of better outcomes for all
stakeholders, including people, planet and animals.
FY23 variable remuneration outcomes
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. 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 incentivising
ethical behaviour and positive customer outcomes.
Australian Ethical Investment Limited and its Controlled Entities Remuneration Reportfor the year ended 30 June 2023ANNUAL REPORT 2023 The PRN and the Board spend considerable
time each year evaluating the contributions and
performance of the company, CEO and other KMP
to arrive at the variable incentive outcomes for each
KMP, measuring achievements against the balanced
scorecard and individual objectives. The Board has
awarded the CEO a variable incentive of 72% of
maximum opportunity, and the individual outcomes
for other KMP range from 53% to 81% of maximum
opportunity.
After completing the highly successful integration of
the Christian Super transaction, which significantly
lifted funds under management, revenue and
underlying profit after tax from the second half of the
year, the Board has exercised its discretion to fully
vest the current tranche of the Employee Share Plan.
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
47
1. Key Management Personnel
Name
Position
Key Management Personnel (KMP)
Term as KMP in FY23
John McMurdo
Managing Director & CEO
Marion Enander
Chief Strategy & Innovation Officer
Full year
Full year
Karen Hughes
Maria Loyez
Eveline Moos
Ross Piper
Mark Simons
Chief Risk Officer & Company Secretary
Full year
Chief Customer Officer
Chief People & Culture Officer
Full year
Full year
Chief Executive Superannuation
Commenced 25 November 2022
Chief Financial Officer
Full year
Ludovic Theau
Chief Investment Officer
Commenced 3 April 2023
David Macri
Chief Investment Officer
Departed 31 December 2022
Non-Executive Directors
Steve Gibbs
Chair
Katherine Greenhill
Non-Executive Director
Mara Bûn
Non-Executive Director
Full year
Full year
Full year
Michael Monaghan
Non-Executive Director
Departed 31 March 2023
Julie Orr
Non-Executive Director
Full year
Sandra McCullagh
Non-Executive Director
Commenced 1 March 2023
During the year, we welcomed Sandra McCullagh to the AEI Board following the retirement of Michael
Monaghan. Ms McCullagh brings with her a wealth of experience in ESG and financial services and is also
Chair of the Investment Committee. Mr Monaghan, who was previously a non-executive director of AEI and
AES and Chair of the Investment Committee retired on 31 March 2023.
Subsequent to the completion of the Christian Super SFT, Ross Piper joined as Chief Executive Superannuation
and a KMP. Effective 1 July 2023, the CEO and Board re-assessed the key roles that drive the strategic
decision-making within the business to be Chief Executive Officer, Chief Financial Officer, Chief Investment
Officer, Chief Executive Superannuation, Chief Strategy and Innovation Officer, Chief Risk Officer, and
Chief Customer Officer.
48
Australian Ethical Investment Limited and its Controlled Entities Remuneration Reportfor the year ended 30 June 2023ANNUAL REPORT 2023 2. Our People
2.1 AE People Plan
Success in achieving our strategic goals is largely contingent on the quality and performance of our people,
and the health of our organisation’s culture. Our People Plan (people strategy) is focused on delivering people
and culture solutions that will enable the growth of our business and transform our operating model to become
a global role model in responsible investing.
The AE People Plan priority areas are:
• Diversity, Equity and Inclusion (“DEI”) to foster a DEI led organisation to enable better performance
• Talent and Capability to secure talent and capability now and for the future
• Performance and Reward to motivate and reward our people to act in the best interests of our stakeholder
groups
• Culture and Employee Experience to bring to life our ‘Purpose Driven and High Performing” culture
2.2 FY23 achievements
During FY23 there were a number of market and external forces impacting talent attraction and retention
generally, including high inflation and an uncertain economy, tight labour market, and a demand for human
centric working environment.
Key People Plan initiatives and achievements are outlined below.
Diversity Equity & Inclusion
• Undertook a diversity census to better understand the profile of our workforce today
so that we focus on initiatives that will drive meaningful and sustainable change
across Australian Ethical.
• Introduced Flexible Public Holiday Leave because we understand that public
holidays in Australia may not reflect each person’s observations, beliefs and lifestyle
and we believe everyone should have the opportunity to celebrate what’s important
to them and feel included in doing so, regardless of who they are, what they believe
in, where they come from.
• Submitted our Reflect Reconciliation Action Plan with Reconciliation Australia.
• Investment team participated in 2 Future IM/pact events to support early career
female talent to increase female representation in the investment management
industry.
• Further improved our female gender representation at Board level (67%), executive
leadership level (56%) and investment team (28%).
49
Talent & Capability
• Enhanced our talent management and succession planning approach.
• Completed the roll out of leadership and team membership training program.
• Successfully integrated a number of ex-Christian Super employees as a result
of the Successor Fund Transfer, including Ross Piper as our new Chief Executive
Superannuation.
• Enhanced key leadership capability in impact and international investing with the
appointment of our new Chief Investment Officer, Ludovic Theau, and Alison George
as Head of Impact and Ethics. The appointment of Conrad Tsang as our first Chief
Technology Officer has further enabled our strategy in data and technology.
Performance & Reward
• Held education sessions with managers and employees to improve their
understanding on the link between performance and reward and to further embed
our performance framework (introduced in FY22).
Culture & Employee Experience
• Launched Wellbeing@AE program to encourage employees to engage with their
financial, physical, emotional, and social wellbeing so that they can bring their best
selves to work.
• Recognising the increasing cost of living pressures this year we ran a financial
wellbeing workshop, facilitated by external experts, to empower employees to make
smarter financial decisions.
• Conducted a Risk Culture pulse check survey aligned to APRA questions to gain a
better understanding of how our people thought about risk and how those thoughts
played out in their day-to-day roles.
50
Australian Ethical Investment Limited and its Controlled Entities Remuneration Reportfor the year ended 30 June 2023ANNUAL REPORT 2023 3. Remuneration Philosophy and Structure
3.1 Remuneration guiding principles
Australian Ethical’s remuneration approach is designed to facilitate the attraction, retention and engagement
of talent, within the organisation’s capacity to pay, to achieve Australian Ethical’s corporate objectives and
purpose of Investing for a Better World.
Our remuneration approach is guided by the following principles:
• Pay fairly and equitably, and market competitively, 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, and
• Supports the long-term financial soundness of AEI Group.
Australian Ethical’s remuneration philosophy is consistent with the principles of the Australian Ethical
Constitution and Charter contained in the AEI and AES Constitutions. 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 Board before declaring any dividend, is required by the Company's Constitution to provide a bonus or
incentive for employees of up to 30% of what the profit for that year would have been had not the bonus or
incentive payment been deducted.
3.2 Elements of Remuneration
The following framework applied to all permanent employees of Australian Ethical Investment Limited
(not including Non-Executive Directors and Investment Committee members) for the financial year ended
30 June 2023. 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.
There were no significant changes to the remuneration framework in the FY23 year.
51
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 motivating
and rewarding
employees for
achievement
of annual
performance
objectives.
Applies to all
employees who
have satisfied the
risk and values
gate.
Paid as
Cash and
superannuation
• 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.
• Actual outcome is linked to performance and contribution
against annual financial and non-financial KPIs.
Cash and
deferred shares
• Maximum achievable for KMPs is two times the target
incentive, based on a percentage of Fixed Remuneration.
• 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 is 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.
• 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’) –
Aimed at aligning
employee
performance
and behaviour
with the long-
term success of
the Company,
to encourage
employees to
share in the
ownership of
the company
and to support
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.
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.
52
Australian Ethical Investment Limited and its Controlled Entities Remuneration Reportfor the year ended 30 June 2023ANNUAL REPORT 2023 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,
encourage the
achievement of
AEI’s long-term
strategic goals,
and to support
the retention of
key senior talent.
• 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 all financial (FUM, net inflows and/or cost
to income ratios) and non-financial (NPS scores, employee
engagement and compliance with Ethical Charter)
performance hurdles are required for the rights to vest.
Refer below for the specific performance hurdles relating
to each grant.
• 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.
• On cessation of employment, all performance rights
are forfeited unless the Board in its absolute discretion
determines otherwise.
In addition, Australian Ethical offers a comprehensive range of employee benefits across personal
development, and financial, health and community wellbeing so employees can bring their best selves to work.
Both short and long-term incentives 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.
53
3.3 ELTI Performance measures
There are different performance measurements for the tranches granted on 1 December 2021 and 1 December
2022, outlined below.
Performance
measures
Granted 1 December 2021
Granted 1 December 2022
Financial measures:
Financial measures:
• $15bn of FUM as at 30 June 2025, and with
• Net flows, including no more than 50% from
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;
M&A activity, over the 4-year vesting period of
$6.05bn
• Cost to income ratio of no more than 75%
• Operating costs to Income ratio of no more
than 75%;
Non-financial measures:
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.
• Median NPS (Net Promoter Score) for Financial
Services companies in Australia
• Median employee engagement score for
financial services companies in Australia; and
• Continued compliance with our Ethical
Charter.
Four years, ending 30 June 2025
Four years, ending 30 June 2026
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.
No multiplier applies to this grant
Vesting
period
Multiplier
mechanism
In considering the implementation of the ELTI opportunity, the Board has been cognisant of the remuneration
philosophy remaining consistent with the Ethical Charter and ensuring that the structure of the new ELTI closely
aligns the interests of senior talent with those of shareholders. The ELTI opportunity was designed to drive
greater business impact and purpose and reward those key to that success.
3.4 FY24 Changes and considerations
There are no significant changes to compensation structures contemplated for FY24, and none made in FY23.
The existing discretionary performance fee sharing structure has been modified to further align our investment
team with the performance outcomes of our investors. The arrangement will reward select investment team
members with up to 33% of the performance fee, granted in the form of a cash component and a deferred
shares component. Two thirds (2/3) paid in cash in line with the normal remuneration review payments, and
one third (1/3) to be awarded in unhurdled deferred shares to vest after 3 years. This enhancement will be offset
against a reduction in short-term incentive opportunity for relevant team members. There was no performance
fee earned in FY23.
The Board are in the process of considering a new FY24 ELTI grant with a vest date of 1 September 2027. It is
expected to be based on a similar percentage of fixed remuneration for KMPs as in FY23. Like the FY23 ELTI
grant, this is not expected to include a multiplier mechanism. The performance hurdles for this grant are yet to
be determined.
54
Australian Ethical Investment Limited and its Controlled Entities Remuneration Reportfor the year ended 30 June 2023ANNUAL REPORT 2023 3.5 Performance measures for Short Term Incentives
Performance measures for Short Term Incentives (STI) 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 2023. The following
outcomes have been taken into account when assessing short term incentives for KMPs.
Measure
Metric
Why this metric
is appropriate
Incentive Award
Achievement for FY23
Financial
• Underlying profit after
tax attributable to
shareholders (‘UPAT’)
and statutory Net profit
after tax attributable to
shareholders (‘NPAT’)
• Net growth in Funds
under Management.
Provides alignment to the
Group’s financial performance.
The target was set in context
of investment required to
underpin the High Growth
strategy outlined in August
2021, and to successfully
complete the Christian Super
SFT.
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.
Client
experience
Compelling client
experience measured
by client and adviser
advocacy and satisfaction.
Customer satisfaction with
product and service is
measured using customer
surveys conducted by survey
tools and independent industry
consultants, and by monitoring
quality of service in our
customer contact centre.
Target:
UPAT attributable to shareholders
of $7.0m
NPAT attributable to shareholders
of $4.3m
Actual:
UPAT attributable to shareholders
of $11.8m
NPAT attributable to shareholders
of $6.6m
Target:
Net growth >$2.25bn FUM
Actual:
$3.0bn
• $473m ($650m excluding a
low value institutional client
redemption) of net-flows
• $1.93bn from (Christian Super
SFT)
• $610m from net positive
investment returns
Target:
• Super – >25% of members have
recommended AE to other
potential members.
• Adviser Net Promoter score
(NPS) – Top 25
Actual:
• Super – recommended by 52%
of members
• Adviser NPS – rank #20
Source: Investment Trends data
55
Measure
Metric
Why this metric
is appropriate
Incentive Award
Achievement for FY23
Brand
familiarity and
reputation
• Increased brand
recognition and
familiarity.
Strong brand familiarity and
resonance is a key foundation
to future growth.
Target:
• Prompted brand awareness of
>20% of Australians.
• B Corp 'Best for the
World' status
Our preferred standing as a for
purpose and for profit business
is a key proof-point of our
brand.
Delivering long term
competitive investment returns
for our customers is core to our
offering.
Investment
performance
• Balanced Fund (‘BF’),
Australian Shares Fund
(‘ASF’) & Emerging
Companies Fund (‘ECF’)
performance against
market benchmarks.
• BF, ASF & ECF
performance relative to
peers.
• Super Fund Balanced
option (‘MySuper’)
relative to peers.
Providing a motivating and
inspiring workplace and high
employee engagement has
been proven to drive better
business outcomes for
customers and shareholders.
Employee
engagement
• Employee annual
engagement score (as
surveyed by Culture
Amp). Assessed against
market comparisons
• Executive KMP
development
(application of leadership
training, collaboration
and 360 degree
feedback )
• Adherence to the
Company’s values is
treated as a gate to short
term incentive awards.
56
• Achieve B Corp 'Best for the
World' (top 5%) certification.
Actual:
• Prompted brand awareness
increased to 23% (source:
yougov)
• Certified as B Corp 'Best for the
World'
Target:
• Exceed relevant benchmark
performance (after fees) over
1, 3 and 5 years for BF, ASF and
ECF 3 years
Actual:
• 1 year – below target for each
option
• 3 years – above target for ECF
• 5 years – above target for all
options
Target:
• 2nd quartile vs peers over
1, 3 and 5 year horizons for BF,
ASF and ECF
Actual:
• BF – met for all time horizons
• ASF – met for 5 year horizon
• ECF – met for 5 year horizon
Target:
• 2nd quartile vs peers over
1,3 and 5 year horizons for
MySuper Fund
Actual:
• Met for 1 and 5 year horizons
Target:
• Top quartile Employee
Engagement across Financial
Services organisations.
• People Plan achievements to be
assessed by the Board.
Actual:
• 70% Employee Engagement
score
• Significant progress in KMP
training, leadership capability
and depth of team
• Values strongly adhered to.
Australian Ethical Investment Limited and its Controlled Entities Remuneration Reportfor the year ended 30 June 2023ANNUAL REPORT 2023 Why this metric
is appropriate
Incentive Award
Achievement for FY23
It is critical for our Executive
KMP to have a high degree
of ownership for risk
management.
Target:
• Maintain strategic risk appetite
and embed risk culture across
the organisation.
Actual:
• Strong risk environment and
culture observed by Board and
third-party audit.
• No material risk breaches.
• SFT and all regulatory projects
satisfactorily delivered.
• No KMPs had a reduction in their
STI due to risk.
Measure
Metric
Risk
• Managing incidents and
risks out of tolerance
back within Board
approved risk appetite for
business activities.
• 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 the transformational
nature of the successfully completed SFT, the significant progress on a number of our long-term strategic
projects, competitive investment returns for customers, despite the backdrop of challenging financial markets
for Responsible Investment Managers, and the robust risk culture the company continues to enhance. 48%
growth in funds under management, with other key indicators in sound condition, sets the company up
exceptionally well for FY24 and beyond.
The CEO’s performance is assessed on the Company balanced scorecard and a number of strategic initiatives
such as:
• Company balanced scorecard and key result areas,
• Leadership and team development,
• Strategy development and execution,
• Brand and reputation,
• 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.
57
4. Executive KMP Remuneration Outcomes
4.1 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:
FUM at year end ($ billion)
Net inflows ($ billion) – organic growth
Net inflows ($ billion) – M&A
Operating Revenues ($’000)
2019
2020
2021
2022
2023
3.42
0.33
-
4.05
0.66
-
6.07
1.03
-
6.20
0.94
-
9.20
0.47
1.93
40,977
49,902
59,110
70,784
81,096
Performance fees ($’000) included above
769
3,640
2,895
375
Underlying Profit After Tax (UPAT) ($’000)2
Net Profit After Tax attributable to shareholders ($’000)
UPAT excluding performance fees
NPAT excluding performance fees
Diluted Earnings Per Share (cents per share)
6,540
6,465
6,024
5,949
5.84
9,279
9,457
7,028
7,206
8.42
11,052
10,284
11,261
9,597
9,167
9,377
10.02
10,044
9,356
8.55
-
11,789
6,576
11,789
6,576
5.84
Diluted EPS growth excl performance fees (3 years)
25.3%
36.4%
23.2%
16.2%
(3.2%)
Dividends (cents per share, restated for share split)
Special performance fee dividend (cents per share)3
Staff engagement scores
5.00
-
71%
5.00
1.00
86%
7.00
1.00
82%
6.00
-
79%
7.00
-
70%
2 Underlying Profit After Tax is a non-IFRS measure and is not audited
3 The Special performance fee dividend is linked to the performance fee achieved on the Emerging Companies Fund
outperformance in FY20 and FY21.
4.2 Weighting of remuneration components
The following are the weightings of the various components of target remuneration for the CEO, CIO and all
other KMP. Target remuneration is the remuneration that KMP expect to be paid if all of their strategic initiatives
are achieved.
Target Remuneration includes ELTI performance rights granted on 1 December 2022. The ELTI performance
hurdles will be assessed at the end of 2026 and will only then be awarded if the performance hurdles are
achieved. Opportunity for stretch targets and additional remuneration are available under certain conditions
and these are outlined in the ELTI section below.
Target Remuneration by Component
CEO
CIO
43%
44%
16%
16%
4%
21%
23%
10% 4%
18%
Other KMPs
61%
14%
6%
19%
0%
20%
40%
60%
80%
100%
Fixed Remuneration
STI
Deferred STI
ESP
ELTI
58
Australian Ethical Investment Limited and its Controlled Entities Remuneration Reportfor the year ended 30 June 2023ANNUAL REPORT 2023 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 Board approval and
all other bonuses subject to CEO discretion, minimum is 0%.
Total STI Bonus (Cash and Deferred Shares)
Name
J McMurdo
M Enander
K Hughes
M Loyez
D Macri (dep 31 Dec 2022)
E Moos
R Piper2
M Simons
L Theau3
Opportunity as a % of
Fixed Remuneration
Target
Opportunity
Target %
Max %
75%
25%
15%
25%
75%
25%
25%
25%
75%
150%
50%
30%
50%
150%
50%
50%
50%
150%
$
393,750
92,500
47,250
95,000
333,100
80,364
64,163
105,000
-
Maximum
Opportunity
as % of Fixed
Remuneration
(2 x Target)
Achieved as %
of Maximum
Opportunity1
Awarded
$
$
787,500
570,000
185,000
94,500
92,500
70,000
190,000
100,000
666,200
160,727
128,325
-
86,000
70,000
210,000
170,000
-
-
%
72%
50%
74%
53%
-
54%
55%
81%
-
1 Forfeiture %, in accordance with Corporations Regulation 2001 – Reg 2M.3.03 clause 12(f), is calculated as 100% less the
Achieved %
2 Target Opportunity for R Piper is adjusted to reflect the time employed with Australian Ethical.
3 L Theau is not yet eligible for STI bonus in FY23 due to his start date.
ESP Vesting
In considering the vesting of the Employee Share Plan, the Board advises that in strategically positioning
the business to capture accretive growth for stakeholders, it agreed a business plan with management for
FY23 that prioritised growth in funds under management and revenue, above current year profit. This was
substantially (but not only) to achieve the transformational opportunity presented for the business in completing
the Christian Super successor fund transfer.
In the 3-year vesting period for the current employee share plan tranche, the Board was delighted to have
observed 3-year FUM growth of 127% (32% CAGR) and 3-year revenue growth of 63% (18% CAGR). Both of
these key measures materially exceeding a 10% CAGR. FUM growth in FY23 alone was 48%.
The NPAT and UPAT targets set by the Board for FY23 were exceeded, as per the balanced scorecard detailed
above.
Further, after running a highly successful integration of the Christian Super transaction, second half underlying
profit was $6.8m ($13.6m annualised) - materially above the implied 10% 3-year compound annual growth in
diluted earnings per share (pre-performance fees), required for the employee share plan to vest.
On this basis, and also noting the increase in second half dividend approved by the Board given the significant
uplift in earnings post the Christian Super SFT, the board has exercised its discretion to fully vest the current
tranche of the Employee Share Plan.
59
ELTI - Performance Rights
Rights to ordinary shares under the Executive LTI program are granted each year on 1 December, with the first
grant in 2021. The number of performance rights allocated to each KMP was determined using an allocation
price based on the 60-day variable weighted average price following the annual results announcement in
August. 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.
Granted 1 December 2021
Granted 1 December 2022
Allocation Price
Fair Value Price
$10.34
$5.29
$13.54
$4.54
The table below shows the number of rights granted on 1 December 2021 and the grant 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.
4%
At this time, the performance hurdles for the Performance Rights granted 1 December 2021 have not yet been
met. The Board's assessment is that the likelihood of meeting the performance hurdles by the vest date is less
likely than more likely given the growth still required to achieve the threshold, ongoing uncertainty around the
outlook for world economies, and on the basis organic growth only can be assumed. Accordingly, the fair value
of these rights has been written down to nil.
This probability assessment does not change the ambitious growth that is still being targeted including both
organic and inorganic growth. Should the assessment be probable at a future date, then this write-back will be
revisited.
Statutory expense in the ‘Remuneration Outcomes – Statutory Basis’ table below includes the impact of the
write-back.
Granted 1 December 2021
Granted as
% of Fixed
Remuneration
J McMurdo
M Enander
K Hughes
M Loyez
D Macri (departed 31 Dec 2022)
R Piper
M Simons
50%
40%
10%
40%
40%
25%
40%
Potential
Multiplier
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
No. of Rights
Granted
(based on 1 times
multiplier)
Grant Value
of Rights
(based on 1 times
multiplier)
Fair Value
of Rights
24,178
13,540
2,901
13,926
16,248
10,517
15,474
$327,369
$183,327
$39,284
$188,565
$219,992
$142,406
$209,516
-
-
-
-
-
-
-
Performance rights granted on 1 December 2021 to David Macri were forfeited upon resignation and the
statutory expense reversed.
The table below shows the number of rights granted on 1 December 2022 and the grant value of those rights.
Board's assessment is that it is probable that the performance hurdles for this tranche will be achieved.
The multiplier mechanism does not apply to the ELTI tranche vesting 1 September 2026.
60
Australian Ethical Investment Limited and its Controlled Entities Remuneration Reportfor the year ended 30 June 2023ANNUAL REPORT 2023 Granted 1 December 2022
Granted as
% of Fixed
Remuneration
No. of Rights Granted
Fair Value of Rights
J McMurdo
M Enander
K Hughes
M Loyez
E Moos
R Piper
M Simons
L Theau (commenced 3 April 2023, after grant date)
50%
40%
10%
40%
10%
40%
40%
-
49,622
27,977
5,955
28,733
6,077
32,892
31,758
-
$225,284
$127,017
$27,034
$130,450
$27,588
$149,331
$144,181
-
The following two tables set out Executive KMP remuneration.
• The table ‘Executive KMP Remuneration Outcomes – Statutory Basis’ is aligned to the way the Company
expenses (accrues) the remuneration of the senior team under the accounting standards and the
Corporations Act.
• The table ‘Executive KMP 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 2023.
The movement in the Executive KMP remuneration outcomes (statutory basis) between FY22 and FY23 is due
to:
• CEO – The increase is attributable to an increase in salary in line with industry benchmarking and
performance-based bonuses.
• Other KMP:
– Increase in individual salaries in line with responsibilities and industry benchmarking to ensure reward
remains competitive and fair.
– Whilst changes in STI is based on individual performance, bonuses in general were more modest in the
current year.
• Performance rights (ELTI) expense reflects the write-back of the rights granted on 1 December 2021 to reflect
the probability of the rights achieving the performance hurdles. This write-back was offset by the expense
relating to additional ELTI granted on 1 December 2022.
• New Chief Executive Superannuation (‘CES’) commenced in November 2022, and new Chief Investment
Officer (‘CIO’) commenced in April 2023. Amounts disclosed for these roles reflect the period of time
employed.
• The KMP group was redefined on 1 July 2023 at which time the General Counsel and the Head of Ethics were
no longer part of the KMP.
61
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64
Australian Ethical Investment Limited and its Controlled Entities Remuneration Reportfor the year ended 30 June 2023ANNUAL REPORT 2023
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65
Contract terms
All KMP’s, except the Managing Director 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
No fixed
term
Fixed salary from
1 September
2023 is $552,000
inclusive of
superannuation
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 –
10% of fixed
remuneration.
The shares are
subject to the
rules and terms
of the Employee
Share Plan.
Executive LTI
– performance
rights at
50% of fixed
remuneration.
Only the ELTI
rights granted
on 1 December
2021 have a 1 to
7 times 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
The below graph summarises the structure of the variable incentive compensation paid or granted to the
CEO in FY23. The graph depicts the combination of short and long term incentives granted and the upcoming
vesting dates.
Performance Rights (long term)
Executive long-term incentives (ELTI), 4-years to vesting
and subject to various performance-based hurdles
Performance Rights (long term)
ELTI, 3-year to vesting and subject to various
performance-based hurdles
Deferred Shares (long term)
Employee share plan (ESP), subject to 3-year CAGR hurdle
Deferred Shares (short term)
1/3 subject to 3-year vesting period
Deferred Shares (short term)
1/3 subject to 2-year vesting period
Deferred Shares (short term)
1/3 subject to 1-year vesting period
Performance
Year for Variable
Incentives
y
t
i
u
q
E
h
s
a
C
1 July 2021
30 June 2022
1 Sep 2023
1 Sep 2024
1 Sep 2025
1 Sep 2026
Vesting Dates
September
September
66
Australian Ethical Investment Limited and its Controlled Entities Remuneration Reportfor the year ended 30 June 2023ANNUAL REPORT 2023 5. Non-Executive Director Arrangements
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 2022. NEDs do not receive performance-related pay and are not provided with retirement benefits
apart from statutory superannuation.
In total, directors’ fees of $804,803 was paid during the year out of the director fee pool approved at the 2021
AGM of $1,000,000.
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 Chair of Australian Ethical Superannuation Ltd does not receive
any additional fees for chairing this Board.
From 1 November 2022
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
$
145,559
83,176
27,292
15,596
27,292
15,596
5,199
5,199
–
–
–
–
36,390
36,390
18,195
10,397
–
–
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2
Australian Ethical Investment Limited and its Controlled Entities Remuneration Reportfor the year ended 30 June 2023ANNUAL REPORT 2023
During the year, the following changes to Boards and committee memberships occurred:
• From 1 March 2023 Ms McCullagh was appointed a Director of AEI and a member of the People,
Remuneration and Nominations Committee. Prior to this, Ms McCullagh was an independent member of
the Investment Committee but was not a director or KMP. Ms McCullagh was paid $34,071 for her role as an
Investment Committee member prior to becoming a director of the Company. Ms McCullagh is not a director
of AES.
• Mr Monaghan resigned his roles as Director of AEI and AES, and Chair of the AEI Investment Committee, with
effect from 31 March 2023.
• From 1 April 2023 Ms McCullagh was appointed Chair of the AEI Investment Committee.
• The Investment Committee also includes Sean Henaghan and Steven Rankine who were appointed on
22 February 2022, and Michael Anderson who was appointed on 1 March 2023. Mr Henaghan and Mr Rankine
are not Directors of AEI and are not KMP. Their remuneration is not included in the Director fee pool.
Mr Anderson is a Director of Australian Ethical Superannuation but is not a Director of AEI and is not a KMP.
His remuneration is not included in the Director fee pool.
5.2 Shares owned by Non-Executive Directors
Name
Non-Executive Directors
M Bûn
Purchase
date
Balance at
1 July 2022
No. of shares
purchased
No. of shares
sold
Balance at
30 June 2023
AEF Ordinary shares
13-Nov-17
Total
57,000
57,000
–
–
–
–
57,000
57,000
69
6. Governance
6.1 The Role of the People, Remuneration and Nominations Committee (PRN)
The role of the PRN is to help the Board fulfil its responsibilities to shareholders through a strong focus on
governance and in particular, the principles of accountability and transparency. The PRN operates under
delegated authority from the Board.
The terms of reference include oversight of remuneration as well as executive development, talent
management and succession planning.
The PRN members for the financial year ended 30 June 2023 were:
• Steve Gibbs (Chair),
• Mara Bûn,
• Kate Greenhill,
• Julie Orr,
• Michael Monaghan (departed 31 March 2023), and
• Sandra McCullagh (appointed 1 March 2023).
The PRN met eight times during the year. Attendance at these meetings is set out in the Directors’ Report.
At the PRN’s invitation, the Managing Director 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 engaging remuneration consultants from time to time.
However, no remuneration consultants were engaged in FY23. Annually, the PRN assesses the eligibility for
vesting of deferred shares.
6.2 CEO and SLT Performance
The CEO is responsible for reviewing the performance of KMPs 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 Chair 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 oversight of SLT performance.
6.3 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.
70
Australian Ethical Investment Limited and its Controlled Entities Remuneration Reportfor the year ended 30 June 2023ANNUAL REPORT 2023 6.4 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.
6.5 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
24 August 2023
71
Lead Auditor’s Independence Declaration under
Section 307C of the Corporations Act 2001
To the Directors of Australian Ethical Investment Limited
I declare that, to the best of my knowledge and belief, in relation to the audit of Australian Ethical
Investment Limited for the financial year ended 30 June 2023 there have been:
i.
ii.
no contraventions of the auditor independence requirements as set out in the
Corporations Act 2001 in relation to the audit; and
no contraventions of any applicable code of professional conduct in relation to the audit.
KPMG
Jessica Davis
Partner
Sydney
24 August 2023
KPMG, an Australian partnership and a member firm of the KPMG global organisation of independent member firms affiliated with
56
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.
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.
72
Australian Ethical Investment Limited and its Controlled Entities Financial Statementsfor the year ended 30 June 2023ANNUAL REPORT 2023
Australian Ethical Investment Limited and its Controlled Entities
Financial Statements
for the year ended 30 June 2023
Statements of comprehensive income
For the year ended 30 June 2023
Revenue
Operating revenue
Expenses
Employee benefits
Fund related
Marketing
IT expenses
External services
Community grants expense
Depreciation
Other operating expenses
Occupancy
Finance costs
Due diligence & transaction costs
Integration costs
Total expenses
Change in fair value of investment
Profit before income tax expense
Income tax expense
Net Profit for the year
Consolidated
Parent
Note
2023
$’000
2022
$’000
2023
$’000
2022
$’000
5
6
7
8
9
10
11
12
13
14
21
15
16
17
81,096
70,784
69,604
63,167
(27,454)
(14,038)
(11,694)
(3,536)
(2,728)
(1,116)
(1,265)
(1,816)
(446)
(88)
–
(3,733)
(67,914)
(2,600)
10,582
(4,006)
6,576
(25,260)
(26,938)
(24,824)
(10,194)
(9,094)
(3,831)
(2,842)
(1,580)
(1,205)
(1,646)
(335)
(41)
(982)
–
(57,010)
–
13,774
(4,263)
9,511
(4,835)
(11,694)
(3,430)
(2,282)
(1,099)
(1,265)
(1,353)
(446)
(88)
–
(2,357)
(55,787)
(2,600)
11,217
(4,196)
7,021
(4,034)
(9,094)
(3,497)
(2,301)
(1,509)
(1,205)
(1,313)
(335)
(41)
(982)
–
(49,135)
–
14,032
(4,085)
9,947
Other comprehensive income
Items that will not be reclassified subsequently
to profit or loss
Gain/(Loss) on revaluation of investments
26
Other comprehensive income for the year,
net of tax
4
4
3
3
–
–
–
–
Total comprehensive income for the year1
6,580
9,514
7,021
9,947
Basic earnings per share
Diluted earnings per share
44
44
Cents
Cents
5.89
5.84
8.57
8.47
1 Comprehensive income includes the results of The Foundation (refer to Note 46)
The above statements of comprehensive income should be read in conjunction with the accompanying notes.
73
Statements of financial position
As at 30 June 2023
Assets
Current assets
Cash and cash equivalents
Term deposits
Trade and other receivables
Prepayments
Right-of-use assets
Income tax refund due
Total current assets
Non-current assets
Deferred tax
Property, plant and equipment
Right-of-use assets
Term deposit
Investments in subsidiary
Intercompany loan
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 payable on investment
Tax payable
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
Consolidated
Parent
Note
2023
$’000
2022
$’000
2023
$’000
2022
$’000
18
19
20
21
17
17
22
21
23
24
25
26
28
30
29
17
21
21
31
32
17
33
34
27,134
5,600
2,475
1,475
30
–
21,787
5,600
1,737
1,346
626
249
20,498
5,000
5,404
1,080
30
–
19,313
5,000
4,443
1,315
626
249
36,714
31,345
32,012
30,946
3,974
911
2,284
749
–
–
2,600
72
10,590
47,304
9,832
6,258
871
605
379
3,338
1,401
46
504
–
–
5,200
106
10,595
41,940
8,568
5,997
1,300
–
787
3,450
911
2,284
749
316
240
3,207
1,401
46
504
316
–
2,600
5,200
1
10,551
42,563
5,821
6,214
871
605
379
1
10,675
41,621
9,403
5,954
1,300
–
787
17,945
16,652
13,890
17,444
1,823
444
324
14
2,605
20,550
26,754
10,515
2,301
13,938
26,754
47
284
258
34
623
17,275
24,665
8,969
2,706
12,990
24,665
1,823
428
324
14
2,589
16,479
26,084
10,515
2,293
13,276
26,084
47
284
258
34
623
18,067
23,554
8,969
2,702
11,883
23,554
The above statements of financial position should be read in conjunction with the accompanying notes.
74
Australian Ethical Investment Limited and its Controlled Entities Financial Statementsfor the year ended 30 June 2023ANNUAL REPORT 2023 Issued
capital
$’000
Share-based
payment
reserve
$’000
FVOCI1
reserve
$’000
Retained
profits
$’000
Total
equity
$’000
Note 33
Note 34
Note 34
10,676
1,033
Transactions with owners in their capacity as owners:
Statements of changes in equity
FOR THE YEAR ENDED 30 JUNE 2023
Consolidated
Balance at 1 July 2021
Profit after income tax expense for the year
Other comprehensive income for the year,
net of tax
Total comprehensive income for the year
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
Consolidated
Balance at 1 July 2022
Profit after income tax expense for the year
Other comprehensive income for the year,
net of tax
Total comprehensive income for the year
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 2023
Transactions with owners in their capacity as owners:
–
–
–
–
–
–
–
–
985
–
(2,692)
–
8,969
1,895
–
(349)
–
10,515
–
–
–
–
(985)
2,654
–
–
2,702
–
–
–
–
(1,895)
1,486
–
–
2,293
Issued
capital
$’000
Share-based
payment
reserve
$’000
FVOCI1
reserve
$’000
Retained
profits
$’000
Total
equity
$’000
Note 33
Note 34
Note 34
8,969
2,702
1
–
–
–
–
–
–
–
3
4
12,470
9,511
24,180
9,511
3
3
9,514
9,514
(8,991)
(8,991)
–
–
–
(3)
–
2,654
(2,692)
–
12,990
24,665
4
–
–
–
–
–
–
–
4
8
12,990
6,576
24,665
6,576
4
4
6,580
6,580
(5,628)
(5,628)
–
–
–
(4)
–
1,486
(349)
–
13,938
26,754
1 Fair value through other comprehensive income (FVOCI)
The above statements of changes in equity should be read in conjunction with the accompanying notes.
75
Statements of changes in equity
FOR THE YEAR ENDED 30 JUNE 2023
Parent
Balance at 1 July 2021
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
Balance at 30 June 2022
Parent
Balance at 1 July 2022
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
Balance at 30 June 2023
Share-
based
payment
reserve
$’000
Issued
capital
$’000
Note 33
Note 34
10,676
1,033
–
–
–
–
985
–
(2,692)
8,969
Issued
capital
$’000
–
–
–
–
(985)
2,654
–
2,702
Share-
based
payment
reserve
$’000
Note 33
Note 34
8,969
2,702
–
–
–
–
–
–
–
–
1,895
(1,895)
–
(349)
10,515
1,486
–
2,293
Retained
profits
$’000
Total
equity
$’000
10,927
9,947
–
9,947
22,636
9,947
–
9,947
(8,991)
(8,991)
–
–
–
11,883
–
2,654
(2,692)
23,554
Retained
profits
$’000
Total
equity
$’000
11,883
7,021
–
7,021
23,554
7,021
–
7,021
(5,628)
(5,628)
–
–
–
–
1,486
(349)
13,276
26,084
The above statements of changes in equity should be read in conjunction with the accompanying notes.
76
Australian Ethical Investment Limited and its Controlled Entities Financial Statementsfor the year ended 30 June 2023ANNUAL REPORT 2023 Statements of cash flows
FOR THE YEAR ENDED 30 JUNE 2023
Consolidated
Parent
Note
2023
$’000
2022
$’000
2023
$’000
2022
$’000
Cash flows from operating activities
Receipts from customers
Payments to suppliers and employees
Interest received
Community grants paid
Income taxes paid
Net cash from operating activities
43
Cash flows from investing activities
Payments relating to Christian Super SFT
integration
Payments for investment in Sentient Impact
Group
Purchase of bank guarantee
Payments for property, plant and equipment
22
Proceeds from sale of investment property held
for sale
Return on investment in SVA unit trusts
Dividends received from subsidiary
Net cash from investing activities
79,668
(57,973)
21,695
728
(1,607)
(4,612)
16,204
73,201
(50,731)
22,470
51
(1,425)
(4,934)
16,162
68,087
61,002
(54,687)
(40,946)
13,400
20,056
574
(1,509)
(1,210)
11,255
42
(1,519)
(1,550)
17,029
(3,233)
–
(1,857)
–
(429)
(245)
(203)
–
39
–
(3,900)
–
(764)
504
36
–
(429)
(245)
(203)
–
–
–
(3,900)
–
(764)
504
–
765
(4,071)
(4,124)
(2,734)
(3,395)
Cash flows from financing activities
Purchase of employee’s deferred shares
Dividends paid
Payments on lease liabilities
Loan to subsidiary entity - AES
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
35
21
27
(349)
(5,627)
(810)
–
(6,786)
5,347
(2,692)
(8,991)
(781)
–
(12,464)
(426)
(349)
(5,627)
(810)
(550)
(7,336)
1,185
(2,692)
(8,991)
(781)
–
(12,464)
1,170
21,787
22,213
19,313
18,143
18
27,134
21,787
20,498
19,313
The above statements of cash flows should be read in conjunction with the accompanying notes.
77
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 (referred to hereafter as ‘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 24 August
2023. The directors have the power to amend and reissue the financial statements.
NOTE 2. SIGNIFICANT ACCOUNTING POLICIES
The principal accounting policies adopted in the preparation of the financial statements are set out either in
the respective notes or below. These policies have been consistently applied to all the years presented, unless
otherwise stated.
Basis of preparation
These general purpose financial statements have been prepared in accordance with Australian Accounting
Standards and Interpretations issued by the Australian Accounting Standards Board (‘AASB’) and the
Corporations Act 2001, as appropriate for for-profit oriented entities. These financial statements also comply
with International Financial Reporting Standards as issued by the International Accounting Standards Board
(‘IASB’).
Historical cost convention
The financial statements have been prepared under the accruals basis and are based on historical cost
convention, except for, where applicable, the revaluation of available-for-sale financial assets at fair value
through other comprehensive income, and financial assets and liabilities at fair value through profit or loss.
Critical accounting estimates
The preparation of the financial statements requires the use of certain critical accounting estimates. It also
requires management to exercise its judgement in the process of applying the Group’s and Company’s
accounting policies. The areas involving a higher degree of judgement or complexity, or areas where
assumptions and estimates are significant to the financial statements, are disclosed in Note 3.
Parent entity information
These financial statements include the results of both the parent entity and the Group in accordance with
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 Investments Limited (‘Company’ or ‘Parent Entity’) as at 30 June 2023 and the results of all subsidiaries
for the year then ended.
Subsidiaries are all those entities over which the Group has control. The Group controls an entity when the
Group is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to
affect those returns through its power to direct the activities of the entity. Subsidiaries are fully consolidated
from the date on which control is transferred to the Group.
They are de-consolidated from the date that control ceases.
78
Australian Ethical Investment Limited and its Controlled Entities Notes To The Financial Statementsfor the year ended 30 June 2023ANNUAL REPORT 2023 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:
• Onerous Contracts – Cost of Fulfilling a Contract – Amendments to IAS 37
• Annual improvements to IFRS Standards 2018-2020
• Property, Plant & Equipment: Proceeds before Intended Use – Amendments to IAS 16
• Reference to the Conceptual Framework – Amendments to IFRS 3
• Classification of Liabilities as Current or Non-Current – Amendments to IAS 1
• Disclosure of Accounting Policies – Amendments to IAS 1 and IFRS Practice Statement 2
• Definition of Accounting Estimate – Amendments to IAS 8
• Deferred Tax related to Assets and Liabilities arising from a Single Transaction – Amendments to IAS 12
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.
79
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 transactions and calculations undertaken during the
ordinary course of business for which the ultimate tax determination is yet to be finalised.
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 21
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 30 and Note 31
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 32
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 45
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 60-days VWAP price post
year end results announcement 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
(applicable only to the rights granted on 1 September 2021) is recognised as an expense over the vesting period.
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.
80
Australian Ethical Investment Limited and its Controlled Entities Notes To The Financial Statementsfor the year ended 30 June 2023ANNUAL REPORT 2023 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
Other income
Dividends
Revenue
Consolidated
Parent
2023
$’000
62,465
–
12,542
–
5,108
780
201
–
2022
$’000
55,188
375
10,424
–
4,730
67
–
–
2023
$’000
50,172
–
12,738
5,876
–
617
201
–
81,096
70,784
69,604
2022
$’000
48,470
375
9,220
4,278
–
59
–
765
63,167
Recognition and measurement
Management, administration and member fees
Fee revenue is earned from provision of funds management services to customers outside the Group. Fee
revenue is measured based on the consideration specified in the 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. The parent entity
also earns a principal investment advisory fee from 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 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
$2,934k (2022: $1,711k) paid directly to the Operational Risk Financial Reserve (‘ORFR’) of the superannuation
fund.
Performance fees
Performance fees in relation to the Emerging Companies Fund and High Conviction 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. Fund performance hurdles had not been achieved and as such there were
no performance fees recognised in the current year.
Interest income
Interest revenue is recognised as interest accrues.
Dividends
Dividends are recognised as revenue when the right to receive payment is established.
Other income
The parent entity received a transition services fee from Christian Super for the provision of wind-up and
administration services during the year.
81
NOTE 6. EMPLOYEE BENEFITS
Employee remuneration
Directors’ fees
Strategic project contractors
Other committee member fees
Other employment related costs
Consolidated
Parent
2023
$’000
24,396
826
234
154
1,844
27,454
2022
$’000
22,136
709
729
53
1,633
25,260
2023
$’000
24,136
621
234
154
1,793
26,938
2022
$’000
21,914
528
729
53
1,600
24,824
Other employment related costs include payroll tax ($1.2m), employee training and development, workers
compensation insurance and other benefits of employment with Australian Ethical.
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 employee
remuneration 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.
NOTE 7. FUND RELATED
Administration and custody fees
Licence, ratings and platform fees
Regulatory & industry body fees
Ethical research
Regulatory projects
Custody transition project
Consolidated
Parent
2023
$’000
11,191
1,317
500
135
767
128
2022
$’000
7,822
1,149
476
57
690
–
2023
$’000
3,105
985
267
135
215
128
2022
$’000
2,597
876
328
57
176
–
14,038
10,194
4,835
4,034
Regulatory projects in the current year include ongoing regulatory projects such as RG271 (Internal Dispute
Resolution) and RG98 (Strengthening Breach Reporting) carried and finalised from the prior year as well as
Digital License ID Verification, Advice Fee Framework and CP234 (Information Security for APRA-regulated
entities).
Custody transition project relates to costs incurred in the change of custodian and investment administration
for the managed funds.
Recognition and measurement
Expenses are recognised at the fair value of the consideration paid or payable for services rendered.
82
Australian Ethical Investment Limited and its Controlled Entities Notes To The Financial Statementsfor the year ended 30 June 2023ANNUAL REPORT 2023 NOTE 8. MARKETING
Distribution costs
Brand awareness
Other
Consolidated
Parent
2023
$’000
5,761
4,295
1,637
11,694
2022
$’000
3,974
3,535
1,585
9,094
2023
$’000
5,761
4,295
1,637
11,694
2022
$’000
3,974
3,535
1,585
9,094
The increase in distribution costs includes spend on the employer platform channel. Higher spend on brand to
drive greater brand awareness continued through the year. Other marketing costs include events, sponsorships,
marketing & public relations content, media agents’ fees and annual & sustainability reports.
NOTE 9. IT EXPENSES
Investment and client-facing systems
Support systems, infrastructure and security
Strategic projects
Consolidated
Parent
2023
$’000
2,067
1,205
264
3,536
2022
$’000
1,606
1,153
1,072
3,831
2023
$’000
1,961
1,205
364
3,430
2022
$’000
1,507
1,153
837
3,497
Strategic projects include investments in technology platforms including continuous upgrades to the online
member experience, and minor enhancements to the Application Programming Interface (API) for the mobile
app. Costs relating to building the app were capitalised as an intangible asset.
NOTE 10. EXTERNAL SERVICES
Internal & external audit and tax services
Consultants
Legal services
Other
Consolidated
Parent
2023
$’000
902
1,067
355
404
2,728
2022
$’000
819
1,133
511
379
2,842
2023
$’000
2022
$’000
712
862
310
398
623
833
471
374
2,282
2,301
Consultants include advisory services in relation to strategic projects including product development,
investment governance and on-going projects such as reviews of outsourced service providers. In the prior
year, these included 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.
83
NOTE 11. 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 gifted or provisioned for gifting an amount equivalent to 10% of
what the profit for that year would have been had bonuses and amount gifted not been deducted.
Community grants amounting to $1,099,000 (2022: $1,509,000) have been expensed and gifted from the
parent entity to The Foundation. The Foundation has committed to granting all of its income (including interest
income) of $1,116,000 (2022: $1,580,000) to community organisations through its grants program.
NOTE 12. DEPRECIATION AND AMORTISATION
Depreciation of property, plant and equipment
Amortisation of intangible asset
– 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
2023
$’000
2022
$’000
2023
$’000
2022
$’000
462
231
693
526
46
572
1,265
470
108
578
580
47
627
1,205
462
231
693
526
46
572
1,265
470
108
578
580
47
627
1,205
Refer to Note 22 for additional information on depreciation and amortisation.
NOTE 13. OTHER OPERATING EXPENSES
Insurance
Travel
ASX listing fees and registry costs
Printing and subscriptions
Other
Consolidated
Parent
2023
$’000
2022
$’000
2023
$’000
2022
$’000
767
476
229
169
175
768
231
266
191
190
338
476
229
135
175
1,816
1,646
1,353
498
227
266
132
190
1,313
84
Australian Ethical Investment Limited and its Controlled Entities Notes To The Financial Statementsfor the year ended 30 June 2023ANNUAL REPORT 2023 NOTE 14. OCCUPANCY
Occupancy costs in relation to Sydney office
Short term premises lease
Consolidated
Parent
2023
$’000
233
213
446
2022
$’000
293
42
335
2023
$’000
233
213
446
2022
$’000
293
42
335
Occupancy costs include cleaning services, utilities and repairs & maintenance costs relating to the Sydney
head office. Short term premises lease relates to our Melbourne office which is predominantly used for the
customer services centre. 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 12 and Note 21.
NOTE 15. DUE DILIGENCE & TRANSACTION COSTS
Consultants
Legal
Contractors
Consolidated
Parent
2023
$’000
2022
$’000
2023
$’000
2022
$’000
–
–
–
–
266
655
61
982
–
–
–
–
266
655
61
982
Due diligence & transaction costs include 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.
NOTE 16. SFT INTEGRATION COSTS
Project management and Project Team
employment costs
Legal and consulting
Fund related transition costs
Marketing and member communications
Other
Consolidated
Parent
2023
$’000
2022
$’000
2023
$’000
2022
$’000
1,626
802
1,172
115
18
3,733
–
–
–
–
–
–
1,626
802
1,172
115
18
3,733
–
–
–
–
–
–
Successor Funds Transfer (SFT) integration costs includes the project management, business analysts and
project team costs, legal services, and consultants engaged in relation to the SFT project with Christian Super.
Also included are marketing and communications, IT, business insurance and audit fees arising from the
integration project.
85
NOTE 17. INCOME TAX
Income tax expense
Current tax
Deferred tax asset – temporary differences
Deferred tax liability – temporary differences
Aggregate income tax expense
Deferred tax included in income tax expense
comprises:
Increase in deferred tax assets
Decrease in deferred tax liabilities
Deferred tax – temporary differences
Numerical reconciliation of income tax
expense and tax at the statutory rate
Consolidated
Parent
2023
$’000
4,662
(636)
(20)
4,006
(636)
(20)
(656)
2022
$’000
4,702
(438)
(1)
4,263
(438)
(1)
(439)
2023
$’000
4,459
(243)
(20)
4,196
(243)
(20)
(263)
2022
$’000
4,676
(590)
(1)
4,085
(590)
(1)
(591)
Profit before income tax expense
10,582
13,774
11,217
14,032
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-deductible items
Income tax expense
–
10,582
3,175
–
831
4,006
86
13,860
4,158
–
105
4,263
–
11,217
3,365
–
14,032
4,209
–
(229)
831
4,196
105
4,085
The applicable weighted average effective tax rate for the consolidated group is 37.9% (2022: 30.8%) and for
the parent entity is 37.4% (2022: 29.1%).
The higher effective tax rate is primarily due to non-deductible expenses incurred in relation to the write-down
of the investment in Sentient which is on capital account and not deductible. Excluding the impact of the
change in fair value of the Sentient investment, the effective tax rate is 30.4% for the consolidated group and
30.4% on profit attributable to shareholders.
86
Australian Ethical Investment Limited and its Controlled Entities Notes To The Financial Statementsfor the year ended 30 June 2023ANNUAL REPORT 2023 NOTE 17. INCOME TAX (CONTINUED)
Consolidated
Parent
2023
$’000
2022
$’000
2023
$’000
2022
$’000
Deferred tax asset
Deferred tax asset comprises temporary differences attributable to:
Employee benefits
Accruals
Community grants
Provision for employee leave
Integration costs
Provision for lease make-good
Other payables
Lease liabilities
Deferred tax asset
Movements:
Opening balance
Charged to profit or loss
Closing balance
Deferred tax liability
Deferred tax liability comprises temporary
differences attributable to:
Amounts recognised in profit or loss:
Property, plant and equipment
Deferred tax liability
Movements:
Opening balance
Charged to profit or loss
Closing balance
Provision for income tax
Income tax refund due
976
207
330
855
896
97
592
21
1,111
179
453
773
–
77
696
49
965
160
330
853
566
97
458
21
1,104
148
453
767
–
77
609
49
3,974
3,338
3,450
3,207
3,338
636
3,974
2,900
438
3,338
3,207
243
3,450
2,617
590
3,207
14
14
34
(20)
14
605
–
34
34
35
(1)
34
–
249
14
14
34
(20)
14
605
–
34
34
35
(1)
34
–
249
Recognition and measurement
Tax expense comprises 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.
87
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
Deposits at call
Consolidated
Parent
2023
$’000
242
26,892
27,134
2022
$’000
242
21,545
21,787
2023
$’000
229
20,269
20,498
2022
$’000
236
19,077
19,313
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 – TERM DEPOSITS
Term deposits
Recognition and measurement
Consolidated
Parent
2023
$’000
5,600
5,600
2022
$’000
5,600
5,600
2023
$’000
5,000
5,000
2022
$’000
5,000
5,000
Term deposits held with maturities greater than 3 months, earning interest at a higher rate than cash at bank and
deposits at call.
88
Australian Ethical Investment Limited and its Controlled Entities Notes To The Financial Statementsfor the year ended 30 June 2023ANNUAL REPORT 2023 NOTE 20. CURRENT ASSETS – TRADE AND OTHER RECEIVABLES
Trade receivables
Receivable from subsidiary
Performance fee receivable
Consolidated
Parent
2023
$’000
2,475
–
–
2,475
2022
$’000
1,362
–
375
1,737
2023
$’000
624
4,780
–
5,404
2022
$’000
685
3,383
375
4,443
Recognition and measurement
Trade receivables are initially recognised when they are originated and are measured at the transaction price.
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 2023 (2022: nil) and management have not identified any additional concerns
regarding collectability of the receivables as the receivables are predominantly due from related parties.
NOTE 21. LEASES
Leases includes the lease for the Sydney office premises, printing and copying equipment for the office, and
other IT hardware and infrastructure.
The Group entered into a new long-term lease for a 5-year term commencing 1 July 2023 for the Sydney office.
The new lease includes the existing space and an additional half floor. The Group does not have an option to
purchase the premises at the expiry of the lease period.
A bank guarantee of $749,000 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 from
1 March 2023 in relation to the lease of level 8, including the remaining unamortised lease incentive. The
respective right-of-use asset and a lease liability for the half floor on level 7 will be recognised in the Statement
of Financial Position from 1 July 2023.
The Group entered a 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 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 2021
Additions
Depreciation
Balance at 30 June 2022
Comprising of:
Current
Non-current
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
89
NOTE 21. LEASES (CONTINUED)
Consolidated & Parent
Right-of-use assets
Balance at 1 July 2022
Additions
Depreciation
Balance at 30 June 2023
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
580
2,214
(526)
2,268
–
2,268
2,268
92
–
(46)
46
30
16
46
Total
$’000
672
2,031
(572)
2,314
30
2,284
2,314
Consolidated
Parent
2023
$’000
2022
$’000
2023
$’000
2022
$’000
88
566
41
426
88
566
41
426
Consolidated
Parent
2023
$’000
2022
$’000
2023
$’000
2022
$’000
Amounts recognised in statement of cash flows
Total cash outflow for leases
810
781
810
781
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. These includes a short-term lease for
offices in Melbourne. These are not included in Right-of-use assets or lease liabilities as the terms of these
leases are 12 months or under. Lease payments on these assets are expensed to profit or loss as incurred.
90
Australian Ethical Investment Limited and its Controlled Entities Notes To The Financial Statementsfor the year ended 30 June 2023ANNUAL REPORT 2023 NOTE 21. LEASES (CONTINUED)
Consolidated & Parent
Lease liabilities
Balance at 1 July 2021
Additions
Payments
Interest on lease liabilities
Balance at 30 June 2022
Comprising of:
Current
Non-current
Consolidated & Parent
Lease liabilities
Balance at 1 July 2022
Additions
Payments
Interest on lease liabilities
Balance at 30 June 2023
Comprising of:
Current
Non-current
Office
building
$’000
IT hardware &
infrastructure
$’000
1,435
–
(734)
40
742
742
–
742
139
–
(48)
1
92
45
47
92
Office
building
$’000
IT hardware &
infrastructure
$’000
742
2,090
(763)
87
2,156
342
1,814
2,156
92
–
(47)
1
46
37
9
46
Total
$’000
1,574
–
(781)
41
834
787
47
834
Total
$’000
834
2,090
(810)
88
2,202
379
1,823
2,202
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.
91
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 amortisation
Consolidated
Parent
2023
$’000
2,332
(2,278)
54
309
(175)
134
1,204
(481)
723
911
2022
$’000
2,332
(1,900)
432
364
(284)
80
1,140
(251)
889
1,401
2023
$’000
2,332
(2,278)
54
309
(175)
134
1,204
(481)
723
911
2022
$’000
2,332
(1,900)
432
364
(284)
80
1,140
(251)
889
1,401
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 30 June 2021
Additions
Disposals
Depreciation expense
Amortisation expense
Balance at 30 June 2022
Additions
Disposals
Depreciation expense
Amortisation expense
Balance at 30 June 2023
Leasehold
improvements
$’000
Plant and
equipment
$’000
Software
development
$’000
763
39
–
(370)
–
432
–
–
(378)
–
54
122
62
(4)
(100)
–
80
138
–
(84)
–
134
334
663
–
–
(108)
889
65
–
–
(231)
723
Total
$’000
1,219
764
(4)
(470)
(108)
1,401
203
–
(462)
(231)
911
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.
92
Australian Ethical Investment Limited and its Controlled Entities Notes To The Financial Statementsfor the year ended 30 June 2023ANNUAL REPORT 2023 NOTE 22. NON-CURRENT ASSETS – PROPERTY, PLANT AND EQUIPMENT (CONTINUED)
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
2023
$’000
749
2022
$’000
504
2023
$’000
749
2022
$’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. The deposit increased with the new lease over the Sydney office – refer to Note 21.
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
2023
$’000
2022
$’000
2023
$’000
2022
$’000
–
–
316
316
93
NOTE 25. NON-CURRENT ASSETS – FINANCIAL ASSETS THROUGH PROFIT OR LOSS
Investment in Sentient Impact Group
Consolidated
Parent
2023
$’000
2,600
2022
$’000
5,200
2023
$’000
2,600
2022
$’000
5,200
On 9 December 2021, AEI acquired a minority equity stake (10%) in Sentient Impact Group Pty Ltd (Sentient).
The investment is $5,200,000, payable in multiple instalments, with $4.33m currently paid. In addition,
Australian Ethical has three future dated call options equating to an additional 30% of the equity, exercisable
over the next three years.
Sentient is a Melbourne based impact investment manager. 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.
Refer to Note 37 for further information on fair value measurement.
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 value is
adjusted for return of capital and 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.
Consolidated
Parent
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
2023
$’000
70
2
72
106
–
(38)
4
72
2022
$’000
105
1
106
141
–
(37)
2
106
2023
$’000
2022
$’000
–
1
1
1
–
–
–
1
–
1
1
2
–
–
(1)
1
Refer to Note 37 for further information on fair value measurement.
94
Australian Ethical Investment Limited and its Controlled Entities Notes To The Financial Statementsfor the year ended 30 June 2023ANNUAL REPORT 2023 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. The Group elected to
recognise these as FVOCI as the assets are not part of the Group’s core investment strategy.
On disposal of these equity investments, any related balance within the FVOCI reserve is reclassified to
retained earnings.
NOTE 27: NON-CURRENT ASSETS – RELATED PARTY LOAN
Loan to Subsidiary
Consolidated
Parent
2023
$’000
–
2022
$’000
–
2023
$’000
240
2022
$’000
–
The loan was provided to subsidiary AES to support the ongoing costs of the super fund administrator transition
to GROW. The loan is non-interest bearing until completion of the transition, expected to be in the financial
year ended 30 June 2025. On completion, the loan becomes interest bearing and due to be repaid over a 5
year period. The parent entity support for AES includes waiving any loan repayment obligations to ensure AES
continues as a going concern at all times.
NOTE 28. CURRENT LIABILITIES – TRADE AND OTHER PAYABLES
Trade payables and accruals
Payable to subsidiary
Community grant payable
Consolidated
Parent
2023
$’000
8,509
–
1,323
9,832
2022
$’000
6,753
–
1,815
8,568
2023
$’000
4,722
–
1,099
5,821
2022
$’000
7,812
82
1,509
9,403
Refer to Note 36 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 29. CURRENT LIABILITIES – DEFERRED PAYABLE ON INVESTMENT
Deferred payable on investment
Consolidated
Parent
2023
$’000
871
2022
$’000
1,300
2023
$’000
871
2022
$’000
1,300
This obligation relates to the remaining instalment payment for the acquisition in Sentient Impact Group in line
with instalment notices issued by Sentient. Payment has been deferred to the second half of 2023. Refer to Note
25 for additional details.
95
NOTE 30. CURRENT LIABILITIES – EMPLOYEE BENEFITS
Annual leave
Long service leave
Employee benefits
Consolidated
Parent
2023
$’000
1,556
1,294
3,408
6,258
2022
$’000
1,224
1,070
3,703
5,997
2023
$’000
1,548
1,294
3,372
6,214
2022
$’000
1,215
1,059
3,680
5,954
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 31. NON-CURRENT LIABILITIES – EMPLOYEE BENEFITS
Long service leave
Recognition and measurement
Consolidated
Parent
2023
$’000
444
2022
$’000
284
2023
$’000
428
2022
$’000
284
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 32. NON-CURRENT LIABILITIES – PROVISIONS
Lease make-good
Recognition and measurement
Consolidated
Parent
2023
$’000
324
2022
$’000
258
2023
$’000
324
2022
$’000
258
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.
96
Australian Ethical Investment Limited and its Controlled Entities Notes To The Financial Statementsfor the year ended 30 June 2023ANNUAL REPORT 2023 NOTE 33. EQUITY – ISSUED CAPITAL
Ordinary shares – fully paid
112,782,052
112,387,138
Consolidated
2023 Shares
2022 Shares
2023
$’000
10,332
Movements in ordinary share capital
Details
Balance
Vesting of deferred shares in the
Employee Share Plan (730,200 shares)
Date
1 July 2021
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
2022
$’000
8,969
$’000
10,676
962
23
Shares
Issue price
112,387,138
$1.32
$4.53
–
–
–
$9.80
(2,692)
Balance
30 June 2022
112,387,138
8,969
Vesting of deferred shares in the Employee
Share Plan (525,972 shares), and deferred STI
shares (88,613 shares) to the Investment Team
Vesting of FY20 deferred STI shares
(5,193 shares) – CEO
Vesting of deferred STI shares (24,626 shares)
for FY20 Performance fee, and FY21 deferred
STI shares (7,459) for the CEO
1 September 2022
1 September 2022
1 September 2022
Purchase of deferred shares in the Employee
Share Plan – on-market
30 September to
6 October 2022
–
–
–
–
$2.15
1,322
$4.53
$9.80
24
314
$5.26
(349)
Issue of deferred shares to the Employee
Share Plan
Vesting of deferred shares in the Employee
Share Plan (5,131 shares)
Vesting of deferred shares in the Employee
Share Plan (2,959 shares)
Vesting of deferred shares in the Employee
Share Plan (22,496 shares)
Vesting of deferred shares in the Employee
Share Plan (8,308 shares)
13 December 2022
394,914
$5.29
16 December 2022
16 December 2022
20 February 2023
20 February 2023
–
–
–
–
$4.53
$9.80
$4.53
$9.80
–
23
29
102
81
Balance
30 June 2023
112,782,052
10,515
The following events occurred during the year:
• On 1 September 2022, 525,972 shares that were granted to employees under the employee share plan for
1 September 2019 vested on achieving the performance hurdle.
• A further, 24,626 deferred shares in relation to an FY20 performance fee sharing arrangement for specified
investment team members vested.
• 5,193 shares and 7,459 shares which were a deferred component of short-term incentives granted to the
CEO on 1 September 2020 and 2021 respectively, also vested.
• In September and October 2022, 66,320 shares were purchased for allocation to the CEO/Managing
Director under the FY23 employee share plan. The remaining shares to be allocated to employees under the
employee share plan were issued on 13 December 2022.
The Company measures the value of deferred shares at the price at which the shares were purchased on-
market, or a 60-day VWAP post results announcement where shares are issued. The Company recognises
share grants as a reduction in Issued Capital.
97
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 3-year average responsible entity revenue (uncapped).
The current minimum NTA is $6.1m as at 30 June 2023.
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. The Board may declare a dividend outside that range with due consideration to
retained earnings. Refer also to Note 11 which discusses the provisioning of staff bonuses and community
grants prior to recommending or declaring a dividend under the Group’s constitution.
NOTE 34. EQUITY – RESERVES
Share-based payment reserve
Fair value through other comprehensive
income (‘FVOCI’) reserve
Consolidated
Parent
2023
$’000
2,293
8
2,301
2022
$’000
2,702
4
2023
$’000
2,293
–
2,706
2,293
2022
$’000
2,702
–
2,702
98
Australian Ethical Investment Limited and its Controlled Entities Notes To The Financial Statementsfor the year ended 30 June 2023ANNUAL REPORT 2023
NOTE 34. EQUITY – RESERVES (CONTINUED)
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 45.
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 26). 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 2021
Shares vested under deferred share plan during the year
Employee deferred shares & rights*
Revaluation of investments
Balance at 30 June 2022
Shares vested under deferred share plan during the year
Employee deferred shares & rights*
Revaluation of investments
Balance at 30 June 2023
Share-based
payment
reserve
$’000
FVOCI
reserve
$’000
1,033
(985)
2,654
–
2,702
(1,895)
1,486
–
2,293
1
–
–
3
4
–
–
4
8
* includes employee share plan and deferred shares and ELTI rights granted to employees
Parent
Balance at 30 June 2021
Shares vested under deferred share plan during the year
Employee deferred shares & rights*
Balance at 30 June 2022
Shares vested under deferred share plan during the year
Employee deferred shares & rights*
Balance at 30 June 2023
Share-based
payment
reserve
$’000
FVOCI
reserve
$’000
1,033
(985)
2,654
2,702
(1,895)
1,486
2,293
–
–
–
–
–
–
–
* includes employee share plan and deferred shares and ELTI rights granted to employees
Total
$’000
1,034
(985)
2,654
3
2,706
(1,895)
1,486
4
2,301
Total
$’000
1,033
(985)
2,654
2,702
(1,895)
1,486
2,293
99
NOTE 35. EQUITY – DIVIDENDS
Dividends
Dividends paid during the financial year were as follows:
Final dividend for the year ended 30 June 2022 of 3.00 cents
(2021: 4.00 cents) per ordinary share – fully franked
Special performance dividend for the year ended 30 June 2022
of nil cents (2021: 1.00 cents) per ordinary share
Interim dividend for the year ended 30 June 2023 of 2.00 cents
(2022: 3.00 cents) per ordinary share – fully franked
2023
$’000
3,372
-
2,256
5,628
2022
$’000
4,495
1,124
3,372
8,991
Since year end the Directors have declared a final dividend of 5.00 cents per fully paid ordinary share
(2022: 3.00 cents final dividend). The aggregate amount of the declared dividend expected to be paid on
21 September 2023 out of profits for the year ended 30 June 2023, but not recognised as a liability at year end,
is $5,639,000 (2022: $3,372,000). All dividends paid during the year were fully franked based on tax paid at
30.0%. The final dividend to be paid in September 2023 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% (2022: 30%)
2023
$’000
12,667
2022
$’000
10,716
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 36. 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.
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 (‘ARCC’). 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.
100
Australian Ethical Investment Limited and its Controlled Entities Notes To The Financial Statementsfor the year ended 30 June 2023ANNUAL REPORT 2023 NOTE 36. FINANCIAL INSTRUMENTS (CONTINUED)
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 ARCC. 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 $6,924,000 (2022: $4,369,000).
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, and trade receivables. 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 6 months.
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 and cash flows, and profit & loss statements are reviewed by the Board quarterly
to ensure there is sufficient liquidity within the Group.
Remaining contractual maturities
The following tables detail the Group’s and Company’s remaining contractual maturity for its financial
instrument liabilities. The amounts disclosed in the table are the contractual undiscounted cash flows. Balances
due within 12 months equal their carrying balances as the impact of discounting is not significant.
101
NOTE 36. FINANCIAL INSTRUMENTS (CONTINUED)
Consolidated – 2022
Non-derivatives
Non-interest bearing
Trade payables and accruals
Deferred payable on investment
Total non-derivatives
Consolidated – 2023
Non-derivatives
Non-interest bearing
Trade payables and accruals
Deferred payable on investment
Total non-derivatives
Parent – 2022
Non-derivatives
Non-interest bearing
Trade payables and accruals
Deferred payable on investment
Total non-derivatives
Parent – 2023
Non-derivatives
Non-interest bearing
Trade payables and accruals
Deferred payable on investment
Total non-derivatives
1 year or
less
$’000
Between
1 and 2
years
$’000
Between
2 and 5
years
$’000
Remaining
contractual
maturities
$’000
Over 5 years
$’000
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
Remaining
contractual
maturities
$’000
Over 5 years
$’000
14,462
871
15,512
–
–
–
–
–
–
–
–
–
14,462
871
15,512
1 year or
less
$’000
Between
1 and 2
years
$’000
Between
2 and 5
years
$’000
Remaining
contractual
maturities
$’000
Over 5 years
$’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
Remaining
contractual
maturities
$’000
Over 5 years
$’000
10,917
871
11,788
–
–
–
–
–
–
–
–
–
10,917
871
11,788
Fair value of financial instruments
Unless otherwise stated, the carrying amounts of financial instruments reflect their fair value.
102
Australian Ethical Investment Limited and its Controlled Entities Notes To The Financial Statementsfor the year ended 30 June 2023ANNUAL REPORT 2023 NOTE 37. 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.
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.
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).
Relate to the Company’s
investment in Sentient Impact
Group.
There were no transfers between levels during the financial year.
Fair value measurement of investment in Sentient
As a result of slower than anticipated FUM growth and an ongoing review and refinement of its strategy, a fair
value decrement of $2.6 million has been recognised, reflecting 50% of its value.
In determining the fair value, the Directors' valuation was supported by an independent expert's indicative
valuation range. The Directors will continue to assess the fair value in light of any significant changes in the
business and its future growth.
Sensitivity of fair value measurement of investment in Sentient
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
20% favourable (unfavourable) effect of using reasonably possible alternative methodologies for the valuation
would increase (decrease) equity for the Group by $520,000.
103
NOTE 37. FAIR VALUE MEASUREMENT (CONTINUED)
Consolidated – 2022
Financial assets measured at fair value
Investments
Total assets
Consolidated – 2023
Financial assets measured at fair value
Investments
Total assets
Parent – 2022
Financial assets measured at fair value
Investments
Total assets
Parent – 2023
Financial assets measured at fair value
Investments
Total assets
Level 1
$’000
Level 2
$’000
Level 3
$’000
Total
$’000
1
1
1
1
105
105
71
71
Level 1
$’000
Level 2
$’000
1
1
1
1
–
–
–
–
5,200
5,200
5,306
5,306
2,600
2,600
Level 3
$’000
5,200
5,200
2,600
2,600
2,672
2,672
Total
$’000
5,201
5,201
2,601
2,601
NOTE 38. 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
2023
$
2022
$
2023
$
2022
$
Short-term employee benefits
4,294,110
4,914,352
4,108,700
4,749,673
Post-employment benefits
Long-term benefits
Share-based payments
299,697
72,621
563,980
279,537
184,353
336,883
280,229
72,621
563,980
263,069
184,353
336,883
5,230,408
5,715,125
5,025,530
5,533,978
Information regarding key management personnel’s remuneration and shares held in Australian Ethical
Investment Limited is provided in the Remuneration Report.
104
Australian Ethical Investment Limited and its Controlled Entities Notes To The Financial Statementsfor the year ended 30 June 2023ANNUAL REPORT 2023 NOTE 39. 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
Regulatory assurance services – Group
Regulatory assurance services
– managed funds and superannuation fund**
Assurance services in relation to CPS 234
Tripartite
SFT assurance procedures
ATO Assurance review consulting services
Assurance services in relation to the
Sustainability Report
Other services – KPMG
Tax compliance and advisory services
Accounting advice
Total remuneration of KPMG
Consolidated
Parent
2023
$
2022
$
2023
$
2022
$
136,917
110,617
114,562
83,958
216,439
173,450
216,439
173,450
47,027
37,310
–
–
400,383
321,377
331,001
257,408
52,771
74,444
94,583
30,000
66,625
20,500
49,089
69,250
–
–
18,113
48,216
44,852
–
94,583
30,000
66,625
20,500
–
–
–
18,113
338,923
136,452
259,924
62,965
104,909
–
104,909
844,215
122,198
25,300
147,498
605,327
83,538
–
83,538
674,463
113,588
25,300
138,888
459,261
* These fees include a fee of $25k for audit procedures associated with the dual administration arrangements in place
following the Christian Super SFT.
** These fees are incurred by the Company and are effectively recovered from the funds via administration or management
fees. The addition of new funds and audit work relating to the expanded asset base following the SFT have contributed to the
increase in audit fees.
The Board considered the other non-audit / assurance 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.
105
NOTE 40. COMMITMENTS
As at 30 June 2023, the Group did not enter into any capital commitments other than as disclosed in Note 21.
NOTE 41. RELATED PARTY TRANSACTIONS
Parent entity
Australian Ethical Investment Limited is the parent entity.
Subsidiaries
Interests in subsidiaries are set out in Note 42.
KMP remuneration
Disclosures relating to key management personnel are set out in Note 38 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 Balanced Fund
• Australian Ethical Income Fund
• Australian Ethical Fixed Interest Fund
• Australian Ethical International Shares Fund
• Australian Ethical High Growth Fund
• Australian Ethical Emerging Companies Fund
• Australian Ethical High Conviction Fund (unlisted and listed)
• Australian Ethical Alternatives Fund (unregistered)
• Australian Ethical Defensive Alternatives Fund (unregistered)
• Australian Ethical Unlisted Property Fund (unregistered)
• Australian Ethical Global Credit Fund (unregistered)
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.
106
Australian Ethical Investment Limited and its Controlled Entities Notes To The Financial Statementsfor the year ended 30 June 2023ANNUAL REPORT 2023 NOTE 41. RELATED PARTY TRANSACTIONS (CONTINUED)
Transactions with related parties
The following transactions occurred with related parties:
Consolidated
Parent
2023
$
2022
$
2023
$
2022
$
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
Receipts from the Australian Ethical Trusts:
Provision of investment management services
to the AETs in accordance with the PDS
–
–
–
–
–
–
–
–
–
–
12,737,692
9,219,458
30,339,077
26,483,078
5,875,915
4,278,309
3,529,431
3,357,440
–
764,982
19,675,964
20,599,317
19,675,964
20,599,317
Performance fee
–
375,278
Receipts from Australian Ethical Retail Superannuation Fund:
Provision of investment management
/ administration services to AERSF in
accordance with the PDS
55,173,306
43,625,200
Provision of member administration services to
AERSF in accordance with the PDS
5,108,403
4,729,633
Provision of transition services as part of the
Christian Super integration
193,500
Payments to Australian Ethical Foundation Limited:
Community grants paid to The Foundation
–
–
–
–
–
–
193,500
375,278
–
–
–
1,099,329
1,509,368
Receivable from and payable to related parties
The following balances are outstanding at the reporting date in relation to transactions with related parties:
Receivables:
Amounts receivable from the AETs
555,527
358,057
555,527
358,057
Consolidated
Parent
2023
$
2022
$
2023
$
2022
$
375,278
–
375,278
Amounts receivable from the AETs
– performance fee
Amounts receivable from AES
– trade payables and tax provision
Amounts receivable from AES – loan
–
–
–
–
–
Amounts receivable from AERSF
1,841,445
675,911
Payables:
Amounts payable to AES
Amounts payable to The Foundation
–
–
–
–
4,780,482
9,767
239,899
–
–
–
–
(81,597)
(1,099,329)
(1,509,368)
107
NOTE 41. RELATED PARTY TRANSACTIONS (CONTINUED)
Terms and conditions
All transactions were made on normal commercial terms and conditions and at market rates.
NOTE 42. 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
Level 8, 130 Pitt Street
Sydney NSW 2000 Australia
Level 8, 130 Pitt Street
Sydney NSW 2000 Australia
Level 8, 130 Pitt Street
Sydney NSW 2000 Australia
Ownership interest
2023
%
2022
%
100%
100%
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 46 for further details about the Foundation’s activities.
The Parent entity acquired August Investment Pty Limited in 2020 for the purpose of preventing the brand being
acquired by a third party. As the entity owned no other assets or liabilities, the investment was recognised as
goodwill and amortised to nil after the acquisition was completed.
108
Australian Ethical Investment Limited and its Controlled Entities Notes To The Financial Statementsfor the year ended 30 June 2023ANNUAL REPORT 2023 NOTE 43. RECONCILIATION OF PROFIT AFTER INCOME TAX TO NET CASH FROM OPERATING
ACTIVITIES
Consolidated
Parent
Profit after income tax expense for the year
Adjustments for:
Depreciation and amortisation
Non-cash employee benefits expense -
deferred shares
Change in fair value of investment
Christian Super SFT integration costs
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 other current assets
(Increase) in deferred tax assets
(Increase)/Decrease in other non-current assets
Increase/(Decrease) in trade and other payables
Increase in employee benefits
Increase in other provisions
Increase/(Decrease) in current tax liability
(Decrease) in deferred tax liability
Net cash from operating activities
2023
$
6,576
1,265
2,837
2,600
3,733
–
(738)
(1,642)
118
(636)
(245)
1,264
422
65
605
(20)
16,204
2022
$
9,511
1,205
1,321
–
–
2,480
627
(437)
(437)
465
1,316
1,470
6
(1,364)
(1)
16,162
2023
$
7,021
1,265
2,837
2,600
2,357
–
(960)
(1,642)
480
(243)
(245)
(3,269)
404
65
605
(20)
11,255
2022
$
9,947
1,205
1,321
–
(765)
1,857
627
(575)
(589)
465
3,412
1,483
6
(1,364)
(1)
17,029
Costs relating to the Christian Super SFT have been reported as investing cashflows.
NOTE 44. EARNINGS PER SHARE
Profit after income tax attributable to the owners of Australian
Ethical Investment Limited and its Controlled Entities
Basic earnings per share
Diluted earnings per share
Weighted average number of ordinary shares used in calculating
basic earnings per share
Adjustments for calculation of diluted earnings per share:
Deferred shares
Weighted average number of ordinary shares used in calculating
diluted earnings per share
Consolidated
2023
$’000
6,576
2022
$’000
9,511
Cents
Cents
5.89
5.84
8.57
8.47
Number
Number
111,552,062
111,013,492
1,127,974
1,276,329
112,680,036
112,289,821
109
NOTE 44. 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 45. SHARE-BASED PAYMENTS
Share-based payments includes shares issued to employees under the employee share plan (ESP), deferred
short-term incentives, and rights granted under the Executive long-term incentives plan (ELTI).
As at 30 June 2023, the Employee Share Trust holds 1,118,541 shares (30 June 2022: 1,348,064 shares) on behalf
of employees until vesting conditions are met.
In the current year, $349,000 was paid to purchase deferred shares on-market to be granted to the CEO
under both the Deferred Shares – ESP and Deferred Shares – STI share grants. The remaining shares granted
to employees under the ESP were issued as new shares. In the prior year, $2,692,000 was paid to purchase
all deferred shares on-market. The Board has discretion to decide whether to issue new shares or purchase
shares.
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
–
1,773,134
Granted
Vested
Forfeited
Balance
at the end of
the year
–
–
–
–
–
32,088
32,086
253,279
317,453
(730,200)
–
–
–
(21,653)
614,585
(5,193)
–
–
–
–
–
(735,393)
–
–
(9,299)
–
–
(14,457)
(45,409)
–
5,193
387,011
32,088
32,086
238,822
1,309,785
38,279
1,348,064
Total deferred shares in the Employee Share Trust at 30 June 2022
110
Australian Ethical Investment Limited and its Controlled Entities Notes To The Financial Statementsfor the year ended 30 June 2023ANNUAL REPORT 2023 NOTE 45. SHARE-BASED PAYMENTS (CONTINUED)
2023
Grant date
Vesting date
01/09/2019
31/08/2022
01/09/2020
31/08/2022
01/09/2020
31/08/2023
01/09/2021
31/08/2022
01/09/2021
31/08/2023
01/09/2021
31/08/2024
01/09/2022
31/08/2023
01/09/2022
31/08/2024
01/09/2022
31/08/2025
Unallocated treasury shares
Balance at
the start of
the year
614,585
5,193
387,011
32,088
32,086
238,822
–
–
–
1,309,785
Granted
Vested
Forfeited
Balance
at the end of
the year
(614,585)
(5,193)
(27,623)
(32,085)
–
–
–
–
–
(34,450)
324,938
–
–
–
–
–
–
–
–
(11,267)
(20,416)
41,351
29,300
445,061
515,712
–
–
–
(690,759)
–
–
(17,640)
(72,506)
-
32,086
207,139
41,351
29,300
427,421
1,062,235
56,306
1,118,541
Total deferred shares in the Employee Share Trust at 30 June 2023
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 2023.
Deferred Shares - ESP
Under the Group’s 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 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.
Included under employee benefits expense in the Consolidated Statement of Comprehensive Income is
$1,308,000 (2022: $1,443,000) relating to the deferred shares granted under the long-term employee share plan.
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
$1,010,000 (2022: $845,000) relating to the deferred portion of the short-term incentive plan.
111
NOTE 45. SHARE-BASED PAYMENTS (CONTINUED)
Executive Long-Term Incentives (ELTI)
The ELTI was introduced to retain key senior executives and provide reward for future outstanding performance
to the period ending 30 June 2025 and 2026. 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 years ending and as at 30 June 2025 and 2026, with vesting after the release
of the FY25 and FY26 annual results respectively. The FUM target for the tranche vesting at the end of FY25
includes a multiplier mechanism that provides a stretch target for AEI’s leadership team. The multiplier
mechanism does not apply to the tranche vesting at the end of FY26.
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. At this time, Board’s assessment is that the likelihood of meeting the
performance hurdles by the vest date is less likely than more likely given the recessionary outlook for world
economies, and as such the fair value of these rights has been written down to nil.
The FY26 tranche comprises 245,495 hurdled performance share rights issued, which were issued on
1 December 2022. The ELTI expense is based on the grant date of 1 December 2022. Each share right was
fair valued at $4.54, being the share price on 1 December 2022 discounted for forecast dividend yield. These
share rights will be equity settled at the end of the vesting period. Board’s assessment is that the performance
hurdles for these rights are likely to be met by the vest date.
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 Statement of Profit or Loss and Other Comprehensive
Income is a credit of $125,000 (2021: $339,000 expense) under the executive long-term incentives plan due
to the write-back of the ELTI granted 1 December 2021 being fair valued to nil.
Additional details are available in the Remuneration Report on these employee incentive plans.
NOTE 46. 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 2023, 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
112
2023
$’000
1,099
28
(1,116)
(11)
–
(4)
(4)
2022
$’000
1,509
2
(1,580)
(17)
(86)
1
(85)
Australian Ethical Investment Limited and its Controlled Entities Notes To The Financial Statementsfor the year ended 30 June 2023ANNUAL REPORT 2023 NOTE 46. RESULTS OF THE FOUNDATION (CONTINUED)
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
2023
$’000
2022
$’000
597
1,099
8
71
(1,323)
(12)
440
435
5
440
652
1,509
1
105
(1,815)
(17)
435
434
1
435
NOTE 47. EVENTS AFTER THE REPORTING PERIOD
Apart the dividend declared as disclosed in Note 35, no other matter or circumstance has arisen since
30 June 2023 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.
113
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 2023 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
24 August 2023
Sydney
114
ANNUAL REPORT 2023
This is the original version of the audit report over the financial statements signed by the directors on
24 August 2023. 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 43 to 71 as opposed to pages 29 to 55 as outlined below.
Independent Auditor’s Report
Independent Auditor’s Report
To the shareholders of Australian Ethical Investment Limited
To the shareholders of Australian Ethical Investment Limited
Report on the audits of the Financial Reports
Report on the audits of the Financial Reports
Opinions
Opinions
We have audited the Financial Report of
Australian Ethical Investment Limited (the
We have audited the Financial Report of
Group Financial Report). We have also
Australian Ethical Investment Limited (the
audited the Financial Report of Australian
Group Financial Report). We have also
Ethical Investment Limited (the Company
audited the Financial Report of Australian
Financial Report).
Ethical Investment Limited (the Company
Financial Report).
In our opinion, each of the accompanying
Group Financial Report and Company
In our opinion, each of the accompanying
Financial Report are in accordance with
Group Financial Report and Company
the Corporations Act 2001, including:
Financial Report are in accordance with
the Corporations Act 2001, including:
• giving a true and fair view of the
• giving a true and fair view of the
Group’s and the Company’s financial
position as at 30 June 2023 and of
Group’s and the Company’s financial
their financial performance for the
position as at 30 June 2023 and of
year ended on that date; and
their financial performance for the
year ended on that date; and
complying with Australian Accounting
Standards and the Corporations
complying with Australian Accounting
Regulations 2001.
Standards and the Corporations
Regulations 2001.
•
•
The respective Financial Reports of the Group and the
Company comprise:
The respective Financial Reports of the Group and the
Company comprise:
• Statements of financial position as at 30 June 2023;
• Statements of financial position as at 30 June 2023;
• Statements comprehensive income,
Statements of changes in equity, and
• Statements comprehensive income,
Statements of cash flows for the year then ended;
Statements of changes in equity, and
Statements of cash flows for the year then ended;
• Notes including a summary of significant accounting
• Notes including a summary of significant accounting
policies; and
policies; and
• Directors’ Declarations.
• Directors’ Declarations.
The Group consists of Australian Ethical Investment
Limited (the Company) and the entities it controlled at
The Group consists of Australian Ethical Investment
the year-end or from time to time during the financial
Limited (the Company) and the entities it controlled at
year.
the year-end or from time to time during the financial
year.
Basis for opinions
Basis for opinions
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 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.
Our responsibilities under those standards are further described in the Auditor’s responsibilities for the
audits of the Financial Reports section of our report.
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 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
We are independent of the Group and Company in accordance with the Corporations Act 2001 and the
Ethics for Professional Accountants (including Independence Standards) (the Code) that are relevant to
ethical requirements of the Accounting Professional and Ethical Standards Board’s APES 110 Code of
our audits of the Financial Reports in Australia. We have fulfilled our other ethical responsibilities in
Ethics for Professional Accountants (including Independence Standards) (the Code) that are relevant to
accordance with these requirements.
our audits of the Financial Reports in Australia. We have fulfilled our other ethical responsibilities in
accordance with these requirements.
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
KPMG, an Australian partnership and a member firm of the KPMG global organisation of independent member firms affiliated
logo are trademarks used under license by the independent member firms of the KPMG global organisation. Liability limited by
with KPMG International Limited, a private English company limited by guarantee. All rights reserved. The KPMG name and
a scheme approved under Professional Standards Legislation.
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.
99
99
115
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 audit 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 – ($62.5m) and Administration fees ($12.5m) – Group; and
Management Fees ($50.2m), Administration fees ($12.7m) and Principal Investment Advisory
fee ($5.9m) - 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, 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; and
significance of the fees to the Group
and Company, constituting 92% and
99% of total revenue, respectively.
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 Australian Accounting Standards and
our understanding of the business and industry
practice.
• We read and understood the individual Management
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 and
Administration fees charged using the fee percentages
and FUM, obtained from each of the PDS and
underlying fund financial records respectively as the
basis for revenue recognition in accordance with the
Group and Company’s accounting policy.
• We compared the independently calculated
Management and Administration fee revenue to those
of the Group and Company and investigated significant
differences.
• We assessed funds under management (“FUM”) by:
- testing key controls over the input of valuation data into
the Group 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 report to
100
116
ANNUAL REPORT 2023
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, testing 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 standards.
For Company:
• We read and understood the Management and
Administration fee arrangements in the Investment
Management and 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 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.
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. The Message from the CEO, Message from the Chair, Investment
update, Investment performance and Highlights section 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.
101
117
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.
118
102
ANNUAL REPORT 2023
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 2023 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 29 to 55 in the Financial Report for the year ended
30 June 2023.
Our responsibility is to express an opinion on the
Remuneration Report, based on our audit conducted in
accordance with Australian Auditing Standards.
KPMG
Jessica Davis
Partner
Sydney
24 August 2023
103
119
Shareholder information
Shareholder information as at 1 September 2023
Security
Number of holders
Number on issue
Voting rights
Fully paid ordinary shares
15,448
112,782,052
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
Citicorp Nominees Pty Limited
Ms Caroline Le Couteur
Mrs Judith Margaret Boag
Mr Trevor Roland Lee
Mrs Ann Marion McGregor & Mr Bruce Allan McGregor
Mrs Patty Bik Yuk Tse
Mr Howard Pender
Daisy Thier
HB Sarjeant & Assoc Pty Ltd
National Nominees Limited
Mr Anthony Scott Cook
Mr Phillip Andrew Vernon
Mr Michel Beuchat & Mrs Ann Beuchat
Dr Judith Ingrouille Ajani
Pacific Custodians Pty Limited
BNP Paribas Nominees Pty Ltd
BNP Paribas Noms 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 Friday, 1 September 2023:
• AEF shares closed at $4.54
Securities
70,328,162
24,324,697
5,514,480
8,941,843
3,672,870
112,782,052
Balance
10,754,331
6,578,021
5,066,920
4,789,938
4,154,855
2,300,000
2,150,000
2,014,827
1,899,650
1,785,249
1,529,700
1,507,000
1,323,451
1,061,800
977,379
966,700
964,654
920,773
841,154
833,523
52,419,925
60,362,127
112,782,052
%
62.36
21.57
4.89
7.93
3.26
100.00
%
9.54
5.83
4.49
4.25
3.68
2.04
1.91
1.79
1.68
1.58
1.36
1.34
1.17
0.94
0.87
0.86
0.86
0.82
0.75
0.74
46.48
53.52
100.00
Holders
83
905
752
3,888
9,820
15,448
• Accordingly, 110 or more shares constituted a marketable parcel
• The Company had 1,790 shareholders whose holding was not a marketable parcel, these shareholders owned a total of
135,039 shares
120
ANNUAL REPORT 2023 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)
Sandra McCullagh (Non-Executive Director)
Julie Orr (Non-Executive Director)
John McMurdo (MD & CEO)
Company Secretary
Karen Hughes
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
121
More information
Investment Restrictions
Our investment restrictions include some thresholds.
Thresholds may be in the form of an amount of
revenue that a business derives from a particular
activity, but there are other thresholds we can use
depending on the nature of the investment. We apply
a range of qualitative and quantitative analysis to the
way we apply thresholds. For example, we may make
an investment where we assess that the positive
aspects of the investment outweigh its negative
aspects. For information on how we make these
assessments for a range of investment sectors and
issues, such as fossil fuels, nuclear power, gambling,
tobacco, human rights, and many others, please read
our Ethical Criteria australianethical.com.au/why-ae/
ethics/ethical-criteria/
External tool and data providers
MSCI ESG Research LLC
We have used data and tools provided by MSCI
ESG Research when calculating the sustainability
information for our listed share portfolio 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 12 August 2023, for our listed
shareholdings at 30 June 2023.
More information on MSCI methodology
and metrics is available here: msci.com/
documents/10199/2043ba37-c8e1-4773-8672-
fae43e9e3fd0
and here:
msci.com/documents/1296102/16472518/ESG_
ImpactMetrics-cfs-en.pdf/7a03ddab-46fd-cef7-5211-
c07ab992d17b
MSCI ESG Research is not responsible for the impact
information or the way we have used their data and
tools. MSCI ESG Research (1) retains copyright in all its
data; (2) does not warrant or guarantee the originality,
accuracy and/or completeness of their data; (3)
makes no express or implied warranties of any kind,
and disclaims all warranties of merchantability and
fitness for a particular purpose; (4) has no liability
for any errors or omissions in connection with their
data or for our reporting and use of their data; and
(5) without limiting any of the foregoing, has no
liability for any direct, indirect, special, punitive,
consequential or any other damages (including
lost profits) even if notified of the possibility of such
damages.
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 2023 financial
year.
Use of sustainability information
The sustainability information in this report does not
relate to specific financial products and may or may
not be relevant to individuals' investment decisions.
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.
Investing ethically and sustainably means that the
investment universe will generally be more limited
than non-ethical, non-sustainable portfolios in similar
asset classes. This means that the Portfolio may
not have exposure to specific assets which over or
underperform over the investment cycle. This means
that the returns and volatility of the Portfolio may be
higher or lower than non-ethical, non-sustainable
portfolios over all investment time frames.
122
ANNUAL REPORT 2023 Image credits
COVER: Top right iStock, Alex Aleshin / Top left iStock, Lyndon Stratford / Bottom right iStock, phototrip.cz
p1 iStock, Shannon Stent / p3 iStock, Shaiith / p5 iStock, Ida Jarosova / p11 iStock, AH Design Concepts
p 17 Unsplash, Franco Mariuzza / p18 Unsplash, David Clode / p21 iStock, Pedro Salaverria / p22 Charlie Blacker
p45 Unsplash, Caleb Kastein / p123 istock / pixeldeluxe
Together, we shall continue to shape a
tomorrow that aligns with our values and
paves the way for a brighter future.
The information in this report is general information only and does not take account of your individual
investment objectives, financial situation or needs. Before acting on it, consider its appropriateness to your
circumstances and read the Financial Services Guide (FSG), the Product Disclosure Statement (PDS) and Target
Market Determination (TMD) for the relevant product available on our website for information on the benefits
and risks of our Funds. You should consider seeking advice from an authorised financial adviser before making
an investment decision.
Past performance is not a reliable indicator of future performance.
123
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. 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.