Thursday, April 08, 2010

Australian Ethical Climate Advocacy Fund

Australian Ethical Investment (AEI) have set up a Climate Advocacy Fund to use collective shareholder activism for companies to behave better on environmental and social issues. Apparently this is common in the USA, but not in Australia. Concerned members of the public can invest in the fund. The fund then buys shares in companies. Unpaid nominees for the fund vote at shareholder meetings to change the company policy. I have volunteered to be one of the nominees, as well as having some investments in AEI and being a shareholder.

Labels: , ,

Friday, February 12, 2010

Islamic Finance in Australia

The Australian Trade Minister, Simon Crean launched the 40 page report "Islamic Finance" today (2.75mb PDF). This aims to find a role for Australia in the fast growing Shariah-compliant financial services industry.

In 2008 I attended the Malaysian Corporate Governance Conference at the Securities Commission, Kuala Lumpur, the regulator for Islamic capital markets in Malaysia. The Australian government has a long way to go having produced just one report, with the Malaysian government producing a book store full of publications on Islamic capital markets and the free "Quarterly Bulletin of Malaysian Islamic Capital Market".

The Australian Trade Commission (Austrade) clearly have Malaysia in mind, with a photograph of the Petronas Towers featuring in their report.

As noted in the report (and as I noted at the conference in Malaysia), Islamic Banking has much in common with ethical investment by companies such as "Australian Ethical Investment". However, the report downplays the level of infrastructure and regulation which the Australian government would need to put in place to support Islamic finance.
Executive Summary 5
Global Development of Islamic Finance 7
What is Islamic finance? 7
Historical development 9
The global financial crisis and Islamic finance 9
Demand for Islamic Finance 11
Size of the market 11
Demand for Islamic finance 12
Factors driving future growth of Islamic finance 15
Supply of Islamic Finance 17
Type of Islamic financial institutions 17
Key countries for Islamic capital 17
International Self-Regulation 19
Islamic Financial Services Board (IFSB) 19
Accounting and Auditing Organisation for Islamic Financial Institutions (AAOIFI) 19
Challenges for Islamic Finance Providers 20
Opportunities in Australia 21
Specific opportunities in Australia 21
Wholesale banking and finance 21
Retail banking 27
Insurance 27
Education 28
Facilitating the growth of Islamic finance in Australia 29
Government policies 29
Appendix A: Explanation of key Islamic financial products and services 30
Appendix B: Description of the key countries involved in the Islamic banking and finance industry outside of the Middle East 34

Executive Summary

Global development of Islamic finance

Islamic finance is one of the fastest growing segments of the global financial services industry. Shariah-compliant financial assets have been growing at over 10 per cent per annum over the past 10 years.1 Measured by Shariah-compliant assets of financial institutions, the global Islamic finance industry is estimated at US$822 billion in 2009.2

Growth is being driven by the following factors:
  • petrodollar liquidity: Foreign investment plays an important role for petrodollar investors, whose domestic economies and financial systems are too small to absorb all capital from oil export revenues. This presents significant opportunities for the Islamic banking and finance industry. Petrodollar liquidity is expected to remain high over the long term due to the finite supply of oil reserves;
  • Muslim population: Relatively rapid Muslim population growth worldwide and rising living standards will see increased demand for Islamic finance;
  • low penetration levels: In spite of growth in the Islamic banking and finance industry, there remains a lack of depth across asset classes and products, signifying untapped potential. There is considerable scope for further development of Islamic banking and finance in countries such as Indonesia, India and Pakistan, which have the largest Muslim populations in the world; and
  • ethical character and financial stability of Islamic financial products: Islamic financial products have an ethical focus (notably excluding investment in alcohol and gambling) and a risk profile that will also appeal to a wider ethical investor pool.
Currently, the Middle East and South East Asia are the primary locations for Islamic capital. In particular, the United Arab Emirates, Bahrain and Malaysia are seen as the main centres of Islamic finance, with significant activity also taking place in the United Kingdom and more recently in Europe, Africa and Indonesia.3

The demand for Islamic finance has not been matched by supply despite the rapid growth in the sector in recent years. An increase in supply is necessary to meet current and expected demand.

Opportunities in Australia

Islamic finance has considerable potential to become an important element in Australia’s aspirations to be a global financial services centre in the region. It has the potential to facilitate further innovation and competition in the wholesale and retail banking sectors and to support the Australian Government’s commitment towards credit market diversification.

Australia’s growing trade linkages with Asia reflect the demand for Australian commodities from developing countries such as China and India. Of the top 10 trading partners, eight are in the Asia Pacific Region with China and Japan being the country’s top two-way trading partners.

Continued growth in major Asian economies will result in a need to develop resources-related services and infrastructure, which are ideal assets for some forms of Islamic financing, such as Sukuk, Mudaraba, Murabaha and Ijarah. Australia is well positioned to structure and offer such instruments as part of financing packages for resources-related development.

Australia’s Muslim population of 365,000 (1.7 per cent of the total population),4 exceeds the combined Muslim population of Hong Kong and Japan and is more than half of that of Singapore. Australia’s political stability and geographic position, especially its proximity to the large Muslim populations of the Asia Pacific where 62 per cent or 972.5 million of the world total Muslim population resides,5 present an important base to service this fast growing sector in the global financial services market.

Australia’s attractiveness as a financial centre is supported by a sizeable domestic economy and financial market. The nation has the fourth largest economy in the Asia Pacific (after Japan, China and India). Australia’s finance and insurance industries generate around 8.1 per cent or A$82 billion of real gross value added.6

Australia’s financial sector has remained strong, continuing to develop as a regional and global centre during the global economic downturn. In The Financial Development Report 2009, the World Economic Forum (WEF) ranked Australia the second among 55 of the world’s leading financial systems and capital markets. This is up from 11th place in 2008 and ahead of the US, Singapore and Hong Kong.

Australia’s deep and diverse financial markets have attracted global institutions and service providers to establish operations in Australia.

Access to the nation’s highly skilled and multilingual workforce, advanced business and information technology infrastructure, sound regulation regime and enviable lifestyle, have enabled investors to capture both domestic and regional opportunities in financial markets.

Australia is well placed to take advantage of the Islamic finance opportunity, with widely recognised strengths in retail and commercial banking and experience in infrastructure, property, resources and agricultural financing.

Specific opportunities for Australia include:
  • attracting foreign full-fledged Islamic banks and conventional bank Islamic windows to establish operations in Australia;
  • attracting investment in Australian assets and businesses from overseas Shariah investors and tapping into new funding sources through Sukuk and other securitised issues;
  • Australian-based banks providing from Australia a range of Shariah-compliant investment and financing products and services to Islamic banks, corporations, institutions and high net worth individuals in the Asia Pacific and the Gulf regions;
  • fund managers establishing Shariah-compliant funds for Asian and Gulf institutional and high net worth individual investors;
  • local exchanges providing an Islamic listings platform for domestic and international issuers of Shariah-compliant instruments;
  • provision by Australian-based financial institutions of Shariah-compliant/ethical financial services and products to Muslim and non-Muslim customers in Australia;
  • Australian-headquartered banks and insurance companies exporting Islamic financial services through windows as they grow their operations into Asia; and
  • Australian-based financial firms, professional services providers and educational institutions exporting their services into Asia and the Gulf.
Australian Federal and state governments recognise that growth of Islamic finance in Australia requires supportive government policies. It is important that there is:
  • a level taxation, legal and regulatory playing field for Islamic and non-Islamic finance. Taxation must be responsive and enabling but non-preferential;
  • strong promotion and facilitation through government investment attraction and export promotion agencies;
  • government engagement with the private sector in achieving Islamic finance objectives, identifying impediments to, and opportunities for growth;
  • a focus on deepening Islamic finance skills – education, training, attainment of relevant qualifications – and on access to appropriate Shariah scholars; and
  • growth in Islamic finance professional services providers.
1 Standard & Poor’s, Islamic Finance Outlook 2009, 12 May 2009, p.5.
2 The Banker, Top 500 Islamic Financial Institutions, November 2009.
3 IFSL, Islamic Finance 2009, February 2009; The Banker, ‘Banker survey shows the growth in Islamic finance,’ 28 October 2009.
4 Australian Bureau of Statistics 2006 Census.
5 Pew Research Centre, Mapping the Global Muslim Population – A Report on the Size and Distribution of the World’s Muslim Population, October 2009.
6 Australian Bureau of Statistics (ABS), cat. no. 5206.0, National Income, Expenditure and Product, March Quarter 2009, Times Series Workbook, Table 6.
From: Islamic Finance, Australian Trade Commission (Austrade), January 2010 (released 12 February 2010)

Labels: , , , , ,

Tuesday, October 20, 2009

Australian Green Property Fund

Australian Ethical launched an Australian Ethical Property Trust in October 2009. This will invest in 5 Star Green Star and above rated buildings. A good example is Australian Ethical's 6 star rated HQ in Canberra. This was refitted at relatively low cost from an old brick building. Most of the examples of green office buildings are hi-tech ones, full of expensive and complex equipment.

Of the hitech buildings around, the ones, one of the better seems to be the Majuira Park complex at Canberra Airport, with facilities like like Trigeneration. The buildings have their own natural gas powered electricity generating plant. Waste heat from the plant is used to heat the buildings in winter and, using absorption chillers, cool them in summer.

Another hitech green building in Canberra is Canberra Data Centres. This is a low cost retrofit of an old warehouse, at least as low cost as a data centre with backup power supply can be.

Labels: , ,

Sunday, June 21, 2009

Ethical investing and Green IT

In "Ethical issue: Green IT" (Aim High newsletter, Winter 2009), Australian Ethical Investment discuss the ethics of computers and investing in them. As AEI point out claims that computers could reduce greenhouse emissions, the most visible result is large amounts of electronic waste in landfill and large energy consuming data centres.
AEI avoids investing in electronics component manufacturers and distributors due to environmental risks. However, they do support Internet, telecommunications and software companies (having done well out of the late 1990s boom). Companies invested in include VMWare for virtualisation software, eServGlobal for mobile phone and Internet account management packages and Adobe Systems for e-document software. One area where AEI could do better is to make its web site more environmentally friendly. At 416 kbytes for eight pages, their newsletter uses about twice as many resources as it needs to. Also because the newsletter is only available in PDF format, it is necessarily to download all eight pages, even if you want to just read the one article on Green IT. This results in sixteen times the resources being used. While a web page does not use much in the way of energy to store and transmit, it all adds up to greater amounts of toxic waste and greenhouse gas emissions.

Labels: ,

Wednesday, August 20, 2008

Ethical Investment Roadshow

Australian Ethical Investment Ltd. is doing a series of roadshows in Australia and New Zeeland. James Thier, Executive director, talked in Sydney last night (Tuesday 19 August 2008). He gave a realistic overview of ethical investment (and the different terms such as Socially responsible investing and sustainable investing), how it is intended to help the community and the environment and his company's superannuation and trust investment products.

James did a reasonable job of a difficult task of selling investments in the current negative financial environment. Like other investments, the value of Australian Ethical's have gone down recently. But most of the presentation concentrated on the long term gains the fund has made and the social and environmental value of the investments.

One question I had was about the mechanics of the AEI process. I have been an AEI investor for some years (even bought some shares in the company). One frustration has been the difficulty of making regular investments. With less ethical superannuation funds, after I fill in the complicated application form they give me a BPAY code. I can make an additional investment simply by making a BPAY payment through my bank. The BPAY code indicates who I am and what fund the money has to go into. There is no need to fill out any forms. AEI now allows BPAY for trust investments, but seems to still want me to send details of my payment separately for superannuation. This is an error prone and inefficient process.

James mentioned he had done a study overseas. A quick web search found that he was a 2006 Churchill Fellow:
Fellowship travel was undertaken from April 4 to June 6, 2007. The intent was to visit organisations actively participating in a variety of shareholder advocacy roles. These included the more traditional/corporate perspectives of investment houses through to activist undertakings of NGOs. A significant element in the mix is faith-based organisations, which are increasing willing to attend to matters outside their normally prescribed domain, such as climate change. In addition, there is a growing profile which sees the need to address policy formulation in the endeavour to effect real and lasting improvement.

The dimensions of this investigation were not only significantly different from what is often the case in Australia, but equally there proved to be considerable variation
within norms of the countries visited.

Sacramento – CalPERS is one of the largest pension funds in the world and a leader in corporate governance with respect to issues of shareholder value.
Boston – Attending the Ceres conference on Climate Change. Meeting with Tim Smith, Senior Vice President, after his move to Walden Asset Management to enhance their active proxy voting as a means to secure public and management attention.
New York - Interfaith Centre of Corporate Responsibility provides guidance and co-ordination on social issues to faith-based members and a broader constituency, including acting as a clearing-house for information on shareholder actions.
Amsterdam – Meeting Professor Harry Hummel of SNS who is pre-eminent in socially responsible product innovation.


Shareholder activism is a broad paradigm through which individuals or groups can exert pressure on companies to affect a particular corporate practice.

Provide procedural infrastructure/produce alternative products to enable new possibilities whereby Australians can influence corporate decision-makers in a concrete, non-confrontational manner
• Establish a framework/methodology for co-ordinating participants and institutional investors to act in a common interest
Consider an integrated approach to the often disparate programs of
corporates, NGOs and faith-based organisations

Implementation and Dissemination

Research findings will be disseminated through regular public presentations and in association with a broad range of networks – professional and community, as well as media contacts and via publications. Promotion to 40,000 people occurred through
newsletter and a keynote speaker at a Climate Change summit comprising hundreds of attendees, in July 2007.

Possibly new approaches to investment product formulation and manufacture. ...

From: Executive Summary, "To examine the mechanisms of shareholder advocacy, especially resolutions proposed at Annual General Meetings, used to improve the ethics of corporations and promote ecological sustainable and socially just enterprises", Report by James Thier, The Winston Churchill Memorial Trust of Australia, 10 September 2007
ps: I noticed that with his business suit James was wearing what appeared to be a pair of canvas and rubber walking boots. I don't know if this was to avoid animal products or against child labour for shoe making in third world countries, or just for comfort. If reminded me of an eminent IT professor who once gave a keynote speech at a conference. I was in the front row and so could see he was wearing hiking boots with his suit.

Labels: , , , , ,