Australia has ventured furtively into the world of compulsory financial philanthropy. A new provision, s1013D of Australia's Corporations Act 2001, requires fund managers, superannuation funds and life insurance companies to disclose "the extent, if any, to which labour standards, environmental, social or ethical considerations are taken into account in the selection, retention, or realization of the investment".
The provision was inspired by Regulation 11A of the UK Occupational Pension Scheme (Investment) Regulations 1996. Socially responsible investments (SRI) are likely to top £300 billion ($430 billion) by the end of the year. The pension scheme provision has been positive in the UK, but the context in Australia has been very different. Most of the big finance houses are offering SRI products but the market is immature, worth an estimated A$10.5 billion ($5.5 billion) in total. While the UK provision applies to pension funds only, the Australian provision is more general.
With penalties of around A$24,000 per offence, the new provision represents a legal risk to the finance industry. On the one hand, a valid response to the disclosure requirement could be: "I did not take labour standards, environmental, social or ethical considerations into account at all." On the other hand, with a trend towards SRI, this may be unwise from a commercial point of view. Reporting formats will have to be developed which respond to the legal risk as well as the commercial risk. One legal issue is the constitutionality of proposed penalty provisions to be contained in any Australian Securities Investments Commission (ASIC) guidelines. Another issue is the extent to which the s1013D requirement cuts across a professional investor's fiduciary duties to maximize profits.
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