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January 03, 2003
Australia To Require Investment Firms to Disclose How They Take SRI into Account
    by William Baue

A 2002 Australian law that requires all investment firms to disclose how they take socially responsible investment issues into consideration will take effect in March 2003.

The socially responsible investment (SRI) movement for transparency and disclosure continues to make itself known around the world. In March 2002, the Australian government passed the Financial Services Reform Act. The Act requires that by March 2003 all investment firms' product disclosure statements (PDSs) include descriptions of "the extent to which labour standards or environmental, social or ethical considerations are taken into account."

Late last month, the Australian Securities and Investments Commission (ASIC) released a discussion paper entitled Socially responsible investing disclosure guidelines? ASIC, a government agency that enforces laws designed to protect consumers, investors and creditors, released the paper to solicit public opinion on how to implement the new disclosure requirements. The proposed guidelines would apply not only to the 74 SRI products but to all investment products available in Australia.

The main arguments for having guidelines are (1) to provide the industry with a clearer picture of how it can meet the new disclosure obligation which will help (2) make sure consumers will be provided with more information so they can evaluate whether the products they purchase coincide with their SRI goals.

ASIC Deputy Executive Director of Consumer Protection Delia Rickard commented, "ASIC does not intend to tell product issuers what labour standards or environmental, social or ethical considerations they should look at. Nor will ASIC be telling SRI funds what methodology they should use. Rather, we are saying that while it is up to product issuers to determine what [issues they evaluate], and how they make their assessments, they must ensure that consumers are aware of their approach."

ASIC cites as precedent the July 2000 amendment to the United Kingdom Pensions Act that requires pension fund trustees to disclose "the extent (if at all) to which social, environmental or ethical considerations are taken into account" in their investments.

ASIC plans to vary the degree to which investment firms must report depending on the degree to which they claim to take these considerations into account.

"All investment products will need to address SRI issues in their PDS to some extent," said Ms. Rickard. "The more a product promotes itself as taking into account labour standards and environmental, social or ethical considerations, the more detailed the PDS disclosure will need to be. Product issuers should tell consumers whether or not there are specific standards and considerations they take into account (and if there are, what those are) and whether or not they have a methodology for doing so (and if they do, what it is.)"

Furthermore, the guidelines would require investment firms that profess to practice SRI to report on how the monitoring of their investments ensures they continue to comply with their stated environmental, social, and ethical criteria.

The ASIC will be accepting comments through February 28, 2003.


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