The man who brought ethics to investment
First published in Green Connections in 1998.
AFTER MORE THAN 20 years in the world of money, Damien Lynch wants more of it. He wants it not for selfish reasons, but to bring to life a project which would combine both profit and environment. Damien’s project, August Ecoforests, is the culmination of more than 18 sometimes difficult years pioneering the ethical investment industry in Australia.
Although a baby in the investment world, ethical investment has now established itself and is attracting socially and environmentally caring investors, people who are prepared to financially support the works they believe in.
Writing in his 1996 publication Ethical Investment in Australia, Trevor Lee put at over $100 million the value of funds invested in ethical entities in Australia, outside of church based funds. His book identifies a total of 28 ethical investment options. These are no fly-by-night financial operations – they are regulated by the same corporations and credit union laws as the big money players.
Damien was present at the birth of the ethical investment industry and has played a leading part in its development.
Up in the rafters
I spoke to Damien in the modest, turn-of-the-century house he and his partner occupy in Sydney’s inner west and was greeted at the door by two his yapping dogs. Clearing them away, he leads me down a long hall, through a small, tidy kitchen to a table and chairs occupying a covered sitting area in a pocket-sized garden.
Our initial small talk reveals an acute financial and socially concerned mind at work under that head of dark, tangled hair now starting to grey at the edges.
“How did you discover ethical investment”, I ask Damien. He replies that he almost fell into it from the rafters.
“I was up in the rafters, building the convention centre which is now Ontos. The very first booking they had was for a group of who had organised the second ever Permaculture design course. That was in 1980”. Damien enrolled in the course and was inspired by Bill Mollison, the man who, with David Holmgren, had only a few years earlier ‘invented’ Permaculture.
Bill’s proposal that people should use their money to create their own financial institutions caused controversy among the students, but to Damien it was a revelation.
A new phase
Now, things started to happen. Inspired, Damien and three or four people from the course formed a company and named it after the investment club Damien had been a member of and which had been formed during the month of August. In 1981, August Investments, Australia’s first ethical investment company, was born.
“We wanted to do general sorts of investment but put 20 percent of our investment funds into permaculture projects”, Damien explained, sitting back in his chair and turning his eyes skywards as he recalled those heady, exciting days of eighteen years ago. “To my surprise I had two or three people over a period of two months knocking on my door… they wanted to invest in the new company, yet we had made no attempt to market August Investments… it just grew and grew…”.
Soon the legal limit of 50 investors was reached and, to allow investment to grow, a unit trust and management company became a legal necessity. “So we set about organising that. It became Australian Ethical Investments”.
1981 was a significant year for the nascent ethical investment industry. In that year, the formation of August Investments was followed by Maleny Community Credit Union in Queensland and by Southern Cross Capital Exchange in Sydney. There was already the Macauley and Fitzroy credit unions set up by the Brotherhood of St Lawrence in Melbourne, with a focus on assisting low-income people in those areas. August Investments was the first in the world, as far as Damien knows, to have a positive focus in identifying things they intended to invest in such as renewable energy, reforestation and community projects, rather than simply identifying businesses they would not invest in.
No precedents
Damien explains how a diverse background led him to the world of investment. “I spent six and a half years studying to be a priest… I studied economic history and English literature at uni… I drifted for many years… worked at Kings Cross as a night porter… taught for a couple years… was a bus driver. I became interested in share trading and by 1979 I was living off it full time… living off gambling, basically. That gave me the freedom to go traveling and to come across Bill Mollison. Then, my life totally changed and purpose entered it in a big way”.
This sense of purpose was to prove crucial to pursuing the development of ethical investments. When I ask Damien about how he got around the obstacles of the 50-investor limit and of setting up a management company, I am made aware of another of his traits – persistence – a trait motivated by his sense of purpose.
Persistence was needed to overcome the resistance of state Liberal and Labor governments to the setting up of small investment organisations. Finally, they obtained a security dealers licence and a prospectus. “It was a bit of a phyrric success because by the time we had the authority to go ahead and raise money, we were headed into a recession. The prospectus was launched on the day of the mini-crash in 1989”.
Today’s restraints
Getting the dealer’s licence might have been the biggest restraint on starting the industry, but what about the restraints which exist today?
“The main restraint is the perception that ethical investment is a pseudo-charity”, he replies. “The perception is that you can’t make money out of doing good. This is not true. A further restraint is that it is new. A lot of people, even Greens, would rather go with the big institutions. Yet another restraining force is people having too high expectations, expecting that the funds should be perfect”.
Leaning forward, Damien’s expression takes on an intensity as he speaks about his passion of making money by doing good, of helping small projects in need of start-up capital and of turning capitalism into a force which could empower communities and small business rather than hinder them.
Our discussion turns to the future. If rates of investment reflect the relative affluence of investors, then the findings of social researcher Hugh Mackay might not be promising. According to Mackay’s research, society as a whole is becoming poorer. The real value of incomes is falling as a sense of insecurity and fear of the future increase. The Australian middle class, Mackay claims, has split. A small number have become significantly more affluent while the larger portion has experienced declining financial wellbeing. I put it to Damien that although ethical investment has grown since 1981, the social scanario outlined by Hugh Mackay might influence investment in the future.
“Ethical investment is growing”, Damien emphasises. “However, there has been a slow down over the last six months. Australian Ethical Investments has had a slow year, it’s only brought in about five million dollars. The average growth within that fund, and August Investments before it, was about 30 percent per annum, a growth rate of around one-third a year, but that’s now increasing. More people are finding out about ethical investment and there’s the push for superannuation which Australian Ethical is catering to.”
So, who puts their money into ethical investments? Damien explains that the suspicion of money common to environmentalists has declined. So, is it the small, less-affluent investor that is providing the bulk of support to the industry?
Damien sat back and considers the question. “My observation is that poorer people want to put their money into this and they will usually scrape together the minimum of a couple of thousand dollars. Wealthy people tend to see it as a good cause and put the same amount in. I’ve heard that this is beginning to change and that wealthy people are starting to put in larger amounts,” replies Damien.
Investing in trees
History discussed, we turn to Damien’s immediate project, August Ecoforests, an innovative initiative in ecologically sustainable forestry.
Over a quarter of the needed funds have so far been raised and the search for land is on. When land is secured, a design team will be brought together.
“The minimum investment is $10,000. We’ve done analysis on the difference between long term cabinet timber and short term woodchip timber. We’re projecting that the prices of the longer-growing timbers will increase more dramatically than the short term rotations. That has actually happened in the last three to four years.
I left that interview with Damien feeling optimistic about the future of ethical investment in Australia. Had, at last, the time come for a positive and future-oriented industry that would overcome the negative view of money held by progressive-thinking people. Perhaas, at last, money would come to be seen as an enabling thing rather than merely being associated with greed,
Update – 2005
August Ecoforest became EcoForest Pty Ltd and found land in the Upper Hunter Valley. This was planted to mixed hardwoods, including Eucalypts. Roads and water storages were constructed and visitor cabins planned. For a time I worked for the company developing its communications.
All went well for a few years, then the level of investment fell away and current costs ate into the budget.
The fate of EcoForest raises serious questions about the willingness of Green and others with an environmental point of view (EcoForest was not aimed only at this group) to invest in the things they presumably believe in.
In 2005, EcoForest Pty Ltd was forced into receivership because of insufficient investment.