Australian Ethical Investment : AEF Shareholder Newsletter

Making money

do good

Shareholder Newsletter

August 2016

Celebrating 30years

Chairman and Managing Director's Review Key highlights

Our story

Our commitment to the community Delivering returns in a volatile market

Ahead of the curve

for 30 years

This year Australian Ethical celebrated

a significant milestone - we turned 30.

Over the past three decades, we've seen a significant shift in attitudes towards investments and super. Ethical investing is now part of

the mainstream - or at least the enlightened mainstream. We are proud of the important part Australian Ethical has played in this journey. Our track record shows that investors do not have to compromise returns in order to do what's right. And the great news is, we continue to go from strength to strength.

In FY16, I'm thrilled to report we've increased our net flows by 78%, bringing our total funds under management (FUM) to more than $1.5 billion. In addition, our net profit after tax was up 53% to

$3.0 million.

Many of our managed funds continue to outperform the market. Our Australian Shares Fund was in the top quartile for performance over FY16 and is the #1 best performing Australian Shares fund over the last 10 years (compared to both ethical and non-ethical funds).

Our superannuation membership also grew by 24% in FY16. Over 5,000 new members joined us in that period, with a high proportion opting to roll over their entire super balance to us.

Focused on clients, shareholders, employees and the community There's a bit of an art to balancing the needs of

various stakeholders in a values-based business. We believe in doing what's best not only for our shareholders, but also for employees, clients and the wider community.

On 30 June 2016, we lowered fees on our superannuation fund by 0.22%, which represents a total reduction of 1.3% - over half the fee for a member in our MySuper product - since 2013.

As we grow, we will continue to share the benefits of scale with our clients and prospective new members.

Our share price has increased from $58.80 on 30 June 2015 to $81.11 on 30 June 2016,

benefiting shareholders - even while we lower fees. In FY16, our total shareholder return

was 43%.

None of this would be possible without our employees. In FY16, we launched an office expansion that aims to have our team working in a modern, collaborative environment and allow for growth. We also continue to support employees in their professional and personal lives, with the belief that these two areas are inextricably linked. To ensure that the goals of employees and the company are aligned, each employee is also a shareholder in the business.

2 Celebrating 30 years

Our grants program remains a source of immense pride for us. This year we supported 18 community projects - from animal welfare to environmental conservation to helping alleviate poverty. To date, we have donated over $2 million to community projects, and our recently established Foundation will provide

additional flexibility in how we support charitable organisations in the future.

Operating within the global investment landscape

The pressure to deliver short-term returns can drive companies to deplete the resource base (economic, natural and human) that underpins their own future prosperity. I've been pleased to see increasing discussion on how we can change this trend within international markets and focus capital markets more on the longer term.

At Australian Ethical we're committed to:

• focusing capital on delivering long-term value,

  and

• shifting financial markets towards a more responsible and sustainable footing.

  Global capital is the most dominant force in the world today. Our purpose is to make sure that capital is used for the good of people and the planet. Through our ownership of companies, on behalf of our clients, we are recalibrating

  businesses to focus on creating sustainable, long-

  doing this not only for the prosperity of our company and the nation's economy, but also for the prosperity of our planet.

  Looking to the future

  We have a clear vision for our business. We aim to be the financial services company of choice for conscious consumers. This year we've shown

  we're on track to achieve this vision, and remain a leader in the field of ethical investing.

  We have a goal of reaching $5 billion in FUM by 2020. Ambitious, sure - but we're committed to reaching it. We know this type of growth would allow us to:

• deliver broader services to our clients,

• have greater impact in society for positive

  change, and

• continue to deliver strong returns for our shareholders.

  A 30-year milestone is a great opportunity to reflect. After three decades of ethical investing, we're stronger as a business than ever before. And our core priority - to make money do good for people and the planet - will allow us to operate a thriving, sustainable business well into the future.

  term value.

  One of the biggest threats facing our world today is climate change. I'm proud to say that each day at Australian Ethical we're taking action to address this issue. By refusing to invest in environmentally damaging industries such as coal and logging,

  and by investing in clean energy solutions such as solar and wind, we're directing capital towards sustainable and future-driven industries. We're

  Steve Gibbs

  Chairman

  Phil Vernon

  Managing Director

  Celebrating 30 years 3

  Our year in numbers

  Employee engagement

  2016:

  26,000+

  77%2

  #1

  'BEST RESPONSIBLE

  INVESTMENT

  REPORT' 20151

  Super members

  24% increase since FY15

  27%

  RETURN ON

  EQUITY

  $395,314

  provisioned for community projects3

  Emerging Companies Fund

  AN INNOVATIVE NEW PRODUCT LAUNCHED

• Responsible Investor

Reporting Awards

1. Externally benchmarked by AON Hewitt.

2. Some funds were held back in FY15 for investing in future projects.

4 Celebrating 30 years