Where you put your money, matters.
In just the last year alone, we’ve seen natural disasters including bushfires, flooding, and drought, affect our entire nation. As a result, there’s been a sharp increase in the number of Aussies looking to invest ethically. In fact, research by the Responsible Investment Association Australasia (RIAA) shows more than 92% of Aussies expect their super to be invested responsibly and ethically. Plus, searches on the RIAA website doubled in January as a result of the bushfire disaster, according to the Sydney Morning Herald.
While many swap takeaway coffee cups for reusable ones or opt for metal straws over plastic to benefit the planet, we seem to stop short when it comes to changing our super. This isn’t surprising as superannuation itself can be a daunting and complex topic, let alone trying to find an ethical option.
However, super is an important part of the Australian economy and, as a result, could play a key role in benefiting our planet (and wallets at the same time).
According to a 2018 study by the University of Technology Sydney (UTS):
If you’re wanting to switch to an ethical super fund but not sure where to start, we’ve put together a handy guide below.
What makes ethical superannuation ‘ethical’?
Before we dive deep into ethical superannuation, we first need to talk about the term ‘ethical’.
Unfortunately, there is no legal definition or regulation around what makes a super fund ethical — it’s just a marketing term and can mean different things to different people based on their own values.
According to MoneySmart, ethical super funds ‘aim to screen out investments in companies that don’t meet certain environmental, social, and governance standards’. Generally, we can look at ethical superannuation as investing in companies and industries that are making a positive contribution to the environment and society and excluding those making a negative impact in accordance with the values of the organisation.
A handy resource
To give you a general idea of what ethical super funds do and don’t invest in, we’ve put together a handy table below:
| What ethical super funds invest in? | What ethical super funds don’t invest in? |
|---|---|
|
|
How do ethical super funds choose what to invest in?
When you’re searching for an ethical super fund, it’s important to understand how your fund provider chooses ethical investment options. Generally, there are three common strategies a super fund might use — negative screening, positive screening, or ESG screening. We give a rundown of each below:
Negative screening
Negative screening is where a super fund ‘excludes’ investments in companies or industries that are engaged in unethical activities or don’t fit with their ethical criteria. For example, Future Super applies a negative screen to any investment options involved in fossil fuels.
Positive screening
A positive screen involves investing in companies that offer a positive impact on society and/or the environment. For example, a super fund using a positive screen will actively look for companies that are engaged in things like renewable energy, education, and sustainable agriculture.
ESG screening
This is where a super fund will determine a company’s ethical worth by assessing their environmental, social, and governance (ESG) risk. For example, if a company’s activities are likely to harm the environment or cause issues for the community, it might be a long-term risk for investors.
Ethical super funds = poor returns: myth or fact?
If you’re considering switching to an ethical super fund, you might be wondering how they compare in terms of returns and fees. After all, you want to make sure you have a big chunk of money ready for you when you retire. However, there’s often a preconceived notion that if you invest ethically, you’ll get poor returns. But, is this really the case?
It turns out; it’s not entirely true. According to a 2019 benchmark report by the RIAA, responsible investment funds have outperformed most mainstream funds over one, three, and five-year time frames in the last decade.
Reminder
In addition to how well your super fund performs, it’s important to factor in any fees involved. Fees have a pretty significant impact on the amount of retirement savings you’ll have. A report by the Productivity Commission found that even just a 0.5% increase in fees can cost a typical full-time worker $100,000 by the time they reach retirement. So, before you switch to an ethical super fund (or any fund, for that matter), it’s worth doing your research and comparing the fee structures with ordinary super funds. Sometimes, fees are higher for ethical super funds as they conduct more research into finding responsible investment options.
Consumer advocacy organisation Choice recently published a graphic that showed how certified ethical super funds fees compared to the MySuper median fee:
An important note
Pros and cons of ethical super funds
To help give you a quick overview of what’s been discussed so far, we’ve listed some of the pros and cons that come with choosing an ethical super fund:
| Pros | Cons |
|---|---|
|
|
What do I look for in an ethical super fund?
Searching for an ethical super fund can be a daunting process. Here are a few key questions you can ask to help make your decision a little easier:
| What companies do they invest in and do they align with your values? | To find out what companies or types of markets a super fund invests in, you can check out their website, product disclosure statement (PDS), or contact the fund themselves. |
|---|---|
| What strategy do they use to find ethical investments? | Find out whether your fund uses negative, positive, or ESG screening to find ethical investment options. |
| What does their long-term performance look like? | As mentioned before, past performance isn’t a promise of future returns. However, it’s worth having a look at their performance over a long period of time. |
| Do they have an accreditation? | When looking for an ethical super fund, you might want to see if they have a Responsible Investment Certification from the RIAA. |
Ethical super funds in Australia
To help you get started on your search for an ethical super fund, we’ve put together a table that lists some of the top funds in Australia. It also includes what they do and don’t invest in as well as what strategies they use.
Please note, this list is by no means exhaustive and products are ranked by alphabetical order. Ensure you check upfront with your super provider to further understand if their product meets your needs. All information provided is correct at time of publication November, 2020.
| Fund | Do invest in | Does not invest in (or has some level of screening for) | Strategies |
|---|---|---|---|
| Australian Ethical | ✓ Education
✓ Green property ✓ Healthcare and medical products ✓ Impact investments ✓ Renewable energy and energy efficiency ✓ Social and sustainable infrastructure ✓ Sustainable land and agricultural management ✓ Sustainable transport ✓ Sustainable water |
✖ Tobacco
✖ Uranium ✖ Coal mining ✖ CSG ✖ Exploitation of people ✖ Old growth forest logging ✖ Armaments ✖ Nuclear power ✖ Animal cruelty |
Negative screening, engagement, and voting strategies |
| Christian Super | ✓ Education
✓ Green property ✓ Healthcare and medical products ✓ Impact investments ✓Renewable energy and energy efficiency ✓ Social and sustainable infrastructure ✓ Sustainable land and agricultural management ✓ Sustainable transport ✓ Sustainable water |
✖ Animal cruelty
✖ Genetic engineering ✖ Human rights abuses ✖ Labour rights violations ✖ Nuclear power |
Negative and positive screening |
| Future Super | ✓ Education
✓ Green property ✓ Healthcare and medical products ✓ Impact investments ✓ Renewable energy and energy efficiency ✓ Social and sustainable infrastructure ✓ Sustainable land and agricultural management ✓ Sustainable transport ✓ Sustainable water |
✖ Alcohol
✖ Animal cruelty ✖ Armaments ✖ Fossil fuels ✖ Gambling ✖ Human rights abuses ✖ Labour rights violations ✖ Logging ✖ Nuclear power ✖ Pornography ✖ Tobacco |
Negative and positive screening |
| Local Government Super | ✓ Education
✓ Green property ✓ Healthcare and medical products ✓ Impact investments ✓ Renewable energy and energy efficiency ✓ Social and sustainable infrastructure ✓ Sustainable land and agricultural management ✓ Sustainable transport ✓ Sustainable water |
✖ Armaments
✖ Gambling ✖ Human rights abuses ✖ Labour rights violations ✖ Logging ✖ Nuclear power ✖ Tobacco |
ESG integration and negative screening |
| Unisuper | ✓ Green property
✓ Renewable energy and energy efficiency ✓ Sustainable transport ✓ Sustainable water |
✖ Alcohol
✖ Armaments ✖ Gambling ✖ Human rights abuses ✖ Labour rights violations ✖ Tobacco |
Positive screening, norms-based screening |
| VicSuper | ✓ No specific themes | ✖ Human rights abuses
✖ Alcohol ✖ Armaments ✖ Fossil fuels ✖ Gambling ✖ Genetic engineering ✖ Nuclear power ✖ Pornography ✖ Tobacco |
Negative screening and ESG integration |
NODDLE is a consolidated online resource, we are not financial advisors. We work with a range of industry professionals and compliance check our articles to ensure factual accuracy. However, we do not provide professional financial advice. Consider seeking independent legal, financial, taxation or other advice to check how the information and ideas presented in this article relate to your unique circumstances.