The super funds that protect the planet as well as your retirement

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When superannuation funds survey their members about what issues are important to them, climate change and other environmental issues are often at the top of the list.

For example, Aware Super's 1.1 million members are telling the fund, loud and clear, that it wants Aware to take a strong stand on climate change and use its massive $150 billion investment muscle in Australian and global share and property markets to work with companies to decarbonise.

Aware Super is one of 13 highly rated superannuation funds for its responsible investment practices by the Responsible Investment Association of Australasia (RIAA). Some of Aware's standout investment moves include committing $1 billion to renewables and low-carbon technology investments over the past 12 months, getting out of thermal coal mining and reducing emissions in its listed share portfolios. It is investing $900 million in providing 1400 affordable rental apartments for essential workers - many of whom are members of Aware, charging them 80% of the market rate for the area.

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Superannuation fund members who have strong views on certain issues such as climate change, tobacco, weapons, preserving the rights of first nations people, harmful mining practices, nuclear power, gambling, human rights abuse, and alcohol, can line up their retirement savings with their views.

What's more, responsible investing - also labelled green, ethical, sustainable as well as environmental, social and governance (ESG) - can deliver a higher return than a fund that isn't.

By how much?

The superannuation funds rated as responsible investors outperformed their peers by 0.87% over one year and 0.56% over 7 years, according to the RIAA's super report, released at the end of 2021. It mightn't sound like a lot but because of the long term nature of superannuation, the compounding effect can be significant to retirement savings.

The average performance of leading responsible investment super funds' My Super products is better than non-leaders over three, five and seven-year timeframes, according to the RIAA.

There are no established standards of what responsible means, so investors need to do their homework to make sure their chosen superannuation fund matches their criteria.

For example, you can select a super fund that ditches the sin stocks and selects the companies involved with positive infrastructure and technology businesses of the future.

Also there are super funds that actively force companies to change by engaging with them. You want transparency about how it is using its investment muscle to meet with senior managers and vote at annual meetings.

Superannuation is one direct route to boost companies with low carbon emissions and shun the companies emitting loads of greenhouse gases. There is even a superannuation fund that has no exposure to fossil fuels, Future Super.

But while some superannuation funds are leading the way with responsible investing, the vast majority of super funds are yet to set quantifiable performance targets on ESG issues to ground the implementation of responsible investment strategies, explains the RIAA's CEO Simon O'Connor..

The RIAA rates 13 superannuation funds based on research carried out in 2020 as leading responsible investment super funds for demonstrating a commitment to good governance and accountability as well as putting in place and monitoring responsible investment approaches through activities such as engagement and voting. The superannuation funds that the RIAA says properly measure outcomes and have a high degree of transparency are Active Super, Australian Ethical Super, AustralianSuper, Aware Super, BT Superannuation, CareSuper, Cbus, Christian Super, HESTA, Mercer Superannuation (Australia) Limited, Rest, UniSuper and Vision Super.

These funds all employ a team of ESG and responsible investment staff, which allows them to deliver responsible investment in a more systematic manner than non-leaders, says the RIAA.

They typically have a greater gender balance on the board too. The RIAA found that while the superannuation leaders only make up a quarter of total funds, they have 44% of the total gender-balanced boards.

Future Super isn't a MySuper fund, so it doesn't qualify to be rated by RIAA. It was rated by Money magazine as the fastest growing superannuation innovator earlier this year.

Future Super's investment strategy is three-pronged: it divests of all fossil fuels, including companies and assets that provide services to the fossil fuel industry such as finance and transport.

It also invests in investments that make a positive impact on climate change such as solar farms. It also uses its voting and engagement rights that come with being an investor to push companies to improve aspects of their business such as climate change or supply chains.

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Susan has been a finance journalist for more than 30 years, beginning at the Australian Financial Review before moving to the Sydney Morning Herald. She edited a superannuation magazine, Superfunds, for the Association of Superannuation Funds of Australia, and writes regularly on superannuation and managed funds. She's also author of the best-selling book Women and Money.

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