How to invest ethically through your super fund
Australians are voting with their feet, looking for investments that are kind to people and the planet. If that's on your wish list, it's possible to have a strong voice in what your super funds.
More of us are realising that our money matters when it comes to supporting a cause. Research by the Responsible Investment Association Australasia (RIAA) found 86% of Australians expect their savings and super to be invested responsibly and ethically.
This level of interest has seen the market for responsible investments (including super) soar to be worth $1281 billion in 2020, up from $983 billion in 2019.
Nicolette Boele, the executive of policy and standards for RIAA, says, "This dramatic shift of capital is being fuelled by changing consumer expectations, strong financial performance and the rising materiality of different social and environmental issues - from climate change to racial inequity."
If you're keen for your super to match your views, five steps can help you get started.
1. Know what 'ethical' looks like to you
'Ethical' investing means different things to each of us.
So a sensible starting point is to consider the issues that matter most to you - be it renewable energy, sustainable land management, or human rights to name a few.
2. Check if your fund matches your views
Once you have a clear idea of your ethical views, take a look at your fund's policy around environmental, social and governance (ESG) issues. This should be set out on the super fund's website.
It can help to look for third-party credentials and concrete facts rather than vague claims. As a guide, in 2020, Aware Super received the highest A+ Rating from the UN-backed Principles of Responsible Investment (PRI). REST Super owns the Collgar Wind Farm in Western Australia, which generates over 25% of the state's wholesale renewable electricity.
Bear in mind, you're entitled to ask your fund for a breakdown of the companies and projects it invests in to see how well your super aligns with your views.
3. Search for what matters to you
To really drill down into which super funds match your views, the Responsible Returns website (an initiative of the RIAA) has a handy online search function that lets you find a fund that ticks your boxes for ethical investing. It also lets you screen out issues you want to avoid such as logging, armaments or fossil fuels.
As a guide, if animal cruelty is a pet aversion for you, a number of investment options within Christian Super, Future Super and VicSuper exclude animal cruelty.
What's so useful about the Responsible Returns search tool is that it doesn't take a 'whole fund' approach. The search results name each fund's specific investment option that match your views.
4. Look for a 'responsible leader'
As more Australians look for ethical investment choices, there's a growing trend to give investment options marketing labels that suggest ethical or eco-friendly strategies.
This has coined the term 'greenwashing', meaning the potential for funds to overstate the extent to which their practices are eco-friendly, sustainable or ethical.
As Boele notes, "It's not good enough to simply claim you're investing responsibly." Reflecting this, investment watchdog ASIC is conducting a review to see whether super funds' investment strategies are as green as they claim.
In the meantime, if you have broad ethical views, you may be comfortable choosing a super fund listed as a 'Responsible Investment Leader' by the RIAA. In 2021, these funds include:
- Active Super (formerly Local Government Super)
- Australian Ethical
- Aware Super
- Christian Super
- Future Super
- REST, and
5. Consider the total picture
It's great if your super fund matches your ethical stance. But it shouldn't mean sacrificing decent returns or low fees. So it's worth looking at the overall picture.
Figures from SuperRatings show the top 10 sustainable balanced super options have all delivered returns topping an average of 8.7% annually over the past five years.
HESTA's Sustainable Growth option provided the highest return to members over the last five years for a dedicated sustainable option, with a return of 11.8%. That's 1.2% above the highest balanced option return over the same period.
Other strong performers were VicSuper's FutureSaver - Socially Conscious option, which returned 9.8%, and Australian Ethical's Balanced option with five-years gains averaging 9.3% annually.
Get stories like this in our newsletters.