INVESTING

What is the role of ethical investing?

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One way to support companies with positive environmental, governance and social practices is to choose a "green" super fund.

There are around 100 funds that invest in socially responsible companies, typically avoiding pollution, tobacco, gambling, alcohol and worker exploitation.

How do green super funds perform? The latest survey of the 100 socially responsible super funds by SuperRatings shows there is not much difference between them and those funds that don't follow the principles.

The return for a median standalone sustainable balanced fund was 14.1%, compared with 12.37% for the balanced index, over the year to the end of February 2013.

Over five years, the median sustainable balanced super fund earned 3.34% a year compared with 2.9% for the balanced fund.

SuperRatings has been surveying sustainable super funds, with about $410 million in net assets, for over five years. It found that SRI funds haven't been hugely popular as members typically stay in the default fund rather than change options.

Wil Stewart, quantitative analyst at SuperRatings, says the lack of growth in these dedicated sustainable options means that actual investment in "good" companies and the scope to influence business behaviour is limited.

As a result, some super funds have increasingly adopted an ESG (environmental, social and governance) overlay to screen out the "bad" companies. "Over the past three years, 20% of funds have shifted from the standalone option approach towards a whole-of-fund ESG approach," says Stewart.

But watch out for "green washing". Some superannuation funds may say they follow ESG principles, but there is a lack of information about how they do it. Green super funds may use a negative screen to cut out the wrong companies, or choose the best of bad companies.

A small number use positive screening to seek out companies that help the planet such as recyclers or organic food stores.

One of these is the $450 million Christian Super, which manages the superannuation of 18,000 ministries around Australia and is open to the public.

Christian Super's CEO, Peter Murphy, quoted the words of John Wesley about the aims of the fund when he accepted an Infinity award from SuperRatings this year: "Do all the good you can, in all the places you can, for all the people you can, at all the times you can as long as ever you can."

Other super funds that have embraced sustainable changes and received Infinity recognition, according to SuperRatings, include: AMP Super (CustomSuper, Flexible Super - Choice, Flexible Lifetime Super and SignatureSuper), Australian Catholic Superannuation and Retirement Fund, Australian Ethical Retail Superannuation Fund, BT Super for Life, Catholic Super, Cbus, ESSSuper, HESTA Super Fund, Local Government Super, LUCRF Super, NGS Super, StatewideSuper, Unisuper and Vision Superannuation Fund.

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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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