In the current climate, many Australians are proactively seeking to do good by others and the environment while investing for their retirements through their choice of super funds.
But choosing a super fund can be a confusing and complicated process. Many of us will never have reconsidered our super funds since our first employer nominated their preferred fund, while others may have opted for the fund used by their parents, just to make things easy.
But choosing a super that aligns with your values is an important step to take. Because if green energy solutions are at all important to you, then it only makes sense to extend your investment to a super fund that prioritises this, not fossil fuels.
So, how do we choose a superannuation fund that aligns with our values for real?
What does an ethical super fund look like?
Before we dive in, we need to get something straight: there is no legal definition or regulation around what an ethical fund is, so there’s nothing stopping a fund claiming that they are “ethical”, “green” or “sustainable”. These are loose terms in the industry.
According to ASIC Money Smart, ethical investments screen out companies that don’t meet environmental, social and governance standards (such as fossil fuels, weapons, tobacco, logging, and animal cruelty) determined by an investment manager.
In other words, they try to actively take out stocks they would consider harmful for the environment, society or the government OR do the opposite by actively bringing more ‘positive’ stocks that have a positive impact on the environment, society or government like renewable energy, recycling, education, hospitals and aged care.
This means that there is no clear definition or even a government body or regulation that controls ethical investments; it’s all up to the fund managers. In Australia, the closest we have to a regulatory organisation is the Responsible Investment Association Australasia (RIAA), a non-government body that promotes sustainable investment which provides benchmarks and industry reports, but cannot take any action against super funds claiming to be ethical when they are not.
Why choose an ethical super fund?
In very basic terms, choosing where your super fund puts your money is deciding what you want to have around in the future. Without switching to an ethical super fund, you may unknowingly be funding coal or dangerous pharmaceuticals.
Your investment will effectively fund the survival of these companies, so if you want a better world, you’d do well to start thinking about what kinds of things you want to invest your money into.
How and where to find a good super fund
The Responsible Returns website is dedicated to comparing and breaking down the investments super funds make by categories. Note that not all super funds are listed here as this evaluation is voluntary, not compulsory.
If your super fund is listed on this website you can see directly how the fund is choosing to invest, and if you want to look for a new ethical super fund, you can reverse the process and filter out the ones that do not go with your values.
We have found this is the easiest way to find a super fund that shares the same values as you.
Super super funds
As per industry research, there are two things you need to keep in mind when choosing an ethical super fund. First, super funds are loosely regulated, so you have to be prepared to ask the hard questions right from the start, and second, the RIAA operates on a benchmark framework, which means that as long as your revenue doesn’t come 20% from fossil fuels, you can still be considered as an ethical fund.
Moral to the story is, navigating super funds can be tricky and it can be even trickier to find an ethical one. But the best way to get the most information is to call the super fund and ask the real questions.
For example, the funds below are a record extracted from RIAA that illustrates the average return of super funds accredited by RIAA.
|Positive funds they will invest in
|Negative funds they will screen out
|Renewable energy, recycling, education and healthcare
|Fossil fuels, human rights, labour rights abuses and animal cruelty
|Renewable energy, recycling, education and healthcare
|Fossil fuels, logging, human rights, labour rights abuses and animal cruelty
|Renewable energy, education and healthcare
|Fossil fuels, human rights, labour rights abuses, animal cruelty, abortion medication, IUDs and stem cell research
|Australian Super’s ‘socially aware’ option
|No set promises
|Fossil fuels, human rights, labour rights abuses, ASX 200 companies with single-gender boards
|UniSuper’s ‘global environmental opportunities’ option
|Fossil fuels, human rights and labour rights abuses
|Sunsuper’s ‘socially conscious’ option
|Education and healthcare
What have we learned today? Super funds are not as black and white as we would hope. At this stage, funds are not regulated and they lack defined restrictions and definitions on what’s ethical and what isn’t.
This means we really need to do our homework and ask the hard questions to funds directly to be informed. To better understand and give your current superannuation fund more of a ‘health check’ we suggest visiting the Responsible Returns website and assessing your own super fund’s investments.
If you don’t like what you find, consider switching to a super fun more in line with your values. Choice has rounded up an informative guide right here.
Want to find out more about choosing an ethical super fund? Speak with your new BFF at Best Financial Friend today.