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If you’ve considered shifting your superannuation fund in recent years, you may have noticed that there is an increasing focus being placed on where your money is being invested. Ethical super funds are a key player in this new trend, but you may be wondering what these funds even are. Other important questions start to arise, such as where do these funds invest one’s money, and what makes them different to traditional funds.
In brief, these are superannuation funds that make an active effort to invest one’s funds in a socially and ethically balanced way. Canstar Group Executive Steve Mickenbecker defined it in an interview as “supporting companies and industries that are making a positive impact on communities and on the environment and excluding those that have a negative impact”. It is then important to define what is meant by negative impact. There is not a universal definition to which all funds abide, but choosing traditional investment options may lead to one’s money being invested in industries that involve what Mickenbecker illustrates as companies that have been “associated with poor human rights records, poor environmental records, adult entertainment, nuclear power and conventional weapons”. Therefore, by selecting an ethical option, one has the choice as to where their money is invested, rather than leaving their money in the abyss, potentially funding any assortment of humanity’s vices that an ordinary superannuation fund might have selected.
In a broad view, ethical super funds tend to invest in the following categories: renewable, clean energy projects (e.g. wind farms); recycling and waste management; companies that do not test on animals; clean transport (e.g. electric cars); healthcare and education; and sustainable products and manufacturing. Some ethical investment funds also conduct a ‘best of sector’ approach. This involves looking at a particular sector and selecting the companies that best meet its ethical criteria. For example, if a fund looks into banks, instead of deciding that none meet the ethical criteria, it invests in the one that is the closest fit to the impact thesis of the fund. This ensures that the clients can still benefit from the investment diversification and performance of that sector.
In 2021, according to multiple sources, the generally highest ranked and most widely trusted ethical super funds in Australia are Australian Ethical, Christian Super, Uni Super and Vic Super (Super Guide, Rate City). Super funds are generally held accountable by the Responsible Investment Association Australasia (RIAA), which states that the idea is about ensuring that investment products are delivering on what they are promising. For example, since not all super funds have the same ethical values, they are required to disclose what they are and are not willing to invest in in their legal documentation, which is then verified by the RIAA. However, this at times does not provide as clear a picture as one would assume. For example, with respect to the rules regarding excluding certain industries, according to the RIAA, a fund could be accredited with “excluding fossil fuels”, but still earn up to 20% of its revenue from fossil fuels.
Chief executive of the RIAA Simon O’Connor provided a picture of how ethical super funds are making positive impacts when interviewed by The Guardian. He highlights the effectiveness of the divestment from the tobacco industry in Australia: “We have seen 35 super funds divest from tobacco in the past five years, and that has probably divested about $2 billion from the industry” (Zhou, 2019). O’Connor accurately describes this as a “massive, loud signal”, of the impact that ethical super funds can make.
References:
Super Guide
https://www.superguide.com.au/comparing-super-funds/top-performing-sustainable-investment-funds
Rate City
https://www.ratecity.com.au/superannuation/ethical
Naaman Zhou, 2019. Ethical Superannuation: what is it, and does it actually work?
