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Why ethical super funds can hide where they put your money

In part 3 of our ethical super series, changes to disclosure laws are delayed again.

ethical super and disclosure lead
Last updated: 11 December 2019

Need to know

  • Laws that would have compelled super funds to show what they're investing in have been pushed back yet again 
  • If your super is in a 'sustainable' or 'socially responsible' super option, you may have no way of seeing where your money is invested 

The wait continues to find where your super is invested

Way back in 2010, the government's 'Stronger Super' review recommended that super funds be required to disclose their portfolio holdings.

At the time, disclosure was designed to help academics, regulators and advisers make more informed decisions about the super fund.

"There is too little high quality information available to experts who would be able to use such information for the ultimate benefit of members as a whole," the review concluded.

The super industry successfully lobbied to have these new laws delayed, time and again

The government at the time supported the idea of greater disclosure and announced it would introduce laws by 2012.

But the super industry successfully lobbied to have these new laws delayed, time and again. Yet another delay has now postponed the changes until December 2020 – more than a decade after they were originally proposed.

people going over contracts with super fund

Until the new disclosure laws come in, most people can't find out where their fund has invested their super.

What the disclosure laws will mean

If the new laws do finally come in, they'll aim to do a very simple but important thing: compel each super fund to provide details about what each of their options is invested in, including which companies their 'ethical' or 'sustainable' option is invested in. Currently, funds only have to provide information at a fund-wide level. 

Presumably, what a 'sustainable', 'eco' or 'socially responsible' option is invested in differs from the fund's default option, so seeing the fund-wide investment isn't useful for judging an individual option. 

Think of it like this: if you wanted to look at a box of 'healthy' cereal and see what it contains, only being able to see the combined ingredients of every cereal that company makes wouldn't be useful.

Seeing the fund-wide investment isn't useful for judging an individual option

Jeremy Cooper, chair of retirement income at Challenger and the author of the 2010 Stronger Super review, says portfolio holdings disclosure would bring Australia in line with international standards. 

He also believes the greater transparency could affect change on the part of super funds and help ensure people are getting what they pay for. 

"It's the old question for financial products: is what's in the tin what it says on the outside of the tin?," he says. "I still think it's a good idea and that it's highly relevant."

Disclosure particularly relevant for ethical super

The original idea behind the disclosure laws was to help experts make more informed decisions about super.

Since this original debate, however, there's been a surge in interest around responsible investment.

Generally, people choose socially responsible super options so their retirement savings are invested in a way that aligns with their values. It makes sense then that funds should disclose the shares they're investing in. 

In practice, though, some funds only give general guidance about what their socially responsible portfolios include and exclude.

"In some cases people are opting to be in ethical funds, and they may be paying additional fees," says Cooper. "Then, it's even more important that they can see what's in there."

Funds offer options branded as 'socially responsible' or 'sustainable', but then don't publish their portfolio holdings

Sunsuper's socially conscious option, for instance, only lists the ten biggest Australian and international shareholdings. 

Other funds, such as Hostplus, Tasplan, NGS Super and Media Super, offer options branded as 'socially responsible' or 'sustainable', but then don't publish their portfolio holdings. For instance, Tasplan's Sustainable option is simply described as comprising "environmentally and socially responsible investments".

After an enquiry from Super Consumers Australia, Care Super published the top shareholdings of its sustainable shares asset class online.

Certified ethical funds offer greater transparency

Meanwhile, the certified ethical funds and options have to disclose their investments publicly to gain certification from the Responsible Investment Association Australasia (RIAA). 

Where a fund is offering an option that makes a claim about sustainability, it must set out how that option has performed against its targets or goals, and explain how the fund is measuring this performance. 

Certified ethical funds and options have to disclose their investments publicly to gain certification

The Australian Securities and Information Commission (ASIC) is the regulator responsible for overseeing this area of the law, although another government department would actually draft the new laws. ASIC says pushing the date back would "allow further time for government to develop and make the regulations" and also "[provide] industry with certainty".

Transparency advocates express frustration

Will van de Pol, legal researcher and campaigner at activist group Market Forces, says it's a "travesty" that what he calls "integral reforms" have been repeatedly put on hold.

"Super fund members have a right to know where their money is being invested," he says. 

"They have a right to be able to make informed choices about their own retirement savings. With this latest delay, they continue to be denied those rights."

Super fund members have a right to know where their money is being invested

Will van de Pol, activist group Market Forces

Simon O'Connor, CEO of RIAA, says the delay to the disclosure laws is "a source of great frustration".

"In principle, it's critical that a consumer can see the companies with which they're invested through their super fund... Australia is rated by [global financial services firm] Morningstar as one of the worst major financial markets globally in terms of disclosure of portfolio holdings," he says.

"I think a lot of the arguments against it are without much substance."

Why has industry opposed these disclosure laws? 

Over the years, industry lobby groups have made a range of arguments to delay the disclosure laws. At various times, they've complained that the process would cost too much, that it would reveal proprietary information and that many people wouldn't understand the information disclosed anyway.

Some industry groups have, in principle, supported the new laws.

"We strongly support the legislation," says Eva Scheerlinck, CEO of the Association of Industry Superannuation Trustees (AIST). 

"Increasingly we are seeing consumers get more engaged with their super and it is natural that this will include people wanting more detailed information about [how] their super is invested."

But she also expresses reservations about the value of disclosure generally: "It is also important to note that disclosure is not a silver bullet when it comes to consumer protection."

On the other hand, another industry body, the Association of Super Funds Australia (ASFA), listed among its annual highlights that it helped lobby for delay of disclosure. It declined our request for a comment.

Could disclosure affect performance? 

One criticism of portfolio holdings disclosure is that it could damage the performance of a fund.

But Australian Super, the biggest super fund in the country by net assets, discloses its portfolio holdings across each option. 

"It's important to be transparent with members, which is why we've been publishing what we invest in since 2016," says Australian Super's head of external relations, Stephen McMahon. 

It's important to be transparent with members, which is why we've been publishing what we invest in since 2016 

Stephen McMahon, head of external relations, Australian Super

Australian Super's experience suggests that a fund can voluntarily disclose its portfolio holdings without it detracting from its performance. According to the most recent Australian Prudential Regulation Authority (APRA) statistics, Australian Super has the highest five-year returns for any MySuper single strategy product.

Jeremy Cooper says it's entirely possible to draft the laws in a way that avoids all the problems raised over the years.

"I still think it's a good idea and that it's highly relevant," he says. "Once we get over all these supposed complexities, it will be relatively simple to draw a sensible map of where the money is."

We care about accuracy. See something that's not quite right in this article? Let us know or read more about fact checking at CHOICE.

This content was produced by Super Consumers Australia which is an independent, nonprofit consumer organisation partnering with CHOICE to advance and protect the interests of people in the Australian superannuation system.