Millennials look for ethical options
The superannuation industry could be in for a shake-up as new research shows that nine in 10 Australians expect their super and other investments to be invested responsibly and ethically, reflecting the increasing consumer appetite for ethical super.
Commissioned by the Responsible Investment Association Australasia (RIAA) and conducted by Lonergan Research, the research found that four in five Australians would consider switching providers if they found their current provider's investments didn't align with their values.
"The vast majority of Australians want superannuation invested responsibly, such as through investing in companies that build clean energy infrastructure or avoiding investments that can harm communities such as weapons manufacturing," says RIAA CEO Simon O'Connor.
"The data clearly shows that there's a very high expectation that super will be managed to do no harm as the very minimum."
Other hot-button issues for investors include animal cruelty, human rights violations, tobacco, nuclear energy, gambling and pornography.
Membership in ethical super has really taken off in the last three years, O'Connor says, with responsible investment more than quadrupling in that time. Ethical investment now accounts for just under five percent of the market – still not a huge proportion, but it's growing. One in five Australians currently invest in ethical companies, funds or superannuation funds, and 53% will consider it in the future, the research found.
While a number of ethical super startups have disrupted the industry, mainstream providers are also responding to the changing demand, with many now adding ethical options to their products.
"Superannuation is responding to this. For example, we've seen over half of Australian big super funds sell out of tobacco funds in the last few years," O'Connor says.
However, it's important to remember that even ethical funds can still sometimes invest in companies that aren't 100% squeaky clean. As long as problematic revenue sources like gambling, weapons, alcohol or pornography don't make up too high a proportion of a company's revenue stream (around 10–20%), they may be deemed acceptable.
Ethical super products seem to hold the most appeal for millennials (people born from the early 1980s to the early 2000s), who apparently have a well-developed social conscience and aren't afraid to put their money where their mouth is.
The RIAA report found that millennials are more likely than all other age groups to invest in a responsible super fund that also maximises financial returns (75% versus 66% of generation X and 68% of baby boomers), with 69% likely to consider making ethical and responsible investments in the future. Almost nine in 10 millennials would switch providers if their current provider engaged in activities not consistent with their values.
Interestingly, women are more likely than men to be discouraged from purchasing from companies engaged in dodgy practices like animal cruelty, human rights violations and pornography. And despite millennials being the group most likely to invest in ethical super, baby boomers are more likely to be deterred from buying from companies that engage in animal cruelty (73% of baby boomers vs 69% of millennials and 63% of gen X).
Pornography doesn't seem to be a red flag for the younger generation, however, with just 39% of millennials saying they'd boycott a company involved in pornography, compared to 63% of baby boomers and 43% of gen X.
Making the switch
Lachlan Martin, 28, from Melbourne is one such millennial who made the switch to ethical super. Starting in a retail job at 16, he was automatically joined up to his employer's fund of choice, Rest.
"I was with them for a couple of years and like most Australians, I suspect, I didn't really pay much attention to it," he says. "I found I was being charged a fee for insurance and thought I probably didn't need it. When I queried it, the response from the super company was less than satisfactory, so I started looking for others."
Several friends recommended ethical super. A long-time vegetarian, animal cruelty is an issue he feels passionately about, and he felt uncomfortable knowing his super could be used to invest in gambling and weapons. He was pleased to learn that many super funds are starting to move away from investing in problematic practices like gambling.
Despite being a self-confessed "extreme nerd" who was happy to trawl through PDS after PDS (product disclosure statement), Lachlan says even he found it very difficult to obtain the information he needed – a common experience for many consumers navigating the world of super. Almost half of consumers believe there isn't enough independent information about ethical super available, the RIAA research shows.
In the end, Lachlan decided on Australian Ethical Super and found that, despite the research being difficult, changing his super over was a cinch. "Making the switch was the easiest thing ever. I thought it'd be really complicated but I think it was just one form," he says.
And he says the switch was well worth it. "I worked out it's not quite as financially lucrative as my previous super. I have taken a bit of a hit, but I am so happy with what that money purchases."
Information is power
If you're an ethically inclined consumer looking to inform yourself, one option is the RIAA's Responsible Returns webtool (responsiblereturns.com.au), which is designed to help match consumers with products in line with their values. It includes information from not just ethical super start-ups, but also from mainstream super providers that are now offering ethical and responsible options.