Need to know
- Australians super fund members are increasingly interested in ethical investment
- The Responsible Investment Association of Australia (RIAA) certifies super funds and products as ethical
- There's a range of other funds and products that present themselves as ethical
What is ethical super?
This is a tricky question to answer. Most, if not all, super funds would describe their approach as ethical.
A handful of funds have been certified as ethical, but they're not the only funds incorporating ethical considerations into how they invest.
People have different values as to what's ethical. What one super fund member considers an ethical investment choice may be unacceptable for the next member.
What one super fund member considers an ethical investment choice may be unacceptable to the next member
If you want to let someone manage your super with a sole focus on building up good retirement savings, you should be able to. If your preference is for your super savings to be in green companies, you should be able to do that. If you strongly feel that you can only abide your super being invested in companies where the CEO is a cat then, sure, you should you be able to do that too. Super is your savings, and if you want to choose a fund based on your values or preferences you should be equipped to do that.
Our approach at CHOICE is not to make a value judgement on what's an ethical fund or product, but to assess them on whether they're true to label.
Interest in ethical super growing
Research has shown a sharp increase in the number of Australians interested in ethical investing. A recent report also concluded that many shareholders would accept lower returns if the companies they invested in acted ethically.
Many of the funds argue that super fund members don't have to sacrifice returns to invest in industries that they feel good about. (We'll dig into the issue of how these funds and products are performing later in this series.)
Will switching funds or product have a significant impact on your nest egg?
New super funds have sprung up and older funds have offered new options to meet this demand. It's crucial, though, that super products badged as ethical live up to the claims they're making.
Are they actually offering an investment strategy that's genuinely different from mainstream funds and that aligns with your values? Or is it just marketing talk?
It's also important that you can have a clear picture of what impact moving to an ethical fund or product will have on your retirement savings. Will switching funds or product have a significant impact on your nest egg? If there's a trade-off involved, are you clear on this?
Ethical certification of super funds and products
Firstly, a word on the difference between super funds and products. Many people find this distinction confusing. Like a bank, each super fund will generally offer a range of different products to suit different customers' needs.
The Responsible Investment Association of Australia (RIAA) is a body that certifies funds and products as ethical. It publishes a yearly report on the sector which is sponsored by super fund Australian Ethical, AXA Investment Managers, BT and Teachers Mutual Bank Ltd.
So far, the RIAA has only certified four whole funds as ethical: Australian Ethical, Christian Super, Future Super and Local Government Super. This means that all of the different products these funds offer are considered ethical.
Certified ethical funds and products still have a lot of scope to invest in whichever industries and companies they see fit
The RIAA has also certified a total of 29 products as ethical. Some of these are products from mainstream funds.
RIAA certification is based on funds and products being able to demonstrate responsible investing practices and strategies, and agreeing to be audited. Certified ethical funds and products still have a lot of scope to invest in whichever industries and companies they see fit.
Beyond the certified list, there's a whole range of other super funds and products that promote themselves as ethical, sustainable, socially responsible or based on some kind of values system.
Using your super for activism
A new wave of super products are being promoted as a kind of activist tool, a means for super fund members to use their savings to advance a cause they feel strongly about.
There are now super funds designed for women, vegans and different religious affiliations. Some also offer products which seek to align themselves with political causes such as opposing Donald Trump or boycotting Adani's Carmichael coal mine.
For some people, the most effective way to support causes and charities that align with your values will be outside of super
Australian law places limits on how super funds can manage the money they're looking after. The people and organisations running the funds need to act solely in the best interests of the fund's members. These interests are defined in terms of providing for members after they retire from work and providing benefits for members' dependents when they die.
These legal limits mean that there are a limited number of avenues these funds can put money into: they can only invest in companies that they believe will offer strong returns for their members.
This means that for some people, the most effective way to support causes and charities that align with your values will be outside of super.
Next in exploring ethical super
This is the first part in a series on ethical super from Super Consumers Australia. Continue on with the below:
- Part two: Four strategies for ethical super investment
- Part three: Why ethical super funds can hide where they put their money
- Part four: Where is your money invested?
- Part five: Will your nest egg be better off?
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.
Stock images: Getty, unless otherwise stated.