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What is an ethical super fund?
An ethical super fund is one that invests its members' money in an ethical or socially responsible way. Ethical can mean different things to different people, depending on your personal values. But generally, ethical investing involves supporting companies and industries that are making a positive impact on our communities and on our environment, while actively excluding those that are making a negative impact.
Types of ethical super investment options
There's two types of ethical super funds. The first option is a super fund which only offers ethical investment options to members, like Australian Ethical Super.
The other option is a retail or industry super fund that offers one dedicated ethical investment option among several other investment options, for example AustralianSuper or Sunsuper. These funds will usually offer a MySuper balanced investment option as the default option to members, and a socially responsible or ethical option for members who want to select this instead.
How ethical super funds invest your money
An ethical super fund is one that chooses investment options based on a set of social, environmental and ethical criteria. If an investment does not satisfy these criteria, it will be excluded. This is known as a negative screen. Here's a list of the investments ethical funds tend to include and exclude from their portfolios (although this will change slightly from fund to fund).
What don't ethical super funds invest in?
Fossil fuel production
Coal mining
Tobacco and gambling
Pornography
Forest logging
Companies that test products on animals
Live animal exports
Some super funds that offer an ethical investment option also conduct what are known as positive screens. A positive screen involves actively searching for companies that are having a beneficial impact on society or the environment as a whole.
What do ethical super funds invest in?
Renewable, clean energy projects like wind farms
Recycling and waste management
Companies that do not test on animals
Clean, efficient transport (like electric cars)
Healthcare and education
Innovative technology and sustainable products and manufacturing
Some ethical investment funds also conduct a "best of sector" approach. This involves looking at a particular sector, for example banking, and selecting the companies/s that best meet its ethical criteria. For example looking at all the banks, and instead of deciding that none meet the ethical criteria, investing in the one that is the closest fit. This way, you're still benefiting from the investment diversification and performance of that sector.
Answered
Should I invest in an ethical super fund?
You're not obliged to invest in an ethical super fund, and the decision is completely up to you as to how your super is invested. The basic premise behind ethical investing is that you put your money where your mouth is to support the causes and companies that match your values and beliefs. For example if you're passionate about climate change and want to see the end of coal mining, making sure your super isn't helping fund the coal mining sector is one way you can personally make an impact.
Ethical super investment funds
An increasing number of Australian super funds offer ethical investment options to their members. Some of these include:
Aware Super: Diversified Socially Responsible Investment fund
SunSuper: Socially Conscious Balanced investment fund
Some of these funds are 100% dedicated to a responsible investment approach, others only offer individual investment options that meet ethical investing criteria. With this in mind, it’s important to research super funds and individual products to get a better idea of whether or not they match your values.
What are the fees like for ethical super funds?
Fees vary between funds, so it pays to do some research and compare the fee structures of different ethical super funds with ordinary retail and industry super funds. Ethical super funds do tend to charge slightly higher fees than some default MySuper funds offered by retail and industry funds. This is because of the comprehensive research that goes into each investment chosen by a responsible or ethical fund. However, you may find that actively-managed retail funds charge higher fees than some ethical super funds.
Fees are only one part of the picture when determining the value for money offered by a super fund. You also need to consider the impact your money will have on the industries you're invested in, the long-term performance of the fund, the insurance options and other member benefits.
Finally, a relatively new ethical super fund may charge higher fees than one that has been established for a longer period of time. This is because an increase in the number of members may allow a fund to lower its investment fees.
Pros and cons of joining an ethical super fund
Pros
You can invest your money in line with your values
Know that your super isn't supporting industries you don't agree with
You don't need to sacrifice investment returns to invest ethically
There are more and more ethical investments becoming available, giving consumers lots of choice
Cons
You might need to sacrifice some investment opportunities
Excluding certain industries means your investment portfolio could be less diversified
Less choice between super funds, as not all super funds offer an ethical investment option
How do I choose an ethical super fund?
There are several factors you should consider before choosing an ethical super fund, including:
Accreditation. The Responsible Investment Association of Australasia (RIAA) offers a Responsible Investment Certification to certain funds that meet its criteria. Some fund that have received this accreditation are Australian Ethical, UniSuper, Aware Super, Future Super and SunSuper.
Performance. While past performance does not indicate future performance, it’s worthwhile examining a super fund’s investment performance to see the returns it has generated over the long term (for example 5-10 years).
The companies it invests in. Take a closer look at the individual companies the fund will invest your money in. You'll find this information on the fund's website, or by contacting the fund directly. Are there any there that do not align with your values and beliefs?
Screening process. How rigorously does the super fund screen companies it considers for investment? Does it use negative screening, positive screening and/or a best of sector approach?
Traps to watch out for when picking an ethical super fund
Misleading claims. Keep an eye out for funds that make misleading or exaggerated claims about their ethical status in their marketing materials. For example, even if a fund claims it is "green" it may still invest your money in an industry you may not want to support, for example arms production.
Fees. The cost of investing will always be a factor worth considering. Compare the fees charged by different funds but remember to consider these in line with each fund's overall performance. You don't want to fall into the trap of paying much higher fees for a product simply because it markets itself as 'ethical'.
Hidden investments. Make sure the fund is transparent about exactly how it invests. Search the fund's website for a full list of its current investments to make sure you're happy with where your money is going. If you can't find a list of investments, contact the fund and request this.
How to join an ethical super fund
If your current super fund offers an ethical investment option, you can simply switch to this option within your online portal or mobile app. You can do this at any time. If you'd like to switch from your current super fund to a different fund, you can change super funds in four steps.
Have you decided an ethical super fund isn't what you're after? Maybe one of our best super funds picks will be right for you instead.
Alison Banney is the banking and investments editor at Finder. She has written about finance for over 8 years, with her work featured on sites including Yahoo Finance, Money Magazine and Dynamic Business. She has previously worked at Westpac, and has written for several other major banks including BCU, Greater Bank and Gateway Credit Union. Alison has a Bachelor of Communications from Newcastle University, with a double major in Journalism and Public Relations. She has ASIC RG146 compliance certificates for Financial Advice, Securities and Managed Investments and Superannuation. Outside of Finder, you’ll likely find her somewhere near the ocean.
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