Ethical Super Funds Explained, so You Know All Your Options

Ethical Super Funds Explained, so You Know All Your Options
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If you’ve considered shifting your superannuation fund in recent years, you may have noticed that there’s an increasing focus being placed on where your money is being invested.

Where once upon a time we just signed up to the super fund our employers suggested, nowadays, there’s a lot more public interest in not only selecting the right option financially, but a good option, ethically.

Ethical super funds are becoming far more commonplace, and folks are weighing up their options on whether or not they should be investing in more than just their personal future.

To learn more about this movement and the benefits of it, I spoke with Simon Sheikh, CEO and co-founder of Future Super and Canstar Group Executive, Financial Services, Steve Mickenbecker – both of whom shared their insights on this space.

What’s an ethical super fund, anyway?

In a nutshell, these are superannuation funds that make an active effort to invest your funds in a socially and ethically balanced way. This will vary from company to company, but as Mickenbecker put it:

“Typically, ethical investing involves supporting companies and industries that are making a positive impact on communities and on the environment and excluding those that have a negative impact.”

If you’re wondering what we mean by negative impact – that really depends. Not all funds are the same. But opting for a traditional investment option may mean that your money is being put into industries like “nuclear weapons, fossil fuels and alcohol” or companies that have been “associated with poor human rights records, poor environmental records, adult entertainment, nuclear power and conventional weapons,” Mickenbecker explained.

Selecting an ethical option means you have the option to choose which areas you’re comfortable investing your money in.

How much of a difference does your money make, anyway?

Well, if you consider that all employers must contribute to the superannuation of their employees, it’s easy to see we’re talking about a lot of money here. Where it is invested has a huge impact.

Sheikh explained:

“Super is an enormous pool of money that we all share – worth over $3 trillion. To put that massive number into perspective, it’s enough money to fund Australia’s transition to renewable energy ten times over. Companies all over the world are linked to the money in Australia’s super. We can use that money to its full potential and make sure we’re financing clean energy, not fossil fuels.”

“Choosing an ethical super fund is akin to voting with your wallet,” he added.

Taking the time to decide where you’d like to invest your money, and what companies you’d prefer to see supported with it has considerable weight. On a personal note, it also means you’re acting in accordance with the issues you care about.

“A superannuation fund invests retirement savings on behalf of its members and unless you pursue an ethical fund then you may unknowingly be investing in companies or industries that are not sustainable and don’t align with your values,” Mickenbecker shared.

But will I earn as much money with ethical investments?

This varies depending on who you choose to invest your super with, and industry performance.

Mickenbecker explained that Canstar data indicates that the “average annual investment return from ethical funds of the last five years is 6.49 per cent”. This sits a little behind other options which see an average return of 7.31 per cent.

However, it’s worth noting that “many of the ethical investment options provided by super funds have not been around for a full five years, and looking at the average three-year return from ethical funds it shows they are outperforming other funds by 0.34 per cent,” Mickenbecker added.

Fees may also be slightly higher, he shared. The average annual fees for ethical funds appears to sit at 1.28 per cent, with other funds sitting at 1.05 per cent, according to Canstar.

Opting for an ethical fund doesn’t necessarily mean your finances will suffer, but Mickenbecker shared that “it can mean that at times certain growth opportunities will have to be passed up.”

How to tell if your super fund is ethical or not

Chat to your super fund and see if you’re happy with where your money is currently going, along with “how much your fund discloses and the values of the fund you’re with,” Sheikh explained.

“A really simple way of testing this is to ask your fund how much money across their portfolio is invested in fossil fuels versus renewable energy.”

In short, you shouldn’t underestimate the significance of your choices when it comes to superannuation. And asking a few more questions may show you it’s time to make a change.

“The power of people switching their super is now on display. Every time someone leaves their outdated super fund and makes the switch to an ethical fund like Future Super, the fund they are leaving takes notice,” Sheikh said.

And if big businesses are paying closer attention to the value of ethical investments, surely that can only be a good thing.

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