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Superannuation: one of your biggest opportunities to change the world

If you want to use your consumer power to change the world, it’s not just how you spend your money, but also how you invest it that makes a difference.

“Invest?”  I hear you saying “I don’t have any spare money to invest!” Well actually, if you are working more than a few hours a month, you very likely do!Cowboy chooses his superannuation?

The median Australian employee earns about $4600 in superannuation each year

For people who earn around the median annual wage, the 9.25% paid on your behalf into a superannuation fund is more than $4,600 per year*, a lot more than you are likely to spend on Fairtrade chocolate or enviro-friendly cleaning products.

Your super fund has a large impact on the companies it chooses to invest in, and those it doesn’t. The super fund you choose, and the investment options you choose within your fund, determine whether that impact is consistent with your values or not.

In summary, a really effective way to make a difference is to make smart decisions about where your superannuation contributions are going.

Your right to choose

Every Australian employee has the right to choose where their super is invested. You can choose the superannuation fund itself, and for most funds you have a degree of control over the type of investments within the fund.

Ethical approaches by super funds

Most large super funds have some kind of ‘sustainable balanced’ investment option. A typical example might only invest in “companies that are performing well by financial as well as environmental, social and corporate governance standards”, as Australian Super, the biggest industry, fund puts it. Some funds also allow you to choose particular investments, although they don’t necessarily give you the information you need to assess whether a company or other investment meets your ethical criteria.

There are other funds that only offer ethical or responsible options. Australian Ethical, for example, looks at both positive and negative ethical criteria stating that “We avoid investments that cause unnecessary harm to people, animals, society and the environment. We seek out positive investments that support people, quality and sustainability.”

How to choose

You can check whether or not your super fund invests in a way that matches your values, and if it offers a “responsible investment” choice.  A responsible investment super fund is one which offers investors an environmental or socially sustainable investment option into which you can invest some or all of your retirement savings. The Responsible Investment Association of Australia provides a guide to ‘check, challenge and change‘ your super fund.

Responsible funds and investment advisors adopt different ways of choosing responsible or ethical investments, and may have different priorities. Some apply a ‘best of sector’ approach when selecting shares using various sustainable selection criteria (for example Australian Super as quoted above), others ‘screen’ for negative and sometimes also positive features (for example Australian Ethical). A third method is known as ‘shareholder activism’ where the fund tries to actively influence the companies it invests in. These approaches to ethical investment have been neatly summarised by the UK consumer organisation ‘Which?’ (equivalent to CHOICE in Australia.)

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Now, back to better super:

But is this financial suicide?

…research shows responsible investment funds outperform the market average over 1, 3, 5 and 10 years.

Choosing to invest your money ethically is no longer either unusual or a sacrifice. According to Simon O’Connor of the Responsible Investment Association of Australia, responsible investment is mainstream for the investment industry, now making up 18 per cent of total funds under management in Australia and representing around $180 billion. RIAA research shows responsible investment funds outperforming the market average over 1, 3 ,5 and 10 years. Check out RIAA’s 2013 benchmark report for more (this covers investment generally).

Getting advice

If all you want to do is work our which option to take in your current super fund, or how to find an acceptable super fund with an investment option that provides both good financial and good ethical performance, you probably don’t need to pay a financial adviser. But if you do need financial advice, Australian Ethical has compiled a list of advisers who claim expertise in relation to ethical investment. The Responsible Investment Association offers certification to financial advisers who offer responsible investment products, undertake continuous professional development in the area and meet some other requirements. It publishes a list of certified advisers.

You may also be interested in WWF’s general introduction to sustainable and responsible investment.

Action list

  1. Work our your financial and ethical priorities
  2. Learn about the three different investment approaches and what they mean
  3. Find out whether your current fund has a responsible option, which approach it adopts, and whether its priorities match yours
  4. If not, look for an alternative ethical or responsible fund that does match your priorities

You should also check the financial performance of any fund you are considering. Look at how the fund has performed over both the past year and for some longer periods (for example 5 and/or 10 years). Past financial performance is no guide to future performance, but it may reassure you that the ethical fund you are considering has done alright compared to standard funds. If not, you will almost certainly be able to find another responsible one that has performed as well or better than others.

*Source: Median earnings: Note that average earnings are considerably higher than the median wage for employees.


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