If you’re of working age, the chances are you have thousands of dollars at your disposal that could be used to build a better world.
Your superannuation builds up little by little with each pay cheque. Yet many of us are not aware of what the money does before we collect it in retirement. Has it been invested in companies that contribute to climate change? Are we passively funding something that goes against our values?
Globally, the move towards divestment from damaging industries is gathering pace. Organisations such as The Guardian newspaper are spearheading the movement to starve fossil fuel companies of their funding in the form of capital, shares and bonds. The newspaper says individuals and groups including the Church of England, the city of San Francisco and the heirs to the Rockefeller oil fortune have started to pull their money out of fossil fuels.
In Australia, more than $2 trillion is invested across all superannuation fund types. Most people have the option to choose their own fund. That means they can choose a fund that matches their values and beliefs. For many people, that means ethical super.
We wrote about how superannuation is one of your biggest opportunities to change the world in an earlier Otter. Here’s a bit more detail on some of the things you might want to consider.
Choosing a super fund is ‘like dating’ (no, really)
So how do you know which super fund to go with?
A good starting point is the Moneysmart website by the Australian Government, which sets out a range of options to consider.
It says picking a super fund is “a bit like dating.”
Pick the right fund and you’ll be set for a long, happy and comfortable life when you retire. Set your sights on the wrong one and you’re in for a world of pain.
It’s also worth checking out the Responsible Investment Association Australasia.
RIAA encourages investors to flex their muscles by thinking about the issues and values they consider most important. It offers plenty of information, links and resources to answer your investment questions.
According to RIAA, more than half of all major super funds – and most of the top fund managers -have committed to ‘a more responsible approach to undertaking investments’.
All ethical superannuation funds are not created equal
‘Responsible’ or ‘ethical’ funds may use different criteria to screen out companies, industry sectors, activities or even countries that do not meet their values.
Other funds actively invest in companies that demonstrate industry best-practice, environmental sustainability, community benefits or corporate social responsibility.
But while ethical funds may aim to be more socially responsible or transparent in their investments, the range of investments in any one superannuation fund may not correspond with your personal values.
The advocacy group Super Switch has found that the ‘sustainable’ portfolio option of many popular funds still has investments in fossil fuel companies or businesses that support them.
More people are choosing ethical super funds
According to RIAA’s 2014 annual Benchmark Survey, investments in ethical funds grew by 50% in the last year, to over $25 billion. Some of the issues that Australian and New Zealand ethical investors have supported include:
- Improved safety in the Bangladesh garment manufacturing industry
Investor pressure has acted as a ‘catalyst’ to improve the safety and treatment of garment industry workers by encouraging Australian retailers to sign the Accord on Fire and Building Safety.
- Sustainable palm oil production
Global investors are supporting the Roundtable on Sustainable Palm Oil (RSPO) and doing more to protect Malaysian and Indonesian forests.
- Climate change action
By supporting renewable energy and energy efficiency projects, lobbying for legislation and encouraging banks and companies to divest from fossil fuel projects.
- Tobacco divestment
Investor support to divest funds from tobacco companies.
- Supporting investment for social benefit
Starting in 2013, these relatively new social bonds help direct funds into important social projects and services.
Ethical funds can perform better than traditional investments
Choosing ethical investments will not necessarily mean missing out financially.
A recent report in the Sydney Morning Herald featured a study by Thomson Reuters which found that:
A fossil fuel-free portfolio would have achieved an annualised return of 25 per cent, from January 2012 to January 2015, compared with 15 per cent for the existing Thomson Reuters Australia benchmark, which includes most companies in the S&P ASX 300.
The study was commissioned by Future Super, which screens out fossil fuel companies and the banks that invest in them.
The RIAA has also found that ethical funds have been out-performing traditional ones.
According to the RIAA Benchmark Report:
When compared to benchmark indices and the average returns of mainstream funds, core responsible investment funds have outperformed across the majority of fund categories and time horizons” (RIAA 2014).
This outperformance in all categories across 5 and 10 years shows our growing interest in, and demand for, socially and environmentally responsible investments.
All in all, there’s a lot of reasons to user your super to create the kind of world you want to live in.