The growing case for green and ethical superannuation

Understanding how and where your super is invested has become an increasingly pivotal concern for Australian super holders.

But what does the increased interest in environmentally conscious and ethically sound superannuation mean for Australian business owners? We share what we know…

What is ethical super?

Great question. As the concept of ethical super is relatively new, no standard definition for ‘ethical super’ exists, but the implications are clear.

The idea is for super funds to invest people’s superannuation in companies and funds which prioritise environmental and human rights concerns with a view toward sustainable investment opportunities.

In other words, by avoiding big polluters and organisations which have poor human rights records, ethically sound investments can take priority

However, the naming conventions of ‘ethical’ or ‘green’ can also indicate marketing spin.

One way to filter this out is by looking to super funds which are accredited by the Responsible Investment Association Australasia (RIAA), an independent organisation that encourages sustainable investment.

When super funds self-volunteer for accreditation, the RIAA investigates their investments and produces a searchable database with reports detailing what they do (and don’t do) toward ethical investments.

As a report by the Guardian explains:

“There is nothing to stop anyone calling their fund “ethical”, “green” or “sustainable”. These are just marketing terms. If they are grossly incorrect, they can constitute misleading and deceptive conduct – but it’s a very high bar.

And “ethical” can mean anything from green energy to animal rights to bans on gambling and alcohol. There is no set definition.

The closest thing we have to regulation is accreditation from the RIAA.”

There are only a few RIAA-accredited Australian super funds at present. However, consumer pressure could see the prevalence of trustworthy, transparent and accredited ethical super increase in the future.

How is super changing?

Only a few years ago, the idea of ‘green’ or ‘ethical’ super was very niche.

Super products and funds that were dedicated to the idea of investing in clean energy and removing investment in areas mired by human rights concerns were atypical and extremely underrepresented.

Not so anymore.

Super funds across the country and around the world have woken up to the disadvantages of investing in unethical areas, they have also seen the financial benefits in a clean energy future coupled with ethical investment opportunities.

– Importantly, super funds who embrace ethical super are outperforming their peers financially, meaning members also benefit when it comes to retirement savings. This is a classic win/win scenario.

According to Ryan Korinke, Managing Director and Global Head of Sustainability at PIMCO,

“the pandemic has elevated the importance of sustainable investing. It is our firm belief that healthy societies and healthy markets go hand-in-hand. Markets and economies cannot survive – let alone prosper – in a world facing environmental devastation, health scourges, and gross social inequities and imbalances.”

How have attitudes changed?

According to a 2021 report by the Responsible Investment Association Australasia (RIAA):

  • 83% expect their superannuation and bank savings to be invested responsibly and ethically.
  • 80% of Australians would be willing to switch funds so their money is invested according to their values, and that rises to 88% among those aged 18-34.
  • Super funds are improving their responsible investment practices with 42% of total superannuation assets in Australia now covered by asset owners practicing a leading approach to responsible investment (up from 28% in 2019).
  • growing interest from Australians in ensuring their retirement savings are being invested in a responsible manner, with heightened consumer interest in ESG issues.
  • The vast majority (92%) of super funds now allocate responsible investment to boards or board committees.
  • There is good news for members. Funds that implement responsible investment practices continue to outperform their peers: using responsible investment approaches is in the best financial interests of super funds’ members.
  • How prevalent is conscious super in Australia?

    Transparent accreditation and independent verification of super funds needs improvement to keep pace with growing consumer demand for environmentally conscious and ethically sound investment practices.

    What can you do to invest ethically?

    Research, choice, and pressure are your go-to tools.

    Luckily, there has already been a shift in thinking due to what we hope are moral choices and fact-based evidence of climate change and the resulting a green energy future. On the other hand, money talks and image matters to super funds.

    By voting with your feet, making direct contact, promoting and questioning funds on social media, you can help drive the growth of ethical super.

    The growing case for green and ethical superannuation