Worried About Climate Change? Make Sure Your Super Fund Matches Your Ethical Values

Early this month the UN’s Intergovernmental Panel on Climate Change released its landmark report on emissions, which made it very clear that we must all “pursue efforts” to limit global warming to 1.5 degree Celsius or face the disastrous effects of climate change.

From record-breaking droughts affecting farmers through to kilometers of dying coral in the Great Barrier Reef, most Australians are now aware of the increasing threats of climate change. In fact, it was the deciding issue that removed the Liberal Party’s 70+ year stranglehold of the Wentworth electorate and brought in the historic win of an Independent candidate with a strong climate action plan, Dr. Kerryn Phelps.

Given the climate issues, some Australians are focussed on making sustainable lifestyle changes such as reducing meat consumption, going plant-based and carrying reusable coffee cups and other zero waste essentials items, but few have turned their focus to their superannuation funds even though this is one area that can actually have a huge impact on the environment and pave the way for what the future will look like, sustainable or otherwise.

So if you are looking to secure your financial AND environmental future and want to ensure your super is being invested in a way that helps to fight, and not contribute to, climate change, here are some things to consider:

1. What companies is my super fund invested in?

This is the first question you should ask yourself if you are looking to align your super investments with your ethical values. Finding out where your fund has invested your retirement money shouldn’t be a difficult process. Super funds that operate from a place of transparency will openly provide this information to members.

Here’s what you need to find out: Does your fund invest in fossil fuels such as coal and gas? What about mining companies, tobacco, gambling, weapons manufacture, and palm oil plantations? How do you feel about each of these things? Are there are other issues that concern you that your super isn’t addressing or is investing in and thus exacerbating the problem?

To find out, you will need to do some basic research. A good place to start is checking your super fund’s website as this usually provides you with all the information you need. A quick Google search also surfaces information such as ethical issues, unflattering investigations and provide you with market news and information.

Is your super invested fossil fuels, oil, gas or in mining companies? Choose a super fund in line with your ethical values — Is your super invested in oil, gas or other companies that contribute to climate change?

2. How does my super fund decide where to invest my money?

As we’ve communicated time and again over the years, there is no such thing as a perfect company just as there is such thing as a perfect human. But as we often say, it’s about progress not perfection. So you need to determine whether your super fund shares your purpose, ethics, and values, and then track their progress to see how they are meeting these. Your superannuation fund’s investment approach and principles will guide how it invests so make sure to review the details. Information should be readily available on the fund’s website.

Even if your fund claims to be ‘ethical’ or ‘green’, there are various shades of ‘green’ investing and investment practices can differ widely from fund to fund. With sustainability becoming increasingly popular, greenwashing is also on the rise so it pays to do your homework and be mindful.

Terms like environmental, social and governance (ESG), sustainable, responsible and impact investing (SRI) and responsible social investing respectively (RSI) are all different investment approaches that super funds may use and you will need to determine how your fund defines and measures each of these. It’s also important to familiarise yourself with the differences and determine what best aligns with your values.

The Responsible Investment Association of Australasia (RIAA) has a certification for super funds which meet their responsible investing criteria. This is a good certification to look out for when selecting a super fund under ethical considerations.

3. Does my super fund compromise on financial returns to invest ethically?

Now investing ethically and responsibly doesn’t mean you have to compromise financial returns. In fact, the right super fund should deliver returns on-par with the market or even greater given that they are investing in high-growth areas such as healthcare, software and green technology or sustainability-focused companies that can expect reasonably high returns over the long-term. Companies in these sectors such as hearing aid manufacturer Cochlear and cloud accounting software Xero have experienced cumulative stock price growth of over 150 percent in the last three years.

Furthermore, the peak body representing responsible, ethical and impact investors, the RIAA compares the performance of responsible funds against mainstream funds, and they’ve consistently found that responsible funds perform better over most investment types and periods.

You wouldn’t expect to compromise your sense of style for sustainability so it’s the same with your super fund. Investing responsibly and good financial returns aren’t mutually exclusive, they can, and often do, go together.

4. Should I raise investment concerns with my super fund?

Given we live in a world of the 24/7 news cycle, social media and instant gratification, super funds are just as connected as ever to their communities and members, and are taking an interest in their members’ views. A great example is superannuation fund Australian Ethical which has an internal ethics team that works hand-in-hand with the investment team to review the types of businesses and investments being considered to ensure they comply with the most rigorous ethical standards while achieving strong sustainable long-term performance for their members.

In addition, Australian Ethical’s Ethical Charter has remained unchanged for over 30 years, and has guided its investment decision process even before ‘green became the new black’ and it became ‘cool to care’. Take a look across social media and you’ll also see Australian Ethical regularly promotes ethical issues and engages with its members on a variety of ethical and societal issues.

To learn more, visit australianethical.com.au.

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Disclosure: This information is of a general nature and is not intended to provide you with financial advice or take into account your personal objectives, financial situation or needs. Before acting on the information, consider its appropriateness to your circumstances and read the financial services guide and relevant product disclosure statements. We encourage you to seek independent financial advice from a licensed or authorised financial adviser before making any investment decisions.