Compare ethical super funds in Australia

Ethical super funds have taken off as a way to align our values with our money: saving for retirement while saving the planet. But what is an ethical super fund? And how can you tell if it’s the real deal? Let’s find out!

An ethical super fund is a superannuation fund that invests your money according to a specific ethical framework that it establishes. Since there’s no universal regulatory standard for what constitutes ethical investing, each fund has the flexibility to define its own criteria based on what it believes its members or the market values.

But in general, it means that the fund actively invests in socially responsible industries like renewable energy and/or avoids exploitative industries like tobacco or firearms.Apart from that, an ethical super fund works like a regular super fund: you or your employer contribute to your super account until you reach retirement, while your fund invests your money in the investment mix of your choice (such as conservative, balanced, or high-growth).

Many traditional super funds now offer ethical investment options, but this doesn’t mean the company itself has stopped investing in unethical industries. While your investment choices within that fund may align with your values, other fund members’ investments might still support the industries you’re trying to avoid. It’s up to you whether it’s simply enough that your personal investments are ethical, or if you prefer to choose a fund that fully commits to ethical investing across the board.

As alluded to above, different ethical super funds take different approaches to their ethical investing. The two main approaches are positive screening and negative screening. Let’s have a closer look at these approaches:

• Positive screening. This means the fund, or the particular investment option within that fund, only invests in industries it deems to be socially responsible. This narrows the pool of investments, meaning you might miss out on ethically neutral companies that simply don't meet the positive criteria. However, there may still be diversification through sectors like renewable energy, sustainable agriculture, and companies with strong human rights records.
  
• Negative screening. This means the fund is open to a wide range of potential investments, except in industries it deems to be problematic, like tobacco, firearms, or fossil fuels. Unlike positive screening, this allows for broader investment opportunities, including ethically neutral companies.

For example, a fund or investment option that promotes its green energy credentials might use positive screening to select only the top green energy investments in its energy holdings. The rest of the portfolio—such as healthcare, real estate, and other investments—might be less stringent but would still apply negative screening to exclude industries like firearms and tobacco.

Here are some examples of what might be considered ethical and non-ethical investments based on these screening approaches:

As we mentioned, there isn't any regulatory standard a super fund must meet to label itself 'ethical'. However, you can take steps to ensure your ethical super fund aligns with your values while also aiming for competitive returns. 

Here’s how you can do it:

• Look for accredited funds. The Responsible Investment Association of Australia offers certification to super funds that meet its responsible investing criteria. Look for super funds that carry its certification mark:
• Check the fund’s performance. Don’t let the ethical nature of the fund overshadow its performance. For any fund you’re considering, check out its historical performance over the past 1, 3, 5, and 10 years. Although this isn’t a guarantee of future results, it helps you gauge how well the fund has handled various market conditions.
• Check for value alignment. Ask yourself if the fund aligns with your values. Is negative screening to eliminate problematic investments enough? Or do you want a fund that more strictly adheres to your vision of the world?
• Understand the fees. Ethical super funds are typically more actively managed than more basic funds like MySuper and even similar funds that don’t have as stringent investing criteria. This could mean higher fees. Make sure you’re aware of, and comfortable with, the fee structure of any fund you’re considering.
• Check for secondary investments. A super fund might still indirectly support unethical industries by investing in organisations that, in turn, invest in those problematic industries. For example, this could happen if the fund invests in a bank that holds shares in a mining company.
• Beware of greenwashing. Greenwashing is when a company claims to be ethical when it really isn’t, or vastly overstates its ethical credentials. If you’re sceptical of a fund’s claims, make sure you thoroughly research its investments thoroughly and look for independent certifications.

Ethical super funds can be a great way to ensure your long-term investments align with your values, allowing you to make a tangible difference. However, they do come with certain trade-offs, so make sure you’re comfortable with the potential limitations.

These days, there are more ethical investment options than ever before, with many demonstrating returns that are largely on par with non-ethical funds with similar investment targets. So if investing according to your personal values is important to you, going with an ethical fund is a viable option.

However, it’s still important to do your due diligence. There are some drawbacks as mentioned above, so make sure you’re OK with those before making the switch.

And if you’re unsure, it’s never a bad idea to consult a financial advisor who can help you navigate your options appropriately.

Here’s to making an impact!

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