Ethical super funds: what are they, and how do they work?

When choosing a superannuation fund, more Australians have recently searched Google not just for annual returns or fees but how the fund invests their money. Ethical super funds have therefore 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?

An ethical superannuation fund is a retirement savings scheme that invests member funds in sustainable, green, or ethical industries, such as renewable energy, clean water, or humanitarian charities. 

An ethical super fund may employ positive screens, meaning it deliberately seeks out investments that meet certain ethical criteria, or negative screens, which means it avoids investing in problematic or exploitative industries like fossil fuels, mining, or tobacco. Often, ethical super funds use both strategies to streamline their portfolios. 

A common way for a superannuation fund to classify ethical investments is by ensuring they fall into Environmental, Social, or Governance areas (ESG). 

We can break down ESG investments like so:

• Environment: investments or projects that protect the environment, such as reforestation or carbon capture. 
• Social: investments or projects that protect or support human rights, equality, and welfare, such as anti-human trafficking organisations. 
• Governance: investments or projects that support legislative changes with humanitarian or sustainable purposes. 

Otherwise, an ethical super fund works like a regular super fund: you or your employer contribute to your super account until you reach retirement. Until then, the fund will invest according to a strategy you nominate (such as conservative, balanced, or high-growth) and generate returns for your final super balance.

When comparing ethical super funds, looking for concrete evidence that your chosen fund is as ethical as it claims is essential. Otherwise, it could be greenwashing its advertising, which is illegal. 

Signs an ethical super fund is the real deal can include:

• Green or sustainable licences, accreditations, and certifications, such as from B Corp or the TCFD.
• Positive and negative investment screens that align with ethical or sustainable values. 
• An investment or business charter that outlines its specific strategy.
• A product disclosure statement (PDS) or financial services guide (FSG) detailing how the super fund uses your money.
• Research and data showcasing precisely how the fund has achieved its green goals. 

This list isn’t exhaustive, but the main theme is that the super fund should back up any claims it makes. Any licences or evidence should be made freely available before you sign up and featured prominently on the super’s website and information documents. 

HOT TIP: A super fund may still indirectly invest in unethical industries by funding harmful companies or organisations, such as a bank that owns shares in a mining company.

Subscribe to Moneyzone for weekly news and insights.