28 February 2022
Ethical super and ethical investing are buzz words in the world of financial services. But what does it really mean – and can super be ethical? To secure your best financial outcome in retirement it pays to take a closer look at how your fund invests its money on behalf of members.
Working out whether your super fund acts ethically in the way it does business can be a complex exercise. We spoke to Cris Parker, Head of The Ethics Alliance, about environmental, social and governance issues (ESG), and ethics.
Cris encourages consumers to look at how their super fund demonstrates ethical practices.
‘Everybody’s standards around what’s ethical are going to vary. That’s going to be based very much on their personal values. It’s going to be all about trade-offs,’ she says.
How ethical is your super fund?
Cris says you need to consider what’s important to you when you’re looking for ethical providers. For example, you may be comfortable choosing a super fund that’s divested from investments in tobacco production, but still invests in a supermarket that sells the product.
As a starting point, Cris advises people to consider the following 5 things when looking for an ethical super fund:
- Does your super fund provide clear reporting to members?
- Is your fund aware of ESG risks and opportunities in every investment it makes?
2. Be aware of ‘greenwashing’
- Check whether your fund overstates its environmental credentials. Driving successful ESG outcomes often means working with the company to help make changes. Does your super fund have the size and scale to actually deliver?
- Look at how your fund supports the companies it invests in to reduce their environmental impact. For example, is it working with them to understand their challenges and help them make positive changes they can commit to?
3. Voting records
- Check whether your super fund is voting on crucial decisions that the companies it invests in are making, such as to increase a company’s climate disclosures. Your fund should be exercising its right to vote on company and shareholder resolutions to influence ESG outcomes.
4. Active engagement
- Does your super fund actively engage with companies it invests in? Direct engagement can encourage positive behaviour on issues like climate change that can impact members’ returns.
5. Workplace practices
- Look at how your fund treats its people, including remuneration policies, and those appointed to its board.
AustralianSuper’s approach to ethical investment
AustralianSuper considers ESG factors in all the investments we make. Members can be confident that long-term returns are the core focus, and that we work with the companies we invest in to improve ESG outcomes.
Andrew Gray leads the ESG and stewardship team at AustralianSuper. He says it would be difficult to determine the moral or ethical stance for the Fund’s 2.54 million members1.
‘A focus only on ethical issues during screening processes would exclude potential investments that may ultimately be in members’ best financial interests. The Fund instead prefers to consider ESG factors for every investment across all super options.’
Investing with a long-term view means AustralianSuper can help companies transition to better ESG practices, such as achieving net zero emissions by 2050. The aim is to reduce a company's negative impact, increase its ethical behaviour and create stronger investments for members. This work is made possible due to the size and scale of the Fund.
Check your fund’s ESG performance
Cris says checking your super fund’s ESG performance is key.
‘ESG is a codification for us to be able to judge an organisation along those lines,’ Cris says. ‘If people take the time to really dig deep and understand its environmental, social and governance, it can help them understand the funds beliefs and therefore ethics. ‘It’s very much how does that organisation treat its stakeholders, how does it treat its own people, how it’s paying its staff.’
But Cris cautions that ESG shouldn’t be seen a substitute for ethics.
‘What ethics in language does is puts a sense of responsibility on an individual. ESG is more an organisational lens.’
A shifting consumer awareness
In the wake of the Financial Services Royal Commission and with increased scrutiny from regulators, Cris detects growing consumer awareness of ESG issues.
‘Consumer behaviour is changing. People are looking as much for ethical investments as they are for ethical banks and ethical superannuation funds.’
She says the 2019-20 Australian bushfire season followed by the COVID-19 pandemic have prompted more people to consider how their retirement savings are being invested.
‘I think that COVID has put a lens over the social issues and well-being and what it means to be human. People want to contribute to a safer planet maybe, some people want to make sure their kids are going to be ok.
‘You have the power; how do you want to be engaged?
‘You can’t survive without ESG practices. If you call something ethical you want to have as much integrity as you can.’
*Disclosure: AustralianSuper is a member of The Ethics Alliance, a community of business leaders who work to embed ethics in their organisations.
This may include general financial advice which doesn’t take into account your personal objectives, financial situation or needs. Before making a decision consider if the information is right for you and read the relevant Product Disclosure Statement, available at australiansuper.com/pds or by calling 1300 300 273. A Target Market Determination (TMD) is a document that outlines the target market a product has been designed for. Find the TMDs at australiansuper.com/TMD.
AustralianSuper Pty Ltd ABN 94 006 457 987, AFSL 233788, Trustee of AustralianSuper ABN 65 714 394 898.