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Ask the Expert: Can I invest my super in ethical businesses?

Superannuation is the largest asset most Australians will own outside their home. So knowing how that money has been invested can be important for many members.

In tandem with disillusionment about inaction on climate change and many bank customers feeling angry about the misdemeanours unveiled in the sector, investment in environmental, social and governance (ESG) factors has garnered increased support in recent years.

A report from the Responsible Investment Association of Australasia (RIAA) put the value of Australians’ investment in these strategies at $866 billion.

Super funds, too, have followed this trend, with many introducing ESG portfolios. But are they always a good idea? And what makes a super fund qualify as ‘ethical’?

The New Daily spoke to Industry Fund Services technical, research and advice services chief Craig Sankey to find out how members can make sure their money isn’t being invested in things they’d disapprove of, without compromising their returns.

What am I invested in?

 The first thing to note about investing in ethical portfolios is that there is no standard definition of ‘ethical’, Mr Sankey says. And that definition will can also differ from fund to fund.

For example, the ‘negative investment screens’ used by funds to weed out problematic companies typically include weapons manufacturers. But while some funds screen for all weapons, others may only look for cluster munitions and similarly controversial arms.

“Another controversial one is that one of Australia’s very large funds, in ethical options, won’t invest in an Australian company if all the members of its board are the same gender,” he says.

“Some people might think that’s great, and some others might not think it’s a good idea, so it’s really important to look at the fund’s objective and what it’s going to do if that’s important to you.”

Most funds will publish the details about which screens they use, and what those screens look for. Those funds that don’t should be able to provide more information over the phone, Mr Sankey says.

Will it hurt my returns?

Ethical investing can have a large bearing on your retirement balance, so moving your savings into one of these investment options shouldn’t be undertaken lightly, Mr Sankey cautions.

“Many funds only offer one or two ethical options, so it’s still important to make sure you’re taking on the appropriate level of risk for your risk profile,” he says.

“It may mean that you need to look at investing only a portion of it this way, or blending it with some of the more mainstream options so your investments are still aligned to that profile.”

Funds can help with this too, as most offer limited financial advice over the phone that can provide some guidance on risk profiles and how appropriate a fund’s ethical investment portfolios might be for a member’s needs.

“If you feel like you can’t make that determination yourself, most super funds should be able to help,” Mr Sankey says.

That said, while there are some instances where an ethical investment option has underperformed more conventional options, in other cases they perform just as well. Some ESG investors suggest responsibly invested funds over the long term that will outperform the average, as they’ve already factored in the possible effects of things such as climate change. Though the veracity of those claims is still up for debate.

But, if how your investment savings are being invested is a concern, then perhaps it’s worth checking the fees and returns on offer in your fund’s ethical option and seeing if it’s right for you.

The New Daily is owned by Industry Super Holdings

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