Many of us are well-versed in the ethics of fast fashion and fair trade coffee, but have you ever thought about how ethical your super fund is or where your super is being invested?
Superannuation can be a daunting topic if you're not across it, and that might mean a case of out of sight out of mind. But your super investments impact our world, and many of us don't know where our money is going. It's to the detriment of ourselves – and the environment – that most of us aren't paying attention to our yearly super statements.
My own interest in super was ignited when I learnt about how the system works against women's long-term financial security and can contribute to environmental degradation.
Did you know that men retire with almost twice as much super as women?
There's currently about a 42% difference between men and women in terms of the retirement balance they currently end up with. According to the Association of Superannuation Funds of Australia (ASFA), "Average superannuation balances at the time of retirement in 2015–16 were $270,710 for men and $157,050 for women."
Clare Hooper of The Pineapple Project podcast puts it like this: "It's like in retirement, he gets to fly business and you're in economy".
I'm sure I am preaching to the choir when I say that this difference is unfair and unacceptable. There are a various reasons for this difference, including the gender pay gap and time taken out of the workforce to raise children or care for parents – just two years out of the workforce for a 32-year old woman on $65k a year will result in her losing out on $28k in super. Armed with this knowledge, I took control of my super.
When I started digging, I was shocked at how little I could learn about where my super was being invested. This made me realise that I knew nothing about where my largest and longest-term investment was going. I then saw that some of my friends followed ethical super funds on Facebook (they were obviously much savvier about their super than I was). I read some articles on impact investing and about how non-ethical investments could end up stranded. I did a S*@! tonne of Googling, and also spoke to some people at different funds. And then I decided to swap to an ethical super fund.
This is what I have learned from my own journey. I haven't reached the pot of gold at the end (literally, I can't get access to my super for at least another 30 years) and I definitely don't know it all. I have, however, started to learn and hope this article will get us all talking a little bit more about the importance of superannuation and ethical investments.
What is an ethical super fund?
ASIC's MoneySmart website says that ethical investment options aim 'to screen out companies that don't meet environmental, social and governance standards determined by an investment manager'. This is known as negative screening. Funds can also apply positive screening, where they consider investments based on good environmental, social and governance standards.
Generally, some of the 'unethical' investments that are screened out (and therefore not invested in) are fossil fuels (coal, oil and gas), weapons, tobacco, logging, animal cruelty and companies that are implicated in human rights abuses and worker exploitation. Examples of ethical investments include renewable energy, recycling, education, hospitals and aged care.
Where do I find ethical super options?
Some funds are rigorously ethical and only invest ethically. However, more mainstream funds are creating ethical investment products and they might not be as strict in what they will and won't invest in. Responsible Investment Association Australasia (RIAA) is a great resource if you want to read up about super funds and check what they're investing in. As an independent third party they maintain a standard of investing, encourage transparency and help protect against 'green-washing'.
But what about financial returns and fees?
Even after finding a few funds whose investment strategy I liked, I still had some questions. My main questions related to the long-term financial return on my investment and the fees I would be charged, which I think is a good starting point for critiquing a fund.
Return on investment should consider the amount you will make after fees are deducted (ie net return). So make sure you look at net values when comparing the performance of funds!
When looking at fees, I learned that some ethical funds and products are actively managed and therefore charge higher fees than what may be paid at passively managed funds. Passive funds (or index funds) invest in a basket of stocks and aren't actively managed by a portfolio manager who considers companies, their management and other ethical concerns. Active funds employ portfolio managers that critique companies and the market, investing accordingly. As such, active funds cost more to run and funds charge higher fees for this service. So, consider whether the higher fees charged by active funds produce a higher net return than passive funds.
…so who did I go with?
I chose Australian Ethical Super. I liked that Australian Ethical is a well-established ethical fund and found it aligned with my values. It was also easy for me to find out about the fund's investments and fees - they have a history of good returns, and support renewable energy and other sustainable solutions. Importantly, they don't invest in fossil fuel companies.
So if you're considering switching to an ethical fund or product first pick up the phone and call the fund. It can be a bit scary and overwhelming at first but it gives you the opportunity to ask questions about investment strategies and get quotes on fees. This will help you to make a choice that aligns with your ethics AND makes financial sense.
Note: Nothing in this article constitutes financial advice. Please do your own research into superannuation and seek professional advice if you desire. Superannuation is a personal choice and this article details my choice and insights only.
Francesca Arciuli is the former Content Marketing Intern at 1 Million Women. She loves browsing through op shops, libraries and the peanut butter aisle in her local supermarket.
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