Ethical money: transferring your superannuation to a green fund
It is increasingly possible to invest your money in line with your ethics and values. There are ethical superannuation funds, ethical or green/sustainable options within many superannuation funds, there are products that you can invest in that have ethical or environmental alignments, and there are ethical fund managers that can help you develop bespoke investment strategies.
You’re not alone if you’re curious about ethical superannuation. Consumers are putting their money into investments that align with their personal values, but they also have questions. The Responsible Investment Association Australasia (RIAA) recently put out its annual benchmark report looking at the state of responsible investment in Australia (they use the blanket term of responsible investment to cover a range of activities relating to managing environmental, social and corporate governance issues and their impact on investments).
The report looked at how consumers were using their Responsible Returns (responsiblereturns.com.au) web tool, which allows people to search out all of RIAA’s certified responsible products. RIAA said that there were more than 2000 searches on the website, and in this year’s report, they pinpointed a gap between products that negatively screen for certain sectors and the negative screens that consumers are seeking in their investment products. Negative screens are blanket decisions not to invest in certain sectors or companies, for environmental or social reasons. The most prevalent negative screens that investment managers use are for weapons and tobacco, followed by fossil fuels and human rights. But RIAA found that consumer’s searches for negative screens products via its Responsible Returns web tool weren’t matching the supply.
According to the report, 32 per cent of consumers visiting the website were seeking investment products that screened out fossil fuels, compared with 5 per cent of total assets under management being fossil fuel free. The second most popular screen was human rights, at 22 per cent, while 4 per cent of total AUM screened out negative performers on human rights. By contrast, controversial weapons searches accounted for 10 per cent of consumer searches, but 31 per cent of assets under management and tobacco had 9 per cent search and has 30 per cent exclusions by assets under management.
Finding the right option
So how do you go about finding options that might suit your lifestyle? To begin with, people who work have access to superannuation, so that might be a good port of call. Most industry/profit-for-member superannuation funds as well as some retail funds will have an option that’s labelled “green” or “sustainable” or “socially responsible investing”. Again, Responsible Returns has a list of funds that they have certified as meeting their certification criteria. The benefit of a superannuation fund includes ease of contribution, especially if you’re employed, plus diversification of investments like private equity, direct real estate or other investments made by multibillion-dollar funds that you may not be able to access on your own.
Additionally, the Ethical Advisers’ Co-op, a group of ethical advisers who represent more than 3300 clients with funds of over $1.5 billion invested in ethical areas have recently launched Ethical Fund Ratings (ethicalfundratings.com), which screens superannuation funds purely on their ethical performance, not on their financial performance. This is another free service that you can use on your research process.
There are also whole funds that are gearing towards the ethical/green market. Future Super is fossil fuel-free, for example, and Australian Ethical operates mutual funds and a superannuation fund.
But if an off-the-shelf solution doesn’t suit your choices, then there is also the option to work with a financial adviser. If you’re thinking about a tailored investment solution, such as one that a financial adviser can provide you with for a fee, you should probably have a nest egg built up through savings in a superannuation fund or elsewhere. I have spoken to financial advisers, and they suggest having about $50,000 –$100,00 in savings before going for a bespoke financial adviser, mainly because you’ll need diversification — investing in several asset classes such as shares, bonds, direct investments, etc.
Most industry/profit-for-member superannuation funds as well as some retail funds will have an option that's labelled "green" or "sustainable" or "socially responsible investing".
A financial adviser will design a mix of assets for you that are tailored to the risk appetite you have — that is, your ability and desire to invest in assets that are riskier or require a longer term time horizon to provide potential return. Many ethical advisers are independent financial advisers, and the Responsible Returns and Ethical Advisers’ Co-op websites can help you figure out who might help you at that level.
I do want to emphasise, however, that everything I’ve just discussed is just information for you to consider. I’m not in the business of advising, and it’s best to do your own research and speak with financial professionals, as you feel necessary.
Again, the good news is that there are products and services that can help you match your values with your investments. There are many people like you who want to invest your money in ways that benefit people, the planet and our future, and there are ways to do this. But only you can decide if going through your superannuation fund or a bespoke investment works best for your financial and lifestyle considerations.