Is your money as ethical as you? Nicole Lutze explores ethical superannuation and investment, and how you can make sure your money aligns with your values.
Many people in the Live for Less community are taking steps to reduce their carbon emissions by shopping second-hand, growing vegetables, riding a bicycle or installing solar panels. While these are important lifestyle changes, it’s vital also to consider how your money is used beyond cash transactions. If you don’t know how your superannuation is invested, your hard-earned dollars could be supporting damaging industries and be significantly contributing to your carbon footprint.
To find out more about ethical superannuation and investment, I spoke to Karen McLeod, a financial adviser at Brisbane’s Ethical Investment Advisers, and a member of the Responsible Investment Association of Australasia (RIAA).
LIVE FOR LESS: What is ethical investment?
KAREN: Ethical investment is making sure your money is invested in a way that aligns with your personal values. For many people, this might mean avoiding investments that support fossil fuels, slave labour, child labour, pornography, weapons or tobacco. Instead, they might want to invest in healthcare, education or technology.
Ethical investors are looking for better financial, environmental and social outcomes.
Is ethical investment profitable?
Benchmarking reports produced by the RIAA annually over the past 20 years have shown that in most years, ethical investment outperforms others. So, it’s a misconception that you would need to sacrifice performance when investing ethically, and it seems the opposite may be true.
How does the average person determine if their superannuation is being invested ethically?
The easiest first step is asking for a full portfolio holding from your existing superannuation manager. However, it is not a legal requirement for them to do this, so your request might not be answered.
At present, super funds don’t need to fully explain how they are investing their members money. Changes to the Corporations Act in December 2019 that would have required super funds to publish their FULL holdings have now been deferred until the end of 2020. Having already been extended three times previously: in 2017, 2016 and 2015, leaving superfund members in the dark for longer. Our industry association RIAA has been requesting full transparency of portfolio holdings and supported the Corporations Act amendments. We will continue to champion this request for transparency.
You can also use some free online tools to try and understand your super-funds ethical rating. (See our links at the bottom of this article.)
How does this lack of transparency affect Australians?
On a global stage, Australia was graded “below average” for disclosure by research house, Morningstar, based on their 2017 study. Australia remains the only country in this survey that does not have any requirement to disclose portfolio holdings.
In the US, mutual funds have been disclosing their holdings since the 1940s and the UK regulator requires at least annual disclosures.
What is a materiality threshold, and why is it important?
If you were to buy a product that’s labelled as Australian Made, a certain percentage of those ingredients needs to come from Australia. There are legal requirements around that. However, if a super fund says they exclude exposure to fossil fuel extraction, you might find somewhere in the fine print that they have a materiality threshold of 10%. So, a large company that makes up to 10% of its revenue from fossil fuels could be included as stock in that portfolio in which case it’s not really free of fossil fuel investments after all.
On its own, 10% might not seem too big a deal, but if your investment portfolio has more than one of those big companies who earn a percentage of their money from fossil fuels, it kind of defeats the purpose of being in that fund. That’s why it’s essential to check the thresholds.
Ethical investment isn’t a trend that is going away.
What considerations should I make before moving my superannuation?
Insurances like income protection, permanent disablement or death insurance are often tied into your superannuation. Given our current climate with COVID-19, many people want to retain their insurances. So your insurances should be a consideration, along with any fees that might apply.
You’re also a member of the RIAA. What do they do?
Members of the RIAA include superfunds, advisors and research houses. Together, we aim to broaden the ethical investment opportunities for Australians and New Zealanders and improve what is on offer. We also try to prevent greenwashing in the industry, which keeps super funds accountable and protects investors.
Why did you specialise in ethical investment?
I watched the first Al Gore movie and decided I wanted to put my clients’ money into clean technology. There is so much we need to collectively do as a community, so why would I want to invest their money in soft drinks, tobacco or oil? I moved every single one of my clients to Ethical Investment Advisers about 15 years ago, and it’s been so rewarding.
What are your hopes for the future?
I want more understanding in mainstream government on how superfunds and institutions could support more domestic infrastructure and innovative projects. I would like the Australian Government to fully understand how we can use the stimulus to build the nation we need for the future.
Ethical investment isn’t a trend that is going away. We have the numbers to prove it. But currently, many Australians are investing their money in overseas projects, because that’s where the greatest innovation is happening. I would like to see an ecological revolution in Australia that focuses on that triple bottom line: good for the environment, good for us socially, and good financially.
- Responsible Returns helps you find, compare and choose superannuation, banking and investment products that best match your personal ethics.
- Leaf Ratings ranks ethical superannuation and investment schemes.
Want to find out more about the relationship between economics, government and our environment?
Climate Works Australia released a new report that shows, with the right government support and investments, Australia could achieve net-zero emissions by 2035.
In the midst of COV-19, Australian superannuation accounts are being impacted. Podcast 7am discusses how to take control of your super during this time.
The information provided in this story is that of the interviewee personally and is not necessarily representative of the views of Brisbane Green Heart CitySmart Pty Ltd (CitySmart) or any of its employees or stakeholders. The information is general in nature only, does not constitute personal financial advice and has been prepared without taking into account your personal objectives, financial situation or needs. Before acting on any information in this article or anywhere else, you should consider the appropriateness of the information having regard to your objectives, financial situation and needs and take advice from a registered financial adviser. CitySmart does not warrant the accuracy of any information in this article and CitySmart is not liable for any loss caused, whether due to negligence or otherwise arising from the use of, or reliance on, the information provided directly or indirectly, by use of this article, or this website.