What is an ethical super fund?

An ethical super fund is a fund that focuses its investments on industries that are considered to be ethically responsible. This means investing in companies that have socially, environmentally or otherwise beneficial priorities, while excluding those that may be harmful.

Ethical super funds offer their members ethical investment options in either one of two ways:

  1. Some super funds are dedicated specifically to ethical investments, such as Australian Ethical super fund.
  2. Others will offer an ethical investment option alongside options that may not necessarily prioritise ethical responsibility.

How do ethical super funds invest my retirement savings?

Ethical super funds will invest your savings into ethically responsible companies that have good environmental, social and governance (ESG) standards and principles in place, including: 

  • Healthcare
  • Renewable energy
  • Sustainable products
  • Social wellbeing
  • Recycling
  • Supporters of action on climate change

Some of the industries that you generally won't see ethical funds invest in include:

  • Fossil fuels
  • Tobacco
  • Gambling
  • Weapons
  • Social harm
  • Live animal export
  • Environmental destruction
  • Major contributors to carbon emissions

Which super funds are ethical?

The selection of ethical super funds is growing, meaning you'll have many more options to choose from now than you may have previously. Some of the funds that claim to be either fully ethical, or at least offer ethical or sustainable investment options, include:

Some ethical funds go one step further than meeting ESG principals and standards, by obtaining The Responsible Investment Association Australasia’s (RIAA) Responsible Investment Certification.

The RIAA is the peak industry body representing responsible, ethical and impact investment products and services in Australia and New Zealand.

According to the RIAA, its certification symbol is recognised by investors and consumers across the region, "providing confidence that a product or provider is delivering on its responsible investment promise and meeting the Australian and New Zealand Standard for responsible investing".

What should I consider when choosing an ethical super fund?

When comparing super funds, it's important to consider a range of factors to determine the most suitable option for you - and comparing ethical funds is no different. Here are some of the key areas to focus on when choosing between funds:

Investment options

This is where ethical investments come in. Even if you've chosen a certified ethical super fund, it's still important to do your research on the fund's investment strategy and options offered to ensure you understand where it sits on the risk spectrum, what asset classes you would be investing in and how much of your super would be going to each asset class.

Investment performance

One of the most important factors of your super fund is the investment return that it makes, known as its performance. Even a slight variation in performance has the potential to significantly impact your super balance over the life of your career. Just remember that past performance isn't necessarily an indicator of future performance.

Fees

Funds with lower fees can seem more appealing, for obvious reasons. But, it's important to keep in mind that they may not necessarily offer as much value as funds with higher fees and stronger performance. Some of the fees you may be charged by your super fund include administration fees, investment fees, switching fees and insurance premiums.

Insurance options

The three different types of insurance that super funds commonly offer are life insurance, total and permanent disability insurance, and income protection insurance. If these are important to you, consider if your preferred super fund can offer you what you need.

Customer service

Some funds will offer services such as financial advice. Keep in mind that these services typically come with an additional cost.

What are the pros and cons of an ethical super fund in Australia?

Making the decision to switch super funds, much like any financial decision, shouldn't be taken lightly. So, it's important to weigh up the pros and cons to ensure you're doing what's best for you and your retirement.

  • Could provide peace of mind that your retirement funds are being invested responsibly in companies that have a positive impact on society and the environment.
  • Might mean that you develop a deeper understanding of where your money is going, rather than focusing on costs and performance alone.
  • Potential opportunity to aline your super fund with your personal ethics.
  • Since you will be excluding certain funds and investment options when choosing an ethical fund, you may miss out on some of the top performing funds (but keep in mind there are still ethical options with strong performance history).
  • Your portfolio may end up being less diverse, as unethical investments are excluded.
  • Ethical funds can sometimes have higher fees, as it can be an additional cost to screen ethical companies.

How can I compare super funds at RateCity?

RateCity's superannuation comparison tables allow you to easily compare your super options. You can compare past investment performance, fees, features and SuperRatings awards to help find an option that suits your needs.

Remember to always read the product disclosure statement (PDS) before making the switch to a new fund, and consider reaching out to a financial adviser for information specific to your personal financial situation.

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