New research reveals Australia’s most responsible super funds

New research reveals Australia’s most responsible super funds

Australian superannuation funds following environmental, social and governance (ESG) principles collectively manage over $1.6 trillion, according to a new study.

Rainmaker Information’s inaugural ESG Superannuation Taxonomy Study found this amount of funds under management is equivalent to 71 per cent of the superannuation savings overseen by the Australian Prudential Regulatory Authority (APRA).

Furthermore, this means Australia's ESG superannuation coverage ratio is among the highest in the world.

"The purpose of the study was to explore what it actually means to be an ESG super fund," Rainmaker's director of research, Alex Dunnin, said.

"With so many people talking about ESG and so many super funds and investment managers claiming to be ESG proponents, it's important for investors that we develop markers of what this actually means.

“When people are looking to join an ESG super fund, we want to help them know what to look for."

In developing the research to support the study, a framework was created to capture what it is about ESG super funds that makes them different.

Assembling these markers in-turn enabled the researchers to acknowledge which super funds display the most of these ESG proof points.

The proof points include which funds:

  • declare themselves to be committed to ESG principles;
  • publicly state their values;
  • are affiliated with which ESG protocol groups;
  • disclose their portfolio holdings, proxy voting policies and voting records;
  • declare their investment screens (the criteria they use when making investment decisions), and;
  • report their ESG, climate change and social impacts and carbon footprints.

The research identified 60 super funds as being an ESG super fund, which is approximately one-third of all super funds.

"While ESG investment principles are incredibly important, they do not override the super fund trustees' fundamental obligation to maximise their fund members' best interests by achieving the highest investment returns they can," Mr Dunnin said.

"Super funds should adopt ESG principles because it makes them better super funds. Super fund trustees must always focus on the financial best interests of their members."

Rainmaker's ESG Superannuation Taxonomy Study revealed Australia's top 20 ESG super funds that scored the highest in the inaugural study to be:

 Australian Ethical Super   legalsuper
 AustralianSuper   Local Government Super 
 Aware Super   Media Super 
 CareSuper   Mercer Super Trust
 Catholic Super  Mercy Super 
 Cbus Super  Prime Super
 Energy Super   Sunsuper
 Future Super   Super SA
 HESTA  UniSuper 
 Hostplus  Vision Super 

Source: Rainmaker Information

Mr Dunnin said that while the impacts on the climate is a significant aspect in ESG investing, there are many other factors for funds to consider.

“Trustees of ESG super funds have to weigh up how they wish to impact the market and the companies with which they are engaging,” he said.

Comparing responsible super funds

If you’re considering making the switch from your current fund to a more ethical super fund that aligns with your values, it might be worth doing your research to find out exactly what kinds of investments each fund prioritises.

Additionally, it’s important to weigh up other factors when choosing a new super fund to ensure you’re making the best move for you and your retirement. Some of the features to consider when making your superannuation comparison include:

To learn more, consider visiting RateCity’s ethical super page, and use our superannuation comparison table to weigh up your options.

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Fact Checked -

This article was reviewed by Personal Finance Editor Alex Ritchie before it was published as part of RateCity's Fact Check process.

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Learn more about superannuation

What is MySuper?

MySuper accounts are basic, low-fee accounts. If you don’t nominate a superannuation fund, your employer must choose one for you that offers a MySuper account.

MySuper accounts offer two investment options:

  1. Single diversified investment strategy

Your fund assigns you a risk strategy and investment profile, which remain unchanged throughout your working life.

  1. Lifecycle investment strategy

Your fund assigns you an investment strategy based on your age, and then changes it as you get older. Younger workers are given strategies that emphasise growth assets

What is a superannuation fund?

A superannuation fund is an institution that is legally allowed to hold and invest your superannuation. There are more than 200 different superannuation funds in Australia. They come in five different types:

  • Retail funds
  • Industry funds
  • Public sector funds
  • Corporate funds
  • Self-managed super funds

Retail funds are usually run by banks or investment companies.

Industry funds were originally designed for workers from a particular industry, but are now open to anyone.

Public sector funds were originally designed for people working for federal or state government departments. Most are still reserved for government employees.

Corporate funds are arranged by employers for their employees.

Self-managed super funds are private superannuation funds that allow people to directly invest their money.

How many superannuation funds are there?

There are more than 200 different superannuation funds.

What are ethical investment superannuation funds?

Ethical investment funds limit themselves to making ‘ethical’ investments (which each fund defines according to its own principles). For example, ethical funds might avoid investing in companies or industries that are linked to human suffering or environmental damage.

How long after divorce can you claim superannuation?

You or your partner could be forced to surrender part of your superannuation if you divorce, just like with other assets.

You can file a claim for division of property – including superannuation – as soon as you divorce. However, the claim has to be filed within one year of the divorce.

Your superannuation could be affected even if you’re in a de facto relationship – that is, living together as a couple without being officially married.

In that case, the claim has to be filed within two years of the date of separation.

Either way, the first thing to consider is whether you’re a member of a standard, APRA-regulated superannuation fund or if you’re a member of a self-managed superannuation fund (SMSF), because different rules apply.

Standard superannuation funds

If your relationship breaks down, your superannuation savings might be divided by court order or by agreement.

The rules of the superannuation fund will dictate whether this transfer happens immediately, or in the future when the person who has to make the transfer is allowed to access the rest of their superannuation (i.e. at or near retirement).

Click here for more information.

SMSFs

If your relationship breaks down, you must continue to observe the trust deed of your SMSF.

So if you and your partner are both members of the same SMSF, neither party is allowed to use the fund to inflict ‘punishment’ – such as by excluding the other party from the decision-making process or refusing their request to roll their money into another superannuation fund.

This no-punishment rule applies even if the two parties are involved in legal proceedings.

Click here for more information.

Financial consequences

Superannuation funds often charge a fee for splitting accounts after a relationship breakdown.

Splitting superannuation can also impact the size of your total super balance and how your super is taxed.

Click here for more information.

What happens to my insurance cover if I change superannuation funds?

Some superannuation funds will allow you to transfer your insurance cover, without interruption, if you switch. However, others won’t. So it’s important you check before changing funds.

What is an SMSF?

An SMSF is a self-managed superannuation fund. SMSFs have to follow the same rules and restrictions as ordinary superannuation funds.

SMSFs allow Australians to directly invest their superannuation, rather than let ordinary funds manage their money for them.

SMSFs are regulated by the Australian Taxation Office (ATO). They can have up to four members. All members must be trustees (or directors if there is a corporate trustee).

Unlike with ordinary funds, SMSF members are responsible for meeting compliance obligations.

How do I change my superannuation fund?

Changing superannuation funds is a common and straightforward process. You can do it through your MyGov account or by filling out a rollover form and sending it to your new fund. You’ll also have to provide proof of identity.

What is the difference between accumulation and defined benefit funds?

A majority of Australians are in accumulation funds. These funds grow according to the amount of money invested and the return on that money.

A minority of Australians are in defined benefit funds – many of which are now closed to new members. These funds give payouts according to specific rules, such as how long the worker has been with their employer and their final salary before they retired.

How do you create a superannuation account?

Before you create a superannuation account, you’ll need to check if you’re allowed to choose your own fund. Most Australians can, but this option doesn’t apply to some workers who are covered by industrial agreements or who are members of defined benefits funds.

Assuming you are able to choose your own fund, the next step should be research, because there are more than 200 different superannuation funds in Australia.

Once you’ve decided on your preferred superannuation fund, head to that provider’s website, where you should be able to fill in an online application or download the appropriate forms. You’ll need your tax file number (assuming you don’t want to be charged a higher tax rate), your contact details and your employer’s details (if you’re employed).

How do you set up superannuation?

Before you set up a superannuation account, you’ll need to check if you’re allowed to choose your own fund. Most Australians can, but this option doesn’t apply to some workers who are covered by industrial agreements or who are members of defined benefits funds.

Assuming you are able to choose your own fund, the next step should be research, because there are more than 200 different superannuation funds in Australia.

Once you’ve decided on your preferred superannuation fund, head to that provider’s website, where you should be able to fill in an online application or download the appropriate forms. You’ll need your tax file number (assuming you don’t want to be charged a higher tax rate), your contact details and your employer’s details (if you’re employed).

How do you open a superannuation account?

Opening a superannuation account is simple. When you start a job, your employer will give you what’s called a ‘superannuation standard choice form’. Here’s what you need to complete the form:

  • The name of your preferred superannuation fund
  • The fund’s address
  • The fund’s Australian business number (ABN)
  • The fund’s superannuation product identification number (SPIN)
  • The fund’s phone number
  • A letter from the fund trustee confirming that the fund is a complying fund; or written evidence from the fund stating it will accept contributions from your new employer; or details about how your employer can make contributions to the fund

You might want to provide your tax file number as well – while it’s not a legal obligation, it will ensure your contributions will be taxed at the (lower) superannuation rate.

How do I choose the right superannuation fund?

Different superannuation funds charge different fees, offer different insurances, offer different investment options and have different performance histories.

So you need to ask yourself these four questions when comparing superannuation funds:

  • How many fees would I have to pay and what would they cost?
  • What insurances are available and how much would they cost?
  • What investment options does it offer? How would they match my risk profile and financial needs?
  • How have these investment options performed historically?

How is superannuation regulated?

The Australian Prudential Regulation Authority (APRA) regulates ordinary superannuation accounts. Self-managed superannuation funds (SMSFs) are regulated by the Australian Taxation Office.