Choosing an ethical super fund is a significant step in aligning your financial goals with your values. As more Australians seek to invest responsibly, the demand for transparent, sustainable superannuation funds has grown. But what makes a super fund 'ethical' and how can you ensure your money is being invested in a way that reflects your principles?
Ethical super funds prioritize environmental, social, and governance (ESG) factors when investing your retirement savings. They may do this by avoiding certain industries, like fossil fuels or those involved in tobacco or controversial weaponry, or by investing in companies with strong ESG practices. However, not all funds that claim to be ethical are created equal, and it's crucial to do your research to understand how a fund defines 'ethical'.
Understanding Ethical Investment Principles
Ethical investing encompasses various strategies, including negative screening, positive screening, and impact investing. Negative screening involves excluding certain sectors or companies, while positive screening focuses on investing in companies with strong ESG performance. Impact investing goes a step further, actively seeking to generate positive environmental and social impact alongside a financial return.
To navigate the varied landscape of ethical super funds, it's essential to understand your own values and investment goals. Consider what industries you want to avoid and which values you want your super to uphold. Once you have a clear idea of your ethical priorities, you can start comparing funds more effectively.
Negative Screening: Avoiding Controversial Industries
Some ethical super funds engage in negative screening, which involves excluding specific industries or companies from their investment portfolio. This can include sectors like fossil fuels, tobacco, gambling, or controversial weaponry. However, the level of exclusion can vary greatly between funds. Some might completely divest from these industries, while others may limit their exposure.
For instance, one fund might have a strict policy against investing in companies involved in animal testing, while another might simply prioritize those with strong animal welfare policies. Understanding the specific criteria each fund uses for negative screening will help you determine if their approach aligns with your values.
Positive Screening: Investing in Strong ESG Performance
Positive screening, on the other hand, involves actively seeking out companies with strong ESG performance. This might include companies with robust environmental management systems, strong labor practices, or robust board independence. Some funds might focus on specific themes, like renewable energy or affordable housing, while others might take a more broad-based approach.
For example, a fund might invest in companies that are actively working to reduce their carbon footprint, or it might prioritize those that are actively contributing to the UN Sustainable Development Goals. When evaluating positive screening strategies, consider the specific ESG factors that are most important to you and how each fund is weighing these factors in its investment decisions.
Beyond Investing: Engaging with Companies and Industry
Ethical super funds don't stop at simply investing in companies with strong ESG performance. Many also engage with the companies they invest in to encourage improved performance on ESG issues. This can involve constructive behind-the-scenes dialogue with companies, collaborative engagement with other investors, or public policy advocacy.
A fund's approach to engagement reflects its commitment to driving positive change. It's important to consider whether a fund's engagement strategy aligns with your values and delivery results that are meaningful to you.
Voting Your Shares: Driving Change Through Proxy Voting
As shareholders, super funds have a powerful tool to drive change: their vote. By exercising their proxy voting rights, funds can influence company decisions on issues like executive remuneration, board appointments, and environmental and social policies. However, not all funds prioritize proxy voting, or use their votes consistently to advocate for enhanced ESG performance.
When evaluating a fund's commitment to ethical investing, consider how it uses its proxy voting power. Does it have a consistent approach to voting, and does that approach reflect your values? Does it disclose how and why it votes, allowing you to hold it accountable?
Collaboration and Policy Advocacy
Ethical super funds can also drive positive change by collaborating with other investors and advocating for policy changes. By working together, funds can amass significant influence and resources to tackle complex ESG challenges. They can also use their collective voice to advocate for policy changes that promote sustainable and responsible business practices.
For example, a group of Australian super funds has formed the Investor Group on Climate Change to advocate for a low-carbon economy. When evaluating a fund's commitment to ethical investing, consider whether it's engaged in meaningful collaboration and policy advocacy, and whether these efforts align with your values.
Ultimately, choosing an ethical super fund is about more than just where your money goes – it's about using your savings to shape a better future. By understanding your values, comparing funds' ethical investing strategies, and asking critical questions, you can find a super fund that truly reflects your commitment to responsible investing.