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How green is your money?

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Do you take pride in being a conscious citizen of the world?  Do you take time to ensure you support firms that are environmentally aware and have an ethical approach to business?  Is leaving the planet in a better way (for your children) a priority for you?

If you answered yes to the above, do you know how green your money is? In particular, your largest financial asset – your superannuation.

For many of us superannuation is a foreign concept, in which our employer deducts nearly 10% of our pay and then diverts the funds into a superannuation fund with most of us then having limited knowledge on how or where they invest OUR money.

Do you know that it is likely that your superannuation fund may invest your funds in companies that you are a philosophical opposed to, including – mining companies, tobacco companies, companies which run sweat shops, those that make or sell weapons etc.  If this shocks you, then you can do something about it by investing your superannuation (or other investment funds) in what is known as ethical funds.

Not all ethical funds are the same as they all have different definitions of being ethical.

What Are the Different Types of Ethical Funds?

Not all ethical funds are the same – there are three main types of ethical funds.

  • Ethical Funds: Ethical funds do not invest in companies that the fund deems it derives its profits from the exploitation of the environment, people or animals.     
  • Socially Responsible Funds: Within these funds, companies that may be excluded by ethical funds may be included if their commitment to social responsible projects outweighs their “unethical” practices.  
  • Sustainable Funds: Within sustainable funds companies are included or excluded based on if their practices are deemed long term sustainable or not. 

Find more information on ethical funds.

Does Investing Ethically Result in Lower Returns?

This depends on the individual investment manager or superannuation fund, but in general terms ethical funds have performed above the average over the past five years, though this is a slightly distorted picture as resource companies have significantly underperformed during this period.  However, in general terms, someone should not necessarily expect to forego returns just because they want to invest ethically.

Why Are People Turning to Ethical Funds?

There has been unprecedented growth in ethical and responsible investing in recent years, both locally and globally.

In Australia, responsible investments have more than quadrupled over the past three years. This reflects the growing trend of people wanting to live their life with purpose and experience what they are truly passionate about rather than just accumulating things, which is highlighted in the following statistics from the Responsible Investment Association Australasia1.

  • Nine in 10 (92%) Australians expect their superannuation or other investments to be invested responsibly and ethically.
  • Four in 5 Australians would consider switching their super or other investments to another provider if their current fund engaged in activities inconsistent with their values.
  • Fifthy-three per cent of Australians will consider making ethical or responsible investments in the next 1 to 5 years.
  • Seven in 10 (69%) Australians would rather invest in a responsible super fund that considers the environmental, social and governance issues of the companies it invests in and maximizes financial returns, rather than a super fund which considers only maximizing financial returns (31%). This attitude has increased by 27% since 2013.
  • The vast majority (85%) of Australians believe superannuation should be invested responsibly, such as through investing in companies that build clean energy infrastructure or avoiding investments that can harm communities such as weapons manufacturing.
  • Twenty two per cent of Australians state they are already invested in ethical companies, funds or super funds that aim to create positive social and environmental outcomes; 53% stated they will consider this in the next 5 years, and a quarter of the population (24%) is planning on investing in ethical companies, funds or superannuation within the next 12 months.

1 FROM VALUES TO RICHES - Charting consumer attitudes and demand for responsible investing in Australia (November 2017)

Justin McMillan is an Authorised Representative of RI Advice Group Pty Limited (ABN 23 001 774 125), AFSL 238429. This information (including taxation) is general in nature and does not consider your individual circumstances or needs. Do not act until you seek professional advice and consider the relevant Product Disclosure Statement. The views expressed in this publication are solely those of the author; they are not reflective or indicative of RI’s position and are not to be attributed to RI. They cannot be reproduced in any form without the express written consent of the author.

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