Challenges to changing your default superannuation fund to a fossil-fuel free fund, and how to respond
These are some of the hurdles or objections you might face in your goal of changing the default super fund.
We’ve provided an answer to each, so you’ll be prepared to answer any objections or challenges you’ll face.
Q: Isn’t super about our employees’ retirement and not our company’s personal values? We have an obligation to provide a super fund with the highest possible returns to our employees.
A: You’re right: The purpose of Superannuation is to fund Australians in retirement. Which is why the 2018 Productivity Commission report was so important: It revealed that 5 million MySuper (default) super accounts are currently held in underperforming products. The report assessed that if a worker is placed in a bottom-quartile MySuper fund, they will retire with $502,000 less than if they had been placed in a top-quartile one.
As for the performance of ethical super funds, you might be surprised to find that many have provided higher than average returns. The RIAA 2019 Benchmark Report shows how ethical funds have outperformed non-ethical funds and the market (of course, past performance doesn’t guarantee future performance, but there is not a case to make that ethical funds are performing worse).
During the COVID pandemic, “over the 12-month period, four of the top-five balanced personal options were ESG funds, as were four of the top-five retirement balanced options.”
Of course at the end of the day, going with the default super fund isn’t mandatory: Employees can always choose their own fund if they prefer. But having the default be both high performing AND aligned with our company’s values is important.
Q: Can’t we just let employees decide to change to a fossil fuel-free super fund on their own?
A: Employees will continue to be free to choose whichever fund they want. But for the 40% of employees who aren’t making any conscious decision about their super, it’s an important and positive action for an employer to proactively research and update the default fund to one that can both maximise super performance and invest in a safe climate. Moreso, extending this as a new option to existing employees demonstrates you have an active concern for all staff’s financial future and wellbeing. Offering a fossil fuel-free super fund to both new and existing employees has the potential to maximise our positive impact.
And remember, for both new hires going with our default fund and existing employees changing their current fund, it remains optional.
Q: We have more important priorities on our plate right now. The default super fund for our employees isn’t top of the list.
A: Default super may not seem urgent and pressing - but the issues directly connected to it are. Apart from default super accounts contributing $X billion to increasingly risky fossil-fuel investments, your own business could already be impacted:
- Increasingly, customers and businesses are choosing only to buy from/work with other businesses that are actively working to reduce their climate impact.
- Many high quality candidates look for things like this when choosing jobs. The values of an organisation directly affect staff satisfaction (and that means walking the walk).
- Plus, it’s actually a relatively simple process to change! The staff member who presented this idea to you has access to all kinds of resources to make it even easier.
Q: Doesn’t it create unnecessary risks for our employee investors if we switch our default super fund?
A: There are risks and opportunities with all superannuation funds, and unfortunately, no fund’s performance is guaranteed. What is guaranteed is that investing in fossil fuels buoys an industry that directly produces dangerous levels of carbon emissions that, as the science shows us, are driving dangerous changes to our climate. Ample evidence exists to demonstrate the severity of this risk. Additionally, we recommend changing to a fossil fuel-free fund which would equally meet our expectations with regard to performance and competitive benefits.
Q: Our existing fund has a green option. Why don’t we just offer that?
A: We want the default MySuper fund to be fossil-free. While many funds offer an option that employees can switch to from the default, our goal here is to change the default so it aligns with our values, rather than require our employees to switch. If we can’t provide a fossil free default, then we could broadcast to employees to remind them about the option.
A: (Alternate answer) We have researched that <existing fund provider’s> green option – and unfortunately it looks greener than it is. Though it offers some ethical advantages over other products within <existing fund provider’s> offering, it does not have RIAA certification and it either directly or indirectly invests in fossil fuels.
Q: How do we know that these ‘fossil fuel-free’ funds aren’t ‘greenwashing’? OR Is there any independent certification that proves the proposed new fund really is fossil fuel free?
A: The main certification to start with is RIAA - https://responsibleinvestment.org/ri-certification/
Beyond that, you’ll want to ask vendors specifically what commitments they are making in their funds to screen out fossil fuels. Is there a stated commitment that the fund you are choosing will never have any investments in fossil fuels? We have a list of criteria around negative screening and positive screening
Q: Don’t green funds have higher risks and lower rate of returns?
A: This is a common, errant assumption – which has been disproved by research. While no super fund, regardless of its investments, can promise that past returns guarantee future returns, the RIAA 2019 Benchmark Report shows that ethical investments have performed better than the average super fund.
Generally, the higher the expected return for an investment, the higher the investment risk.
Q: We don’t want to make a political statement: Many of our employees and customers are not supportive of action on climate. Why rock the boat?
A: The 2017 survey by the Responsible Investment Association of Australasia (RIAA) showed nine out of 10 Australians expect their superannuation to be invested ethically and managed to balance their personal values and financial interests. Responsible investing is not a fringe activity. It now makes up more than half of all assets professionally managed in Australia ($866 billion or 55.5% of all assets, as of 2017, as reported by the RIAA. More and more, investing ethically is becoming the expected minimum standard of good investment practice. While the motivation to shift obviously begins with ethics, it is not rocking the boat: It’s about good investing and our employee’s financial futures.
Q: Isn’t changing our default super fund just a bit of tokenism? It’s not going to stop climate change.
A: Superannuation in Australia is a massive part of national investments. Super assets totalled $2.7 trillion at the end of the June 2018 quarter, a new record according to the Association of Superannuation Funds of Australia. Just 7.7% of super funds could fund 100% renewables by 2030.
Q: Changing our default super would be an administrative nightmare, wouldn’t it?
A: The process of switching is pretty straightforward. In fact, a lot of the admin work will be completed by the new fund itself. Here’s how it works:
- Payroll sets up a clearing house for the new fund provider (new fund will assist)
- Payroll allocates super to that new fund
- The new fund will send information to each member employee
Q: Our current default fund provider offers us a lot more than just a super fund. They give staff free presentations about increasing super investments and salary sacrificing etc. We have invested in a strong relationship with them – why would we change?
A: Most super funds offer a range of added benefits such as free financial education presentations to their members, and it’s in the fund’s interests to build a strong relationship with their clients. A fossil fuel free super fund wouldn’t be any different in this respect, but you can confirm with the super fund provider to make sure they can provide what your organisation needs.
Q: Is this the only climate change activity you propose? We’ve already made a lot of changes to our organisation like eliminating plastic cups, buying green energy and reducing electricity consumption and reducing paper waste.
A: It’s great we’ve done these things and they’ve not only been great for staff morale and respect for the company as well as for our customer relationships, they’ve also had positive financial impacts. Changing our default super could take all these positive impacts a lot further: It might seem too small an action to have any real or immediate impact but it would make us part of a movement that, in Australia alone, is already worth $XX. Part of a change that is global and growing rapidly - to the tune of $US11trillion ( $A16 trillion) moved out of fossil fuel industries, as of September 2019. And a growing number of businesses are making their climate commitments central to their brand – for good reason.
Q. Our company cannot change it’s super to any of the fossil-fuel free MySuper default options. Can we do anything else?
A: Absolutely. As a last resort, if you’ve hit a roadblock that is truly insurmountable, you can always run a program to make employees aware of the other options that are out there. You can provide the information because employees have asked for alternatives, and that while you cannot change the default the way you would like to, you can encourage employees to switch if that fits their ethical stance.