More and more Australians are choosing green investment options for their super, rejecting companies who finance fossil fuels and instead investing in companies working towards a sustainable future.
But a big question is how to tell if a super fund really is a green investor?
The problem is that words like ‘green’ and ‘sustainable’ mean different things to different people, and some investment funds claim to be green when they’re not. It’s known as greenwashing.
Why it's important
Australian workers have more than $3 trillion in superannuation and this huge amount of cash can be a powerful force for funding green and sustainable companies.
Individual employees have the legal right to choose where their superannuation investment goes. But the majority of workers go with their employee’s default option of funds – that is, the fund that employees are automatically enrolled in unless they explicitly choose otherwise.
Learn more about how your company's default super fund is linked to climate change by downloading our FREE Ethical Superannuation Playbook
So it’s not only your individual choice of fund that matters, but also where your employer allocates the super of staff members who don’t make the choice for themselves.
In Australia, 40% of the money in investment funds is allocated according to responsible investment principles, according to the Responsible Investment Association of Australia. That number is rising quickly, but there is still a long way to go.
What green investing means
The first thing to know is that there are different types of green or responsible investing.
The first stage is ESG integration. These are investment funds which take into account environmental, social and governance factors when they make their decisions. It doesn’t necessarily mean they would reject a fossil fuel investment, but they would consider whether or not it is sustainable as an investment over the long term.
Some funds screen out fossil fuel producers such as coal miners and oil producers, either having none at all or small amount like 5% of the fund’s total.
Others not only reject fossil fuel producers, but also those companies which support fossil fuel producers, such as banks which lend to them or logistics companies which provide transport for their products.
Others go further still and invest in climate solutions – renewable energy producers such as solar and wind farms, energy efficient buildings and infrastructure, and in those companies which address some of the problems faced by communities most affected by climate change.
It’s important that investors who want themselves and their employers to make a difference understand the distinction.
“If you want to be part of it, it's looking to screen out the dirty side and then also putting your money to work for the clean side, looking for products investing in climate solutions.”
“If you want to be part of it, it's looking to screen out the dirty side and then also putting your money to work for the clean side, looking for products investing in climate solutions,” says Nicolette Boele, Executive Manager, Policy and Standards at the Responsible Investment Association of Australia.
Where to find the information
Fortunately for the investor, much of this information has already been collated.
Market Forces rates various superfunds on the extent to which they are investing in companies which are undermining global emissions efforts.
ClimateWorks has produced a report assessing how different Australian superannuation funds are tracking towards net zero emissions with their investment portfolios.
But probably the easiest to use report is the Responsible Returns site. An initiative of the Responsible Investment Association of Australia, the site lists those super funds which have the industry-standard Responsible Investment Certification. If you search for your fund and it’s not there, it means your fund isn’t certified.
RIAA has certified 210 investment products to provide certainty to investors about how their money is being used.
“When you select those, you're getting ones that are true to label. They're quality and they meet that Australian and New Zealand standard for responsible investing,” Boele explains.
For some investors certification will be enough, but others will want to know more. The site reveals whether a fund actively pursues environmental and socially responsible investments, such as healthcare and medical products, social and sustainable infrastructure, or renewable energy and energy efficiency companies. It also reveals the sorts of investments they reject.
It can still require a bit of work from superfund investors to go through the different funds and understand how they invest and which is best aligned with their own values.
Responsible Returns is currently working on a star-based rating system which will make it easier for investors to make a quick choice.
Making a difference
It’s important to know that even though your employer makes superannuation contributions on your behalf, your superannuation belongs to you and you can put it in any fund you choose.
But if you’re like many people, you will go with the default fund your employer chooses. Afterall, most of us don’t really think about our super until we near retirement.
"If your employer doesn’t offer a green super option as its default, maybe you can change that."
So if your employer doesn’t offer a green super option as its default, maybe you can change that.
Boele suggests working with other employees who also want green super options.
“It's really expensive to attract and retain good talent,” she says.
“It would be really smart for employers to take into account a group of employees that said, ‘Hey, we would really like to have the option of investing in a responsible or ethical option. What have you got? Can you make that available to employees?’”
Want to learn more about how to help your company switch to an ethical default super fund? Check out WorkForClimate's Money Impact Area resources for everything you need to know.