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Keen to do your bit for the environment by making decisions about money that align with your values, as well as grow a healthy nest egg for retirement? With what’s often called ‘ethical super’, there is great and powerful potential to do both.
‘You don’t need to sacrifice your environmentally conscious values in order to achieve strong investment performance,’ explains Dr Brooke Peel, a lecturer in financial planning at Deakin Business School. ‘You can absolutely have the best of both worlds: have your funds invested in a way that is in accordance with your environmental values and have really competitive investment performance.’
Sure, researching super funds may not seem like the most exciting way to spend your time, especially as retirement is likely a long way off. But making smart choices now gives you decades to reap the rewards, ethically and financially.
Ethical super funds aim to invest your money in industries like renewable energy, healthcare and sustainable products, and exclude industries that invest in sectors considered bad for the environment like mining, fossil fuels, old-growth logging and animal cruelty.
As part of a growing trend centred on ethics-based decision making, there’s been a big increase in the number of Australians interested in ethical investing, leading to more super funds offering new options to meet this demand. Sometimes an entire fund is classed as ethical, but Dr Peel says it’s increasingly common for mainstream funds to offer ethical or environmentally friendly investment options.
‘Due to the demand from investors for investments that don’t support activities that aren’t aligned with protecting the environment, most mainstream super funds now allow investors to choose investment options that prioritise environmentally friendly investments,’ she says.
‘It may not necessarily be the default option, but you can invest in an environmentally conscious way through many funds now.’
Superannuation funds are required to be transparent about how they invest the superannuation savings of members. ‘This transparency allows for investors to understand the extent to which the companies that are in their portfolio meet their environmental and ethical standards,’ Dr Peel explains.
‘Increasingly, superannuation funds are actively reviewing the environmental credentials of the companies in their portfolio to ensure that they are they are meeting investor expectations and preferences as far as being environmentally friendly and contributing towards sustainability.’
Retirement may be years and years away, which means you don’t need to worry about super just yet, right? Not exactly. Dr Peel says early career is an ideal time of life to review your super and consider ethical products or funds because you’ll have more time to grow your nest egg and make an impact environmentally.
‘By not reviewing your investments when you’re younger, you could unintentionally remain invested in companies that don’t align with your environmental beliefs for decades and decades,’ she says. ‘You’re going to have a larger impact the longer that your funds are dedicated and working towards positively impacting the environment.’
When it comes to your hip pocket, Dr Peel says taking on risk when you invest in super is generally rewarded with a higher rate of return over long periods of time. Younger people are ideally placed to take advantage of this because of a higher risk tolerance afforded by the longer amount of time until retirement.
Compound interest – the interest you earn on your savings and the interest you’ve already earned – is another compelling reason to pay attention to your super when you’re young.
‘That compounding of returns through time is going to have a bigger impact the longer that you’re invested,’ Dr Peel explains.
The first step in investing in ethical super is figuring out which funds you’re currently invested in. If you’ve had a few different jobs and lost track, the ATO can help you search.
Checking the ethical credentials of your funds shouldn’t be too complicated. ‘It’s not hard to get a sense of the underlying companies that are in your portfolio,’ Dr Peel says.
‘Most funds will allow you to see the types of industries and companies that your superannuation savings are invested in. For example, they may produce summaries of your portfolio by asset class.’
Next, look for a high-performing fund or super product that aligns with your values. ‘You don’t necessarily even need to switch funds,’ Dr Peel says. ‘You may just switch investment options within a fund to a more environmentally conscious option.’
The ATO and a number of non-government websites like Canstar offer super comparison tools to help you make an informed choice.
Once you’ve settled on a decision, combine any super you have in other funds. This is called ‘consolidating your super’, making it easier to manage and saving you money on fees. The ATO is your friend here, too.
Then comes the best bit: sit back and watch your super grow in the knowledge that your money is helping environmentally responsible companies make a difference.
‘Superannuation is a long-term investment and, although you should continue to check that your portfolio remains appropriate for your circumstances, it shouldn’t be a time-consuming endeavour on an ongoing basis,’ Dr Peel explains.
