Make your super choice a Green Choice
Date: 20-Jul-2005
By Charles Berger, ACF Legal Advisor
You've switched to green power, installed the water-saving showerhead, and stopped eating beef six times a week. Now it's time to take the next step: switch your superannuation to a socially responsible investment (SRI) fund!
From 1 July 2005, many Australians are for the first time able to choose how
and where their superannuation savings are invested. For eligible employees,
this means better control not only over their financial future, but also over
the social and environmental effects of their investments.
Many Australians would be surprised and concerned to know that their superannuation
fund holds investments in unsustainable old-growth logging operations, uranium
mines, big greenhouse polluters, and/or mining companies with dodgy human rights
records. Yet this is the case for nearly all mainstream superannuation funds.
Fortunately, the number of superannuation and other investment funds that avoid
these harmful investments, and focus instead on clean and innovative industries,
is growing by the year. Choice of superannuation legislation makes it much easier
for many Australians to divest themselves of unsustainable investments and take
advantage of the options that are more environmentally responsible.
Best of all, the evidence is mounting that the financial performance of sustainable
investment strategies may well be better than that of comparable traditional
funds. A recent study by AMP Capital, for example, found that companies with
strong corporate responsibility ratings outperform those with poor performance
by an average of 3-5% over a 4-10 year time frame.
Am I eligible?
Choice of superannuation laws do not apply to all employees. Most public sector
employees, as well as many employees covered by Commonwealth or State awards,
certified agreements or AWAs unfortunately are not entitled to choice of superannuation.
If you are not eligible for choice of superannuation, you may still have an
SRI option open to you in the fund or funds chosen by your employer. If not,
let your employer (and your union or staff association, if applicable) know
that having a responsible superannuation option is important to you, and urge
them to make such an option available.
Which fund should I choose?
SRI funds (also known as ethical investment or sustainable investment funds)
utilise a wide variety of approaches to responsible investment. Some strictly
screen-out environmentally or socially harmful practices such as uranium mining,
tobacco, and weapons production. So-called "best-of-sector" funds
invest in the leading performers in each industry sector, which can mean the
best of a not-so-good lot. Others focus exclusively on environmentally and socially
innovative industries such as renewable energy, education and waste management.
Finally, some funds take the approach of engaging with all companies in which
they invest to try and improve performance, rather than screening out particular
investments.
Fortunately, superannuation funds are required to disclose in their Product
Disclosure Statement (PDS) the extent to which they take environmental and other
ethical considerations into account in making investment decisions. You should
examine the PDS for your current fund and any others you are considering to
see whether the approach is consistent with your personal values.
For highly-motivated investors, you can also set up and manage your own superannuation
fund. These "DIY" funds offer maximum ability to tailor your investments
to your environmental values, but require some knowledge of superannuation and
trust law as well as the time, interest and expertise to manage the fund successfully.
You should also make your choice based on your own personal financial circumstances
and goals. Many find the assistance of a financial adviser helpful, though you
should make sure your adviser is aware both of your financial goals and your
desire to invest responsibly.
Where can I go for more information?
The Australian Government's choice
of superannuation website and the Association
of Superannuation Funds of Australia both provide a good overview of the
new choice of superannuation rules, though not specifically on SRI options.
The Ethical Investment Association is
a great place to research responsible investment options and includes lists
and links to ethical investment advisers and superannuation funds.
Ethical Investor magazine
periodically publishes a table listing the investment holdings and performance
of various SRI funds. This is a good resource for checking whether a particular
fund holds investments that you may find objectionable.
ACF's Corp Rate project (available on this website), Reputex,
and the Australian SAM Sustainability Index
offer views on the environmental performance of specific listed Australian companies.
Note: This article does not constitute financial advice. Readers should
consult their financial advisers before making any decisions with respect to
their superannuation savings.