Smarter superannuation

G Magazine

What is your super supporting?

Piggy bank

Credit: iStockphoto

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Most people don't think about the power of their superannuation portfolio, says Anne O'Donnell, managing director of Australian Ethical Investment.

"Capital is what makes the world go 'round and if you want to change something, the way to do that is through the direction of your superannuation"

"If you can target and change the course of where your capital goes, you can get action," O'Donnell says.

Superannuation funds around Australia are starting to sit up and take notice of the backlash financial institutions are facing when they fund environmentally irresponsible ventures.

And with the amount of money in Australian superannuation passing the trillion-dollar mark in 2007, and set to reach $2 trillion in the next few years, the potential for super funds to change industries is enormous.

"If you want more focus on renewable energy, if you don't want dirty industries, think of what you can do," O'Donnell says.

Which funds are green?

Many Australian super funds already consider responsible investment principles in their approach.

At 30 June 2007, the United Nations Principles for Responsible Investment (UNPRI) group - which requires super funds and fund managers to consider environmental, social and governance (ESG) issues when making investment decisions - had 183 signatories representing $11 trillion globally; 50 were from Australia and New Zealand.

To find out just which funds have ESG principles, the Web is the best place to start.

The Responsible Investment Association Australasia site details how much money member funds have put into responsible investment (as a proportion of their total funds size) and also looks at their investment approach.

SuperRatings ranks the environmental, ethical and sustainable credentials of the different funds. The Ethical Retail Superannuation Fund won SuperRatings' inaugural Infinity Award for its ethical and sustainable policies.

SuperRatings managing director Jeff Bresnahan says superannuation funds will start coming under more pressure to show how much their environmental credentials measure up.

"It's one of the biggest chunks of money going around," he says. "Pressure needs to be brought to bear on not only the companies but also the investment managers that are investing in these companies."

Where to start

Fund managers say that anyone wanting to give their superannuation fund a green focus needs to take several steps.

The first, and most obvious, is to consider whether you are comfortable incorporating green issues into your superannuation portfolio, and to examine the risks and rewards.

The next, and most important, step is to ask your investment manager or super fund whether they offer ESG investment options. Many super funds already have ethical options in their platforms.

If they do, you should then obtain a product disclosure statement for more information.

This is critical because different super funds take different approaches to ethical issues. Some, for example, draw the line by simply screening out investments in the alcohol, gaming and tobacco industries.

Then there are those that just focus on the 'best in sector' approach, which might identify the best tobacco manufacturer and the best uranium miner. Others - and the best - are more focused on the environment.

O'Donnell emphasises that you need to find out about your funds' ethical parameters. This means a quick phone call, asking them whether they invest in sustainable companies and industries and what ethical principles they use.

With that information, you can then decide whether to keep your money in the fund, or park it somewhere else.