Switching to an ethical super fund is the third most effective thing people can do to fight climate change according to new research, coming in after installing solar panels and switching to a green energy plan.
And while solar panels are becoming increasingly popular and many pay careful attention to the green credentials of their energy retailer, comparatively few of us realise the power super funds have in driving the change to net-zero emissions.
Marissa Lombardo says climate change is one of the biggest problems of all and it is important to make changes at an individual levelCredit:Anna Kucera
UTS Business School measured and ranked the most effective actions individuals can take to fight climate change.
The research found the top five ways to reduce your carbon footprint are installing solar panels, switching to a renewable energy plan, switching your super to an ethical fund, living car-free and switching to a hybrid or electric car.
Of those, switching super to a fund that invests ethically or responsibly was not on the radar of most consumers who were asked what things they could do to reduce emissions by market research firm Lonergan Research.
Marissa Lombardo, a 26-year-old teacher, says climate change is undoubtedly one of the biggest problems facing her generation. She tries to do things as an individual to help mitigate climate change.
She is an avid recycler, saves her grey water, and has solar panels on her house with LED lights on the ceilings. “I am trying to be really conscious of my own carbon footprint,” Lombardo says.
“I am aware that super funds can have a big influence on climate change through the investments they make,” she says.
The Sydneysider is with a “mainstream” fund that has signed up to the United Nations Principles for Responsible Investment. Her fund does have a specialist responsible investing investment option, but it is relatively new.
“Certainly, once I see some longer-term performance data I would be very open to switching to that option,” Lombardo says. She hopes all super funds will eventually make the move to invest responsibly, so it becomes the norm.
Figures from the Responsible Investing Association Australasia (RIAA) show tobacco; controversial weapons; and fossil fuel exploration, mining and production – in that order – are the three most popular exclusions among the super funds that have ethical investing options.
Australians have more than $3.3 trillion in super, one of the largest in the world, thanks to compulsory super contributions, and investing ethically is becoming more mainstream among super funds. It’s increasingly commonplace for funds to manage the money across all of their investment options responsibly, not just in their specialised ethical option.
However, figures from the RIAA in 2021 show only 42 per cent of super is being managed with what it regards as a “leading approach to responsible investment,” though it is growing rapidly, up from 28 per cent in 2019.
Maria Loyez, the chief customer officer at Australian Ethical – which sponsored the research – says the vast majority of people are unaware investing their super in an ethical fund can have a big impact by directing money away from companies that are contributing to climate change.
As more people are likely to consider sustainable and ethical investing, including through their superannuation, Australian regulators are asking investment managers for evidence to back up their claims to be investing ethically.
The Australian Securities and Investments Commission has issued financial penalties to investment managers, including super funds, for “greenwashing”; the making of unsubstantiated claims about their environmental, social and corporate governance practices.
Checking up on how a super fund invests has become much easier since a change in the law that took effect last year, where super funds must regularly disclose publicly most of their investment holdings.
However, some of the biggest and best-resourced super funds are only meeting the minimum requirement to provide the holdings in multiple spreadsheets that are downloadable from their websites.
Some funds, like Active Super, have gone the extra step to make the disclosures user-friendly. They have labelled their investments in tables that can be opened on their websites, rather than having to be downloaded as spreadsheets.
- Advice given in this article is general in nature and is not intended to influence readers’ decisions about investing or financial products. They should always seek their own professional advice that takes into account their own personal circumstances before making any financial decisions.
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