Compare ethical super funds in Australia

If you want to invest ethically, one way to do it is through your super fund. The money you and your employer pay into your super account can be invested in a number of ways and you may be able to do that more ethically. So how do you choose an ethical super fund?

What is an ethical super fund?

An ethical super fund is a type of fund that aims to invest your money in a way that aligns to certain ethical standards. An ethical super fund can either focus solely on ethical investments and exclude anything it considers non-ethical, or it can offer a mix of investment options that includes some it considers to be ethical or sustainable.

In the latter case a fund may also have interests in some non-ethical investments outside of the ethical options it offers. It’s up to you to determine what type of ethical super fund you’d prefer.

There is no set global standard for what counts as ethical investments but generally they involve companies that have good environmental, social and governance (ESG) policies. They could be working in areas such as healthcare, renewable energy, recycling, sustainable products or social wellbeing and support action on climate change.

Basically, ethical investments can involve anything not considered harmful to people, animals or the planet in general.

Read more: Ethical investing in Australia: A guide to getting started

Non-ethical investments could include shares in companies involved in activities such as alcohol production, environmental destruction such as mining or logging, fossil fuels such as coal, gas and oil, gambling, human exploitation such as poor pay and working conditions, live animal exports, significant carbon emissions, tobacco and weapons.

Basically anything widely considered harmful to people, animals or the planet in general.

How popular are ethical super funds?

Investing ethically through super is becoming more popular, according the Responsible Investment Association Australasia (RIAA), a group that champions responsible investing.

The organisation’s Responsible Investment Super Study, released back in December 2021, found super funds with responsible investment practices could outperform their peers, based on a comparison of the MySuper products over a three-, five- and seven-year period. (A new study is due out later this year.)

More recent analysis by Canstar Research found the same for three-, five- and seven-year periods when it looked at the performance of ethical versus other investments, based on information in our database.

Last year was a bad year for both, based on returns reported up to the end of December 2022, but our researchers found other investments didn’t underperform quite so much as ethical investments.

Remember though that past performance is no indication on future performance.

How ethical super performed

Source: www.canstar.com.au. Prepared on 22/02/2023. Based on superannuation investment options in Canstar's database with target growth assets of 60-79.99%. Average fee based on a $50k Balance. *Includes investment options that are specifically marketed as "ethical" and also those that actively screen out tobacco, alcohol, gambling and military weapons. Returns are net of administration, investment and performance fees and tax. Past performance is not a reliable indicator of future performance.

Canstar Research then looked at three of the top ethical investment options on our database, based on a three-year annual net return, to see how they performed compared to an alternative option based on the same risk profile.

In most case the ethical options performed better, though again not always for 2022.

Hostplus Super

Brighter Super

Despite the difficult year in 2022, Simon O’Connor, Chief Executive Officer at RIAA, told Canstar that interest in ethical super funds and investment options continue to grow.

“The rally in fossil fuels, driven largely by the war in the Ukraine, has played out to contribute to a short term performance hit of some ethical funds," he said.

"Despite this, and consistent with the longer term time frames that most superannuation members are investing for, the medium and longer term investment performance of ethical funds has continued to remain strong, supported by an ever more understood thesis that companies that avoid doing harm to planet and communities make better investments over the medium to longer term.

"We’re already seeing this play out in a strong bounce back in performance of some ethical funds as the fossil fuel rally moves through in 2023.”

What should I look for when choosing an ethical super fund?

When looking for an ethical super fund you need to consider what’s right for your needs, just as you would when looking at any super fund: that includes key factors such as fees, performance, investment options and any insurance cover you require.

Read more: How to choose a super fund

On top of that you need to factor in whether a fund offers the right kind of ethical options for you.

“The first step is always to think about which issues matter most to you,” the RIAA’s Simon O’Connor told Canstar.

“What level of ‘exposure’ to different industries might you be willing to accept?

“For example, if you’re concerned about climate change, are you willing to accept a small amount of fossil fuel investments in your superannuation fund, or do you think it’s important to fully exclude fossil fuels?

“Do you prefer they stay invested in companies to pressure them to transition their business to cleaner energy?”

His advice was to ask potential providers what their approach is to ethical investments. Can they provide you with a list of the companies or funds they invest in?

“If there are any that are a red flag for you, ask them if they engage with these companies to help change their practices, and if they can report on the outcomes of these engagements,” he said.

“Transparency is absolutely key.”

Super funds can apply to RIAA for Responsible Investment Certification. You can use the RIAA’s Responsible Returns search tool to see if a super provider is certified, or select from a range of ethical options to tailor your search for super funds that meet your specific ethical needs.

You can also check how any super product is performing by using the Australian Prudential Regulation Authority’s Superannuation heatmaps or Canstar’s comparison tables.

If you’re looking to choose a super fund that offers a mix of ethical and other investment options, you might want to see where those other options are invested to see if they include anything that concerns you.

“Before you make the switch, it’s important to look at the whole picture, including performance ‘net of fees’, and consider engaging a financial adviser who can look at your individual situation,” Mr O’Connor said.

Read more: Australia’s worst-performing super funds

What super funds have ethical investments?

A number of super funds in Australia offer the option of full or partial ethical investments. Some go into great detail to explain their ethical investment choices, while others are a tad more brief until you dig deep in the documentation.

Canstar Research identified several funds that provide specific ethical investment option(s) or detail specific exclusions, with some details listed below in alphabetical order. The details are a snapshot of what’s outlined on each fund’s website (as of 22 February 2023) and the actual criteria and exclusions may vary over time.

The list is not exhaustive so use it only as a guide. You need to do your own research to consider whether any investment option and risk profile is right for you.

Australian Ethical

All options
Excludes fossil fuel companies, weapons manufacturing, nuclear, live animal export, intensive farming, animal testing – cosmetics.

Australian Retirement Trust

Socially Conscious Balanced
Invests in companies that limit their material exposure to the production or manufacture of the selected industries. E.g. fossil fuel explorers, miners or energy generators, tobacco, alcohol, nuclear weapons and gambling.

AustralianSuper

Socially Aware
Doesn’t invest in companies that directly own reserves of fossil fuels or uranium regardless of the size of their ownership.

Aware Super

Diversified Socially Responsible Investment
Screening criteria is broken down into three categories: climate change, ethical, conventions and controversies.

Bendigo Bank

Bendigo Socially Responsible Growth Fund
Primarily investing with ESG-conscious investment managers who incorporate environmental, social and corporate governance considerations into their asset selection.

Brighter Super

Socially Responsible
Takes into account socially responsible/ethical criteria when investing a portfolio with an emphasis on growth assets.

CareSuper

Sustainable Balanced
Seeks to select investment managers based on a higher degree of focus on environmental, social and governance (ESG) standards, as well as investing in a wide range of other asset classes.

HESTA

Sustainable Growth
Does not invest in thermal coal mining, tobacco production, uranium, controversial and nuclear weapons and companies that provide the services of asylum seeker detention centres.

Hostplus

Super Socially Responsible Investment – Balanced
Seeks to exclude particular industries and invest in assets that contribute to sustainable outcomes. Excludes fossil fuels, human rights and labour rights breaches, controversial weapons, uncertified palm oil and gambling.

legalsuper

Balanced Socially Responsible
Avoids exposure to companies deriving more than 10% of their revenue from the production or manufacture of tobacco, fossil fuels, weapons, uranium (weapons manufacturing), alcohol, gaming and pornography.

Perpetual Superannuation

Blackrock Scientific Diversified ESG Growth, Blackrock Scientific Diversified ESG Stable
Does not invest in companies that derive 5% or more of their revenue from the manufacture or sale of generally ethically unacceptable products and services, such as alcohol, gambling or tobacco.

Prime Super

Sustainable Responsible Investment Balanced
Does not invest in companies directly involved in a number of activities. For example, tobacco production, controversial weapons manufacture and alcohol.

QSuper

Socially Responsible
Targets positive impact on environmental and social considerations. Avoids investments in fossil fuels, gambling, adult entertainment, tobacco products, landmines and cluster munitions.

Raiz Invest Super

Emerald
This portfolio has a socially responsible theme with a moderate to high weighting to socially responsible Australian and international equities.

REST Super

Sustainable Growth
A diversified portfolio with enhanced environmental, social and governance investment characteristics weighted towards growth assets.

Spirit Super

Sustainable
Invests in a diversified mix of mainly growth assets with heightened consideration given to environmental, social and governance risks.

UniSuper

Sustainable Balanced
Selected on the basis of sustainable investment criteria and the application of some negative screens. Negative screens occur in areas such as animal welfare, tobacco and thermal coal mining.

Verve Super

All options
Negative screens include fossil fuels, gambling and tobacco. Positive screens include gender diversity and inclusion, renewable energy and recycling.

What are the pros and cons of an ethical super fund in Australia?

There are plenty of different options to choose from if you want to get involved with an ethical super fund. But you need to weigh up any pros and cons of each option before deciding what might best suit your needs.

The pros

Ethical investing in your super fund means your money is invested responsibly in companies that aim to have a positive impact on people and the planet.

Because you’ve actively made the choice to go ethical you may in the process get a better understanding of where your money is going than you would have by selecting a default investment option.

Your investments will be more aligned with your own ethics.

You may get a better return on your investment than you would in a fund that doesn’t prioritise ethical investing. But remember, past performance doesn’t guarantee future performance.

The cons

Because ethical investing means some companies are excluded from your super fund you risk having a less diversified investment portfolio.

Again, because some companies are excluded you may miss out on some top-performing companies.

Ethical funds sometimes charge higher fees, which can have an impact on your investment earnings over time.

You have to pay close attention to what the super fund is doing to make sure it sticks to the ethical considerations promised.

With no global standard the language used by each super fund can be different so you need to read carefully to fully understand how a particular fund intends to invest your money ethically.

Compare super funds

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