Ethics beats traditional investments for superannuation funds.
Hold the front page! Some big businesses are sacrificing financial returns to take an ethical stand. The major banks are among those corporations that have succumbed to a wave of activism questioning the lending practices of polluting companies.
But the most dramatic and unexpected recent backflip was by the former ‘Big’ Australian, BHP Billiton. Despite being a coal miner, the world’s second largest resources company has threatened to quit the Minerals Council if the industry group continues to lobby against climate change mitigation policy.
It can be argued that leaving it so late to adopt a more ethical stance on global warming has cost BHP and other miners dearly. Failure to respond to the increasing global aversion to fossil fuels has affected bottom lines, with miners stung by the slump in coal prices.
Increasingly, investors are embracing the renewable energy sector over ‘polluting’ businesses. As demand for clean energy grows, those buying into the new model are profiting, rather than forgoing returns.
The performance of Australian Ethical’s superannuation fund indicates that mainstream investment returns can be matched and even surpassed with a portfolio of ethical stocks. Within the fund, super members can choose a risk profile that aligns with their investing style. Within Australian Ethical, four profiles (growth, Australian and international shares and advocacy) each outperformed average returns for the sector over the past year.
Data published by the Association of Superannuation Funds of Australia shows that the average fund return was 10.1 per cent, compared with a range of 10.5 per cent to 12.5 per cent returns for ethical funds.
While the advocacy fund predominantly invests in clean and sustainable companies, a small number of assets do not pass the ethics charter. They are retained purely so that Australian Ethical can lobby those organisations.
“As an advocacy fund, one of the main purposes of the fund is to engage directly with companies to pursue improved corporate behaviours in line with the Australian Ethical Charter,” it states.
The fund manager argues that: “Having unethical investments excluded from our ‘investable universe’ doesn’t lead to lower performance potential; it just means there is more money available to make positive, profitable investments.”
The funds do not invest in coal companies or businesses that exploit workers or grow tobacco. Instead, profitable fields that do attract the funds’ support are clean energy, medical solutions, innovative technology, sustainable products, healthcare and energy efficiency.
A 2017 report by the Responsible Investment Association Australasia concluded that: “Ethical funds have outperformed non-ethical funds over most time periods”.
The association says that almost 90 per cent of Australians expect their superannuation and other managed funds to invest responsibly and ethically. Other findings from its extensive survey include:
- four in five Australians consider important social issues when investing. The top three issues are renewable energy, healthcare and medical products, and sustainable practices
- the top three things Australians want to avoid investing in are animal cruelty, human rights violations and pornography
- Millennials are the most likely group to prefer investing in a responsible super fund rather than a fund that only considers maximising returns
- 68 per cent of baby boomers preference ethical investments
- Women (72 per cent) are more likely than men (67 per cent) to prefer a responsible super fund over one that only considers maximising returns
Would you sacrifice some of your income to take an ethical stand? Is ethical investing political correctness gone mad? Should more companies consider if their operations are ethical enough?