The potentially huge environmental impact of switching superannuation funds

Australians are more likely to swap disposable cups for reusable mugs than to hand over their superannuation to an ethical fund manager.

But new calculations from climate-friendly Australian Ethical suggest switching funds could have a much larger effect on the nation’s carbon footprint than other more incremental changes.

If every single person in Australia moved their superannuation into an eco-conscious fund, it would reduce their collective carbon footprint by an amount equal to half the household emissions across all of Australia.

Australian Ethical said this was equal to 78 million tonnes every year – the same amount produced by 16.9 million cars on the road or 4.6 million average Australian households.

Australian Ethical CEO John McMurdo said the motivation behind the research was to remind people that their superannuation could be invested in companies they deemed unethical and to show them that switching funds could “make a real difference”.

“Australians increasingly only want to associate with brands and companies that reflect their own values,” Mr McMurdo told TND.

“And there’s a lot more consciousness about where their money is being invested, [which is] really opening our eyes to the power of our money.”

Mr McMurdo said an inconvenient truth was now being exposed – that banks, insurance companies and superannuation providers “have been investing in companies doing damage for a long time now”.

“Presumably in the pursuit of performance and profits,” he said.

‘Enormous collective difference’

In its research – which used the MCSI World Index as a proxy for an average superannuation fund and calculated the difference between its carbon footprint and that of the MSCI World Climate Paris Aligned Benchmark Select Index – Australian Ethical points out that Australians would have no immediate influence on the emissions of the companies from which they took away their superannuation savings.

But if enough people took action it could lead to positive behavioural changes, or render the companies unviable if they continued to pollute at the same levels.

“It can sometimes feel like the fate of our planet rests on individual people taking lots of small actions,” Mr McMurdo said.

“But instead of just saying no to using harmful products and services, we can also use our money to remove support for their production in the first place, creating an enormous collective difference.”

Australian Ethical’s campaign has won the support of independent Member for Warringah Zali Steggall, who took the seat of former prime minister Tony Abbott in the 2019 federal election after campaigning on the need for stronger climate action.

“Transferring funds to an ethical funds manager is a clear way for individuals to reduce their own emissions and broader environmental impacts whilst at the same time benefitting from these funds’ high average performance,” she said.

“It’s a win-win.”

Performance myth busted

The strong performance to which Ms Steggall referred was on show last financial year when Australian Ethical’s Balanced fund returned 17.5 per cent and its Growth option returned 20.4 per cent.

The former has now returned an average of 6.7 per cent a year since its inception and the latter 7.9 per cent.

“The myth about [inferior] performance has been busted,” Mr McMurdo said.

“There are now so many proof points of superior investment performance from ethical investing – I see a new study nearly every day now, globally, that ethically constructed portfolios outperform other portfolios.”

Australian Ethical does not invest in tobacco companies and heavily limits its exposure to fossil fuel and gambling companies. (You can check out its full ethical criteria list here.)

And it was not the only provider to enjoy outsized success with its ethical options last financial year.

Among many others, HESTA’s Sustainable Growth investment option returned 23.03 per cent, and AustralianSuper’s Socially Aware option returned 19.37 per cent.

Both annual performances were stronger than the average non-ethical balanced option, which according to Rainmaker returned 17.1 per cent.

In addition to its influence on climate action, the strong financial performance of ethical investing helps to explain why Australian Ethical expanded its customer base by 22 per cent over the 12 months to December.

Meanwhile, net flows of money into the fund over that timeframe increased by 56 per cent, as high net worth individuals rushed into the fund and helped diversify its customer base beyond eco-conscious millennials.

“They were the sort of early adopters of this style of investing, but we now see that it is very broad,” Mr McMurdo said.

“More than 50 per cent of the population, and every demographic, is either now investing this way or plans to within the next 12 months.”

The New Daily is owned by Industry Super Holdings