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Is your ‘sustainable’ super funding fossil fuels or weapons? How to check the fine print

  • Written by: Jason Tian, Senior Lecturer, Finance School of Business, Law and Entrepreneurship, Swinburne University of Technology

Many Australians don’t realise their superannuation savings – worth A$4.5 trillion and growing – may be invested in fossil fuel companies, gambling, or even weapons manufacturers.

If you’ve switched how your super is invested to avoid any of those industries, you’re not alone.

The latest official superannuation statistics show most of Australia’s major super funds now offer investments designed to reduce exposure to everything from coal and oil to other industries like tobacco, weapons, gambling and alcohol.

But if you care about particular issues – from climate change to weapons of war – it’s worth reading the fine print to be sure where your money is going.

Is your ‘sustainable’ super funding fossil fuels or weapons? How to check the fine print
CC BY-NC It’s easy to put off thinking about superannuation when retirement is years away. In this five-part series, we ask top experts to explain how to sort your super in a few simple steps, avoid greenwashing, and set goals for retirement. What even counts as ‘sustainable’? There’s no single definition of what makes a super option “sustainable” or “responsible”. So it’s not easy for consumers to compare different funds. That’s why the federal government is currently consulting on clearer labelling rules for financial products marketed as “sustainable” (and a long list of similar terms) – including for superannuation. For now, each fund sets its own criteria. A few funds, such as Australian Ethical and Future Super, only offer sustainable options, with tighter investment restrictions than most super funds. Even so, the fine print matters. For instance, in Australian Ethical’s case, weapons makers and tobacco producers are excluded outright. But a diversified company earning a small share of revenue from fossil fuels or alcohol may still be held, if its positives are judged to outweigh its negatives. Among the biggest super funds, which most Australians have their super in, there’s a wide variety of “sustainable” options on offer. Check what’s screened in or out Most super sustainable options in Australia use some combination of “negative screening” (excluding sectors like fossil fuels, gambling or weapons) and “positive screening” (favouring companies with strong environmental, social and governance practices). But those thresholds vary widely. A common approach is to set a revenue threshold, rather than an outright ban. This means a company can still be held as long as its income from a screened activity stays below a set percentage. For example, HESTA’s “sustainable growth” option has a long list of exclusions, including companies with thermal coal, oil and gas reserves, tobacco and controversial weapons. Its thresholds vary for each category, from outright bans (such as on uranium miners) to restrictions on revenue (such as weapons). Australia’s biggest super fund, AustralianSuper, has a “socially aware” option with some of the same exclusions. But its thresholds also vary. Last year, AustralianSuper attracted criticism for buying back into Whitehaven Coal for its wider, non-sustainable investment portfolio – a reversal of its 2020 sale of stocks in the coal miner. The Australian Financial Review recently reported Australia’s third-largest pension fund Aware Super was lifting some restrictions on investments in carbon-heavy companies, under a new benchmark system to track which companies are doing most to cut emissions. However, Aware Super told The Conversation that current fossil fuel screens in place for its “socially conscious” investment options “remain unchanged”. Just last month, the Environmental Defenders Office lodged a complaint with the Australian Securities and Investments Commission (ASIC) about industry fund UniSuper. The complaint came after UniSuper halved the environmental revenue threshold for its “global environmental opportunities” product – from 40% to 20%. UniSuper has said those changes were made “to expand the investible universe while maintaining the option’s environmental theme”. Watch out for greenwashing Australia’s corporate regulators are responding to more greenwashing allegations – with some resulting in fines. ASIC has had several wins against major funds for misleading sustainability claims. In a landmark first Federal Court greenwashing case in 2024, Mercer Super was fined $11.3 million after admitting it made misleading statements about its “sustainable plus” options. Vanguard was then hit with a record $12.9 million penalty, after it was found to have misled investors about its $1 billion ethical bond fund. And last year, Active Super was ordered to pay $10.5 million in a third greenwashing case. The court found Active Super’s marketing claimed it had eliminated investments in areas like gambling, coal mining and oil tar sands – when it hadn’t. The Australian Competition and Consumer Commission (ACCC) has again made greenwashing one of its enforcement priorities for the next year. The watchdog predicts misleading environmental claims will “continue, if not increase” as Australia transitions toward “net zero” emissions. It pays to ask questions None of this means sustainable investing is a bad idea. In fact, research suggests companies investing in sustainable and socially responsible activities tend to be better governed – and that this is more often than not good for shareholders too. But the labels and screening methods matter enormously. If you’ve chosen a “sustainable” or “socially responsible” option because you care about particular issues, it’s worth checking if the fine print in your fund meets your expectations. If you think your fund’s claims don’t stack up, try contacting your fund. If that doesn’t work, you can report concerns to ASIC or the ACCC. Disclaimer: This article provides general information only and is not intended as financial advice.

Authors: Jason Tian, Senior Lecturer, Finance School of Business, Law and Entrepreneurship, Swinburne University of Technology

Read more https://theconversation.com/is-your-sustainable-super-funding-fossil-fuels-or-weapons-how-to-check-the-fine-print-276879

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