Can you exclude fossil fuels from your superannuation?

Despite warnings from scientists that we need to transition out of fossil fuels urgently, the move to renewable energy sources is occurring slowly.

For people concerned about this issue, switching to a clean superannuation portfolio might be a personal priority and can be a way to make a statement.

It can also be an investment strategy – groups such as Industry Super Australia recognise that a large-scale transition to renewables will produce significant investment opportunities. 

But there are only a handful of funds that don’t invest in fossil fuels at all. Future Super bills itself as Australia’s first fossil fuel-free super fund. Future Super is also the investment manager for Verve Super (which is marketed specifically to women) and Cruelty Free Super (which advertises its vegan-friendly credentials), both of which also avoid fossil fuels.

Making the move to renewable energy

Some super funds offer individual options that rule out any investment in fossil fuels (see tables below).

Australian Ethical says it has “zero investments” in fossil fuel companies, but, like many super funds, it invests in diversified companies that make some revenue from these fuels. 

Completely extracting yourself from fossil fuels is made difficult by the fact that many of the major renewables players are old fossil fuel companies diversifying with new revenue streams. This would make them off-limits for anyone wanting to totally exclude fossil fuel activity from their super.

While the renewable energy sector in Australia is growing, few companies have reached an investable scale. 

“We’re keen to encourage more renewable companies to list [on the stock exchange],” says Max Cunningham, executive general manager, Issuer Services and Investment Products at the Australian Stock Exchange. “At the moment, renewables are a pretty small part of our market.” 

Our table shows the fossil fuel-free super options and their long-term performance. 

But the performance figures are only a guide because funds report their returns in slightly different ways – some have fees taken out, others don’t – and unfortunately this is something regulators are yet to crack down on, making comparison difficult.

Long-term performance of fossil fuel-free super

Investment option: International shares

Investment option: High growth

Investment option: Growth

Investment option: Balanced

Source: SuperRatings

Note: Net returns (crediting rates) to November 2019. The numbers in bold show an option that has outperformed the median for that type of option.

What fees will I pay for a clean energy super portfolio?

Going fossil fuel-free with your super doesn’t necessarily come cheap. 

Future Super’s Renewables Plus Growth currently has higher fees than any MySuper product. 

However, most Future Super members have chosen the Renewables Plus Growth or Balanced Impact plan, despite their higher fees.

 “85% of our members have chosen to prioritise having a bigger impact with their investment instead,” says Future Super founder Adam Verwey.

The fund says it’s been lowering its fees as it grows.

Fees for fossil-free super options

Source: SuperRatings

Note: The annual fees below are based on a $50,000 balance. For comparison, the median fees for a single strategy MySuper fund is $561.

It’s easy to overlook fees, but their impact across a lifetime of savings is massive. The Productivity Commission found a fee increase of 0.5 percentage points would knock $100,000 off the retirement balance of a typical worker. It also discovered that higher fees are associated with lower net returns.

This article was originally published on the Choice website and has been published here with permission.