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Sustainable investment options have been on the menus of large superannuation funds for over 20 years, but they have become much more widely available over the last three to five years.
This coincides with greater awareness of the impact of businesses on the environment and society, and younger members in particular seeking to align their values with their investments.
These days, most large funds have a sustainable option, and it most often falls into the Balanced category – described by SuperRatings as options with an allocation of 60–76% in growth assets such as shares and the remainder in defensive assets. Super funds that focus only on responsible investing often offer a range of options in other risk categories as well as sector-focused choices such as Australian shares, and some larger funds are also expanding their offerings. For example, both UniSuper and Aware have sustainable options in the Balanced and High Growth categories, and UniSuper also provides a standalone sustainable shares fund.
While the number of options is growing and consumer research suggests there is strong demand, super fund members are often not voting with their feet. SuperRatings estimates there is $36 billion invested in sustainable options – less than 1% of the $3.7 trillion Australians hold in super.
Sustainable investment approaches are evolving
The most common approach when building sustainable options is to apply a negative screen to existing fund portfolios. Negative screens exclude companies with activities that can harm the environment or society, such as fossil fuels, weapons, gambling, alcohol and tobacco, and modern slavery.
Recently, a string of industry super funds announced net zero emissions targets and plans to exit investments in thermal coal companies.
There is also growing interest in screening for companies making a positive impact on the planet and society. Super funds are also taking a more active role by engaging with companies and using their shareholder voting rights to promote environmental, social and governance (ESG) issues.
While the increasing availability and diversity of sustainable investment options has removed one roadblock for people who want to align their investments with their values, historically returns and fees have been an issue for more pragmatic investors.
For example, the Vanguard/Investment Trends 2021 SMSF Investor Report found 48% of SMSFs would only consider ESG investing if returns are better than other investments. A further 19% avoid companies that do harm, 25% prefer to invest in companies that do good and 9% cited responsible investing as their top priority.
Can sustainable options compete on performance?
Investors are frequently reluctant to choose sustainable options for fear they can’t match the performance of a more traditional portfolio.
In 2022, sustainable options did have a tough year with soaring oil and gas prices bolstering the returns of funds with exposure to these areas, leaving options avoiding fossil fuels lagging.
Despite this short-term setback, long-term returns for sustainable options are competitive with the broader market. According to SuperRatings insights manager Joshua Lowen: “Sustainable option performance rebounded over 2023, benefitting from the strong returns seen in global equities, which is a key asset class for many sustainably focused investments. While the returns more than made up for the tough year in 2022, sustainable options generally performed in line with the broader Balanced options without a dedicated sustainable focus.”
Data from Chant West indicates that performance of socially responsible options offered by super funds is competitive with that of other options in their Growth category (61–80% growth assets – similar to SuperRatings’ Balanced category), with socially responsible options on average outperforming standard funds over the five, seven and 10 years to 30 June 2023.
Top 10 sustainable Balanced funds in 2023
The table below lists the 10 sustainable Balanced options that achieved the highest returns in the year to December 2023, according to SuperRatings. Although some are named Growth, their asset allocation places them into the Balanced category using SuperRatings guide of 60–76% growth assets.
Where they are available, five and 10-year average returns have also been provided.
Name | 1-year return | 5-year return | 10-year return |
---|---|---|---|
Vanguard Super SaveSmart – Ethically Conscious Growth | 14.2% | – | – |
Raiz Super – Emerald | 13.3% | 9.5% | – |
Verve Super – Balanced Strategy | 12.7% | 6.3% | – |
Super SA – Socially Responsible | 12.6% | 7.9% | 6.7% |
UniSuper – Sustainable Balanced | 12.5% | 8.2% | 7.4% |
Aware Super Future Saver – Balanced Socially Conscious | 11.4% | 7.9% | 7.4% |
Future Super – Renewables Plus Growth | 10.4% | 6.4% | – |
Spirit Super – Sustainable | 10.3% | 7.3% | – |
Australian Ethical – Balanced | 9.7% | 7.3% | 6.9% |
ART – Socially Conscious Balanced | 9.6% | 8.1% | 6.6% |
The top performer for 2023, Vanguard’s ethically conscious growth, comes after the launch of their super offering in late 2022. Because the fund is new there is no long-term performance data available, but they have certainly made an encouraging start.
Top 10 sustainable Balanced funds over 10 years
Last year’s top performers might be compelling, but we all know last year’s star can be this year’s black hole. Consistency is important, so we have included the top 10 sustainable Balanced options over 10 years in the table below.
Keep in mind that many newer options do not appear because they don’t have 10 years of performance history.
Name | 10-year return |
---|---|
HESTA – Sustainable Growth | 8.6% |
UniSuper – Sustainable Balanced | 7.4% |
CareSuper – Sustainable Balanced | 7.4% |
Aware Super Future Saver – Balanced Socially Conscious | 7.4% |
AustralianSuper – Socially Aware | 7.0% |
Australian Ethical – Balanced | 6.9% |
Active Super – Balanced | 6.8% |
Super SA Triple S – Socially Responsible | 6.7% |
Australian Retirement Trust – Super Savings – Socially Conscious Balanced | 6.6% |
Mercer Super Trust – Mercer Sustainable Plus Growth | 6.5% |
Looking ahead
Historically, fees for sustainable options have been higher than those for standard Balanced options. However, in recent years there has been significant downward pressure. Carefully considering fees is part of any decision to choose a super fund because paying too much will erode the benefit of good returns. The returns listed above are net of investment fees and taxes, but super funds charge administration fees separately, so be sure to read the PDS.
While sustainable funds have been performing well, past performance is no guide to the future. Lowen suggests new investors consider their goals and do their research to choose a suitable option.
“We expect 2024 will be another year with significant ups and downs in markets and sustainable options can be notably impacted due to their higher exposure to shares and exclusions on specific sectors. We encourage members thinking of investing in sustainable options to engage with their chosen fund to ensure they understand how the fund invests and that this aligns with the members’ goals in choosing a sustainable option.”
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