Ethical super funds — also called ESG, responsible, or sustainable options — screen investments based on environmental, social, and governance (ESG) criteria in addition to financial considerations. Most major Australian funds now offer at least one ethical or sustainable investment option.
How Ethical Super Funds Screen Investments
Funds use two main approaches:
Negative screening (exclusions) The fund excludes certain industries or companies from its portfolio. Common exclusions include:
| Typical Exclusion | Examples |
|---|---|
| Tobacco | Cigarette manufacturers |
| Fossil fuels | Coal, oil, gas extraction |
| Weapons / armaments | Defence contractors, cluster munitions |
| Gambling | Casino operators |
| Adult entertainment |
Positive screening / best-in-class The fund overweights companies with strong ESG practices within each sector, rather than excluding entire industries. This approach keeps broader diversification.
ESG integration ESG factors are incorporated into investment analysis alongside financial factors — used by most large funds in some form, even non-dedicated ethical options.
The degree of screening varies enormously between funds. Always read the fund’s investment guide or PDS to understand exactly what is and isn’t excluded.
Major Ethical/ESG Super Options in Australia
| Fund | Option Name | Key Exclusions |
|---|---|---|
| Australian Ethical Super | Balanced, Growth | Fossil fuels, weapons, gambling, tobacco, animal testing |
| Aware Super | Socially Responsible Growth | Fossil fuel producers, tobacco, weapons |
| AustralianSuper | Socially Aware | Tobacco, controversial weapons |
| UniSuper | Sustainable High Growth | Fossil fuel producers, tobacco, gambling, weapons |
| Australian Retirement Trust | Socially Conscious Balanced | Tobacco, controversial weapons, fossil fuels |
| Hostplus | Socially Responsible Investment (index) | Tobacco, controversial weapons |
This is general comparison information only. Always verify current options and exclusion lists directly with each fund.
How Do Returns Compare?
The question of whether ethical funds outperform or underperform conventional funds is actively debated. Key points:
- Over the past 5–10 years, many ethical options have performed well — partly because they were underweight fossil fuels (which underperformed) and overweight technology (which outperformed)
- This may not persist — if energy or other excluded sectors outperform in the future, ethical options may lag
- Fees are often slightly higher — the additional screening and management costs may add 0.1–0.3% per year in fees vs conventional options
- APRA performance tests apply equally to ethical options that are MySuper products — underperforming ones will be flagged
Past performance is not a reliable indicator of future performance. Performance comparisons should be made on a like-for-like basis (similar asset allocation, after fees).
Questions to Ask Before Choosing an Ethical Option
- What is actually excluded? Check the PDS — some funds exclude “controversial” weapons but still hold mainstream defence contractors
- Is fossil fuel exposure fully excluded, or just coal? Many funds exclude thermal coal but still hold oil and gas
- Are fees higher than the standard option? Calculate the dollar difference over 10–20 years
- What are the 10-year net returns after fees? Compare against the fund’s own standard balanced/growth option
- Is there independent verification? Some funds are certified by the Responsible Investment Association Australasia (RIAA)
Frequently Asked Questions
Can I keep my insurance if I switch to an ethical option? Yes — insurance cover is linked to your membership, not your investment option. Switching investment options does not affect your life, TPD, or income protection cover.
Is ethical super more expensive? Often slightly — administration fees for ethical options tend to run 0.1–0.3% higher than standard options due to additional screening. The dollar impact depends on your balance.
Are all ethical funds actually ethical? Standards vary widely. Third-party certifications (RIAA Responsible Investment Certification) provide some assurance that screening is genuine, but there is no single industry-wide definition.
For further reading: Super Fund Investment Options Explained, Best Performing Super Funds Australia, How to Choose a Super Fund. For advice tailored to your values and financial situation, speak with a licensed financial adviser through MoneySmart.