News from the front desk, issue 443: Say you’re a young person, maybe a millennial or even younger, a Gen Zer. You’ve just entered the workforce or are just a few years in. If you’re attuned to the melting glaciers, the methane spewing into the atmosphere and know what Extinction Rebellion is about, then you might be one of those people who are increasingly realising they can do a lot more with their money than give it blindly to a superannuation fund manager and forget about it.
This is especially so as you realise that even if carbon can be successfully extracted from the atmosphere – pending a more useful miracle than ScoMo’s re-election – turning back the tide on our fragile and complex ecosystem is going to be far more complex.
If you want to minimise the damage you might be waking up to the power in your pocket. Especially with the savings we’re all forced to make with our superannuation. And especially if you’re a young person who will likely be calling on your super around the same time the planet is falling apart.
After the federal government was re-elected Future Super, which claims to be one of the toughest negative screening ethical investments options for superannuation, noticed an uptick in member growth with its mostly young customer base.
Managing director Kirstin Hunter says there was clearly a sense of urgency and frustration behind the trend. Urgency because people are quickly waking up to the irreversible damage being done to our planet and frustration because a government with a determined lack of policy on climate change and a clean energy direction for Australia was back in charge.
The company, at less than five years old, is one of the newest in the market. It knows what its members think because it asks. Every time someone joins, a team member calls and makes sure they know how to get the best of the system and in particular the transparency of the investment options.
There is full transparency on everything the company invests in. This compares with more conventional super funds that “keep their members in the dark,” Hunter says.
The transparency extends to hoping other super funds pick up the hint and go the same way.
The $500 million fund with around $900 million in funds under management is still relatively small, but with now 15,000 members from a standing start in September 2014 and a growth rate of 30 per cent, most recently creeping up to 35 per cent, that’s nothing to sneeze at.
The big attraction says Hunter is a strict negative screening policy. That means precluding any investments in things like fossil fuels and harmful industries like weapons and tobacco.
The result is that member and investment growth are now being mirrored in performance.
Speaking to The Fifth Estate on Thursday afternoon Hunter was expecting the latest performance results to show Future Super in the top quartile.
Another wily investment strategy that’s helped performance is staying ahead of the market. So by the time the royal commission into banking had started to unearth what so many people suspected it would unearth, Future Super had already sold out of the big four banks. Instead, it sat back and watched the share market deal out its thwack to the share price.
And by the time the royal commission into aged care had hit the headlines, same thing. The super fund could see the writing on the wall and had exited the aged care funds before their share prices tumbled.
Other than the negative screening, 10 per cent renewables and the early avoidance tactics, Hunter says the rest of the portfolio has pretty conventional weightings.
Now even the fees are starting to come down, as the fund gets more established and can scale up its offerings. Which, Hunter says, might look a tad high compared to other super funds but are at least all of the fees, and not loaded up in behind the scenes in transaction costs that hide the real fees as per some industry member practices.
A measure of how the company’s investors are thinking is its net promoter score – or customer satisfaction level. It’s in the “high 60s to low 70s” while others are often in the minus 20 mark, Hunter says.
So who is the super fund’s biggest competitor?
“Apathy,” Hunter shoots back.
There is still a long way to go when most people let their superannuation go into default funds where it ends up in black holes of investment options and is then forgotten about.
But things are changing.
According to the latest Benchmark Report issued by the Responsible Investment Association of Australasia, the responsible investment market is now close to $1 trillion, up 13 per cent over the year. That’s an estimated 44 per cent of Australia’s total $2.25 trillion in professionally managed assets.
Even better is that the report shows that responsible investment leads to better performance.
Those in that sweet spot are outperforming most mainstream Australian and international funds, the association said early this week.
Data in the report compiled by KPMG shows “investors in responsible funds are reaping financial rewards with higher than average returns across one, five and 10 year horizons”.
RIAA chief executive Simon O’Connor said the findings “refute any misconception that investing responsibly comes at a cost in terms of performance, and contributes to the mounting body of evidence showing that responsible and ethical investing leads to better investment outcomes, alongside benefiting people and the planet.”
How can you beat that?
Here are the numbers: responsible share funds produced an average return of 6.43 per cent over five years and 12.39 per cent.
The S&P/ASX 300 index produced 5.6 per cent and 8.91 per cent.
OK, we will say it: how good are the numbers, ScoMo! How good is money as an activator! And now, an investment winner.
O’Connor says that consideration of environmental, social, governance and ethical factors is becoming the “expected minimum standard” of good investment practice, with a majority of Australian managers stating a commitment to responsible investment.
The details show funds flowing into retail funds are now at 42 per cent of AUM up from 30 per cent in 2017.
Globally responsible investment assets are up 43 per cent to $US30.7 trillion at the start of 2018.
RIAA’s consumer research also shows nine in 10 Australians expect their superannuation and other investments to be invested responsibly and ethically.
It found negative screening is the third most popular strategy with Australian investors. Globally it ranks first.
The report also notes there is, finally, a growing concern with junk foods, along with more concern on animal welfare and predatory lending.
Rainmaker agrees with the thrust. It reports there are 141 ESG funds aligned to the United Nations Principles for Responsible Investment.
“On Rainmaker’s numbers that makes Australia the fourth most-active country in the world for what it describes as ESG investment awareness,” The AFR said in a recent report.
All good news but the sad thing is we still need government and government is in the grips of the fossil fuel monster.
The rest of us are in the grips of the species extinction monster and global heating. It’s not a climate emergency said someone or other during the week, it’s a climate catastrophe.
But as if we couldn’t do something tomorrow to change if not everything, at least deflect its trajectory a bit.
Imagine if we wake up on Monday morning and Extinction Rebellion had suddenly taken over all Australian parliaments and declared we are now on a war footing to save the climate.
Imagine we all suddenly trimmed the fossil fuelled fat from our daily lives. Would it be so hard? Probably not. And many of us might be really grateful.
Peer group pressure is one of the main ways we achieve meaningful change.
Perhaps in the end it’s the investment community that is leading the rebellion we have to have.