As inflation goes up and wages stay flat, many people are keeping a close eye on where their money is spent.

Along with everyday savings accounts, a growing number of Australians are interested in how their superannuation is being invested. But it’s more than the questions like “am I getting the best returns” that are getting asked. The question on everyone’s minds these days seems to be: is my superannuation being invested in an ethical way?

Welcome to the world of ethical investing. Gone are the days when all people wanted from their superannuation was a good rate of return. Nowadays, people want to know where their money is going and whether it matches their personal ethics.

So, what is ethical investing and what do you need to know?

What is ethical investing?

Ethical investing is when you make a conscious decision to invest your savings or your superannuation in companies or sectors that are ‘ethical’. ‘Ethical’ might mean something different to everyone but generally means that you’ll avoid putting money into companies or industries that contribute to something you object to on moral or ethical grounds.

For example, you might be very concerned about climate change so you make the ethical investing decision to not put any of your money into companies that emit a lot of fossil fuels. Or perhaps you have a strong ethical objection to gambling? In that case, you’d choose not to invest your money in companies that own casinos or pubs with poker machines.

How can I tell if I’m making ethical investments?

This is where you have to do your own due diligence. After all, almost every company these days tries to make the claim that they are ethical or responsible! Are they telling the truth though or is there more to the story?

The Government is yet to really solve this problem. There is an independent body called the

Responsible Investment Association of Australia (RIAA), but this group isn’t a government body. Rather, the RIAA has come up with a set of criteria that it reckons would make a company ‘ethical’. Companies can then apply for RIAA accreditation. So, a good place to start your research could be to visit the RIAA website and search their database of companies and see what they say.

The good news is that after a wait of over 10 years, you can now track exactly where your superannuation is being invested. This is because, back in 2010, the then-Labor Government began a review that recommended that superannuation funds disclose where peoples’ money was being invested.

Unfortunately, it took until 2021 for this to come into effect! Thanks to these new regulations, superannuation funds must “disclose information about the identity, value and weightings of their investments.” So, if you want to see whether your superannuation fund is doing some ethical investing, you can finally see for yourself.

Does ethical investing offer decent returns?

This is where research is limited. Luckily, Choice has done some of the heavy lifting here. Interestingly, a growing number of superannuation funds are offering a special product: a sustainable investment product.

What this means is that a superannuation company will give you the offer to have your money invested in a ‘balanced’ portfolio or a ‘socially responsible’ portfolio. The socially responsible approach is another way of saying ‘ethical investing’ and it means the superannuation fund opts to avoid certain sectors such as companies with bad human rights records, or companies that are heavy producers of fossil fuels.

The bad news is that, on the whole, for companies that offer both a ‘balanced’ investment option and a ‘socially responsible’ investment option, the balanced product almost always delivers better returns. Mostly this is because ethical investing limits your investment options. It’s not focused solely on making the most money.

However, for those who choose to make ethical investment decisions, the benefit isn’t all about money. For example, let’s say you’re very concerned about climate change. If you choose to invest in companies that produce very few fossil fuels, you may not get as lucrative returns, but you will be indirectly contributing to fewer fossil fuels being produced. So, your return will not just be a monetary one, but you’ll also be helping the future of the planet.

Should I make ethical investing choices?

Ultimately that decision is up to you. Whether you choose ethical investing or not, the guiding principle should be your own personal investment goals. Like all financial matters, it’s worth speaking to a financial expert and getting good advice. But if you are particularly passionate about specific issues, it’s never been easier to not only see where your money is being invested but to also do something about it.

Your financial future is in your hands. So, if ethical investing is something you’re keen to explore, there’s never been a better time to take the first step.