Ethical vs sustainable super: what’s the difference?
If you’re looking for an ethical super product, there’s a good chance you want to know what your retirement savings are invested in, and whether those investments make sense for the future you want to retire into. A sustainable super product looks at that question through a broader, long-term investment lens.
Ethical investing and sustainable investing are often used interchangeably. In fact, the Responsible Investment Association Australasia (RIAA) describes responsible investing as also being known as “ethical or sustainable investing”. But there are useful differences in how people use these terms.
When people talk about ethical investing, they’re often thinking about their own principles: industries or activities they would prefer their money to support or avoid. The tricky thing is that ethics are personal. What one person considers ethical may be different from the next.
At Future Super, we prefer to talk about sustainable investing. It describes a broader investment approach; one that considers how changes in our environment, society and economy can create risks and opportunities for investments over the long term.
“We invest sustainably because without stable environmental, climate, social and economic systems, it gets much harder to deliver strong long-term financial outcomes” says Emily Flood, Chief Impact Officer at Future Group, Future Super's parent company.
“We use a range of portfolio construction and management strategies, including screening, thematic investing, and stewardship, to both manage sustainability risks in our portfolios and invest for a future where people, markets and systems can thrive together.”
How sustainable investing differs from ethical investing
Ethical investing focuses on values-based decisions about where you do and don’t want your money invested. For example, an investor might want to avoid a particular industry because it conflicts with their personal ethics and they don’t want to profit from it or have ownership through their investment portfolio.
Sustainable investing considers a broader set of factors shaping the world that investments operate within and their interactions with each other and the economy. Climate change, demographic shifts, technology change and other long-term structural changes can affect companies, markets and economies. Sustainable investing considers risks and opportunities created by changes like these as a key part of investment decision-making.
There’s a bit of overlap in the end result, but the decision-making process is totally different, and guided by different factors. Sustainable investing is suitable for super funds, because they are responsible for investing in their members’ best financial interests.
Many industries that are disliked by ethical investors due to their risk of causing harm to people or the environment, are also addressed by sustainable investors; but for sustainable investors the drive isn’t to avoid the harm, it’s to take action to address the underlying risks, drivers and impact of that harm.
By taking a broad and long-term view of investment risks and opportunities, super funds can seek to protect and grow the value of their members’ savings – and the world they’ll retire into.
Future Group Investment Management (FGIM, the investment manager behind Future Super and also part of our parent company, Future Group) defines sustainable super as an approach that seeks to deliver members’ best financial interests by considering sustainability-related risks and opportunities that may affect investment outcomes, as well as the resilience of critical environmental, social and economic systems over time.
Or, in simpler terms: sustainable investing is built for a changing world.
Sustainable investing: more than what you leave out
Screening is probably one of the most familiar features of ethical super. But at Future Super, sustainable investing involves more than listing things you don’t want to invest in.
FGIM uses a range of responsible investment strategies and tools across the portfolio, including negative screening, thematic investing and stewardship. That means looking at the bigger picture.
Negative screens can be used to manage exposure to companies and assets believed to carry unacceptable sustainability-related investment risks. Across Future Super’s investment options, FGIM’s screens exclude fossil fuel companies, as well as weapons manufacturers, gambling companies and more.
FGIM also looks for long-term opportunities created as the world changes. That includes investments in areas such as renewable energy, social infrastructure and affordable housing. And then there’s stewardship: using tools such as shareholder voting, company engagement, research and advocacy to seek to influence companies and policymakers. Together, these tools form part of a sustainable investment approach designed to manage risks, identify opportunities and pursue long-term outcomes for members.
Sustainable super in the real world
This can all sound pretty theoretical. So let’s get out of the spreadsheet for a minute and look at some real-life examples.
Members in most of Future Super’s sustainable investment options have exposure to an investment in Conscious Investment Management’s Social Housing Fund 2. One of the fund’s projects has helped finance 102 affordable homes in Box Hill, Melbourne, with rents set at 75% of market rates and priority given to key workers. The financing is structured so that community housing provider St George Community Housing retains ownership after the funding period, helping keep the homes affordable for the longer term.
It’s an example of an investment that meets the portfolio’s investment objectives and delivers measurable social outcomes. Investments like these that meet additional criteria are categorised as impact investments – they’re challenging to find, so they’re a specific subset of investments, rather than a description of everything in the portfolio.
Climate solutions can look different from what you might expect, too.
Alongside traditional climate solutions like renewable energy projects, Future Super’s sustainable investment options also have exposure to Conscious Investment Management’s Impact Fund.
The Impact Fund includes Nyadinang Najung, a 755-hectare environmental planting project on Wolgalu Country in NSW. Working with Greening Australia, the project is restoring critically endangered grassy woodland, with close to 150,000 native trees and shrubs planted. The project is designed to improve biodiversity while sequestering carbon and generating high integrity Australian Carbon Credit Units.
“In partnership with the Wolgalu People, Greening Australia will act as both landowner and project developer at Nyadinang Najung, embedding climate resilience at every step,” explains Kate Donnelly, Impact & Unlisted Investment Manager at Future Group, “from installing fire-fighting infrastructure to building climate-resilient seed banks for future plantings in the region.”
Sustainable investing is about understanding where the world is heading, what that could mean for investments, and where capital can be put to work in opportunities that we at Future Super believe support both members’ financial interests and more resilient systems over the long term.
What to look for when comparing ethical or sustainable super
If you’re researching ethical super products, it can be worth digging beneath terms such as ‘ethical’, ‘responsible’ and ‘sustainable’ to understand what a fund actually does.
Look at its screening statement. What are the thresholds and exceptions in its investment approach? Is it intentionally seeking investments in technologies and industries that contribute to a decarbonised future, rather than focusing just on what’s ‘good’ or ‘bad’? How does it practise stewardship? And, importantly, can you see the evidence behind its sustainability claims, or could it just be a marketing ploy?
This is important, because two products using similar labels can take different approaches. Future Super publishes the screening approach and investment holdings managed by FGIM so you can look under the hood yourself. You can check our accreditation with the Responsible Investment Association Australasia (RIAA), and what that means. And because some investments are held indirectly through Exchange Traded Funds (ETFs) and other managed investment vehicles, these kinds of details help you understand where your super is actually invested.
Our future is the best investment
For many people, searching for ethical super is inspired by a simple question: does my super reflect the kind of future I want to see?
But the other question worth asking alongside it is: is my super acting with my long-term interests in mind, for the future I will retire into?
That’s where sustainable super comes in. It’s not about choosing between values and financial outcomes. It’s about recognising that investments don’t exist separately from the world around them – and taking a broader view of the long-term risks, opportunities and systems that can shape members’ financial futures.
That’s the bigger picture sustainable super is designed for.
FAQs
Sustainable investing FAQs
What’s the difference between responsible and sustainable investing?
Terms like responsible, sustainable, ethical and green super can overlap, which can make researching your super a little confusing. You may even come across phrases like ‘mindful investing’, although it isn’t a defined investment category.
Responsible investing is broadly used to describe investment approaches that consider environmental, social, governance or ethical factors. RIAA, the Responsible Investment Association Australasia, uses responsible investment in this broad sense and certifies products, including Future Super’s options, against its Responsible Investment Standard.
At Future Super, we use sustainable investing because it more clearly describes the approach used by our investment manager, Future Group Investment Management (FGIM). Sustainable investing considers sustainability-related risks and opportunities that may affect long-term investment outcomes, alongside the resilience of the environmental, social and economic systems we all depend on.
Whatever label you see on a product, it’s worth looking under the hood. The investment strategy, screens, stewardship approach and disclosures can tell you much more than the name alone.
How is sustainable investing measured?
There isn’t one universal score that tells you how ‘sustainable’ an investment product is. That’s why transparency matters: sustainability claims should be backed by clear criteria, investment processes, disclosures and evidence.
One independent measure is RIAA certification. All five Future Super investment options hold RIAA’s Sustainable Plus classification. This certification is applied to products with embedded, measurable and reported sustainability objectives aligned with their portfolio holdings and stewardship practices, and also assesses areas including investment strategies, disclosures, holdings and stewardship.
You can also see the detail behind this approach for yourself in the Screening Approach on our website showing which screens apply across different investment options and asset classes.
So, independent certification is a useful signal, but it’s still worth looking at the evidence behind a product’s sustainability claims.
Why does Future Super prefer ‘sustainable investing’ to ‘ethical investing’?
‘Ethical’ can mean different things to different people. Your ethics are personal, and what feels like an ethical investment to one person might not to another.
It also doesn’t describe the investment rationale behind the sustainable investing approach, which doesn’t simply divide the investment universe into companies that are morally ‘good’ or ‘bad’. It considers sustainability-related risks and opportunities that are believed to be material to our members’ best financial interests. It uses tools including research, screening, thematic investing and stewardship to manage those risks and opportunities and pursue long-term outcomes for members.
That doesn’t mean the word ‘ethical’ is meaningless. Individual values are often why people start thinking about where their money is invested.
We prefer sustainable investing because it captures the bigger picture: investing with a clearer view of the future – and the changing economy, climate and society members will eventually retire into.
See Sustainable Investing for information about screening and investment processes, and what we mean by fossil fuel companies.
Future Super has been certified by the Responsible Investment Association Australasia according to the operational and disclosure practices required under the Responsible Investment Certification Program. Certifications are current for 24 months and subject to change at any time. Certifications are only one factor to consider when investing.