“Ethical” super funds are attracting masses of new members, unlike most funds which are losing members as the population ages. One retail ethical fund grew their membership by 20 per cent in 2015 and its profits rose 53 per cent last financial year.

Retail ethical funds generally operate as part of a Master Trust structure profit, not ethical considerations, are the driver. So they only exist in that space due to public demand.

People feel warm and fuzzy about their choices. But the question that needs to be asked is are these funds really ethical?

Some ethical funds tout they’re “fossil fuel free.” Others say they don’t invest in weapons, nuclear, and coal. Fossil fuel free is an admirable goal, and more funds, ethically branded or not, are moving in that direction. But the details of their investments are what count.

Many people would expect an ethical fund to avoid investing in nuclear technology – and several say that’s exactly what they do. But radiotherapy – nuclear medicine – increases cancer survival rates significantly. More than 60 per cent of cancer patients will need nuclear medicine as part of their therapy. And globally, people are missing out.

A study in The Lancet found tackling the global shortfall in radiotherapy could save millions of lives and boost the economy of poorer countries by up to US$365 billion over the next 20 years. So it’s hard to see how a blanket ban on nuclear investment  is ‘ethical’

Then there’s “intensive agriculture” – another sector some ethical funds shun. By 2050, the global population will grow by 50 per cent and the need for grains will double. We’ve doubled global cereal production in the past 40 years, mainly thanks to intensive agriculture technologies – new crop strains, better fertilisers, better methods of fighting pests.

The alternative – unless you want to let people starve – is chopping down more trees to clear land for less efficient farms. We need to find ways to make intensive agriculture more sustainable, and more productive, but a blanket refusal to invest can hardly be called ethical.

Membership fees pose another important question. How ethical it is to make a profit at the expense of people’s retirement savings? Some ethically branded funds have fees of over $1000 a year on a $50,000 balance – that’s five times more than some ethical/ sustainable super products offered by industry super funds.

The cost of ethical funds. Source: Rice Warner

Compound interest means that could take a big chunk out of your retirement savings for the benefit of shareholders; that doesn’t sound ethical. 

Default funds

Ethical super funds have claimed protections in union-negotiated industrial awards that require big employers to choose a default super fund for their staff from a short list are “anti-competitive” and should be removed. But those protections are there to ensure the majority of workers who stay with their employer’s default fund aren’t gouged for fees like those charged by some “ethical” retail funds.

People are free to make an active choice for funds that charge higher fees. But to allow such funds to join the default system where workers would unknowingly be channeled into them is not ethical.

So what’s the solution? Super is your money, and you should never forget it. Investing in options that don’t cost the earth is positive –as long as it doesn’t also cost you a comfortable retirement.

Think about the whole picture, not just the sectors a fund refuses to invest in, and consider the structure of the fund as well. Many industry funds, which are run for the benefit of members, not shareholders, have ethical options you can choose.

Stephen Rowe is CEO of Vision Super. The New Daily is owned by industry superannuation funds.