Friday, August 5, 2011

How to make a difference with your super!

Here in Australia it is mandatory to have a percentage of your wage go into superannuation, with the money only accessible once you retire aged 60/65. The reason for this is to ensure all people will have some sort of financial security in their retirement and reduce the burden on the government.

Generally, this money is invested by private companies into shares, cash and property. Many of these companies offer different packages to allow you say in the investment choice dependent on your circumstances. For example, there are packages tailored to those retiring in the short-term, with these likely to be more aggressive attempting to maximise your gain in a short period of time.

Some of these companies are realising that not all people wish to invest in "typical" options and/or have a desire to make a difference to the world throughout their lives. As such, there are now packages appearing which are entitled "socially responsible" or "environmentally friendly". If you are a person considering one of these options it is worthwhile investigating the package to determine whether they address your concerns. I personally have a "socially responsible" package through my superannuation firm, which gives me similar returns to other standard packages, but the investment choices within this are determined to be socially responsible.

However, what does "socially responsible" mean though? My superannuation company has an extensive list of the firms they invest in through this package available on their website, which can be downloaded and reviewed at your leisure. This is a great first step. After reviewing the list briefly, of so-called "socially responsible" companies some of them looked a little questionable to me. So, my next step was to email my company requesting a definition or set of parameters that they use to to determine whether a company is "socially responsible" or not.

I received the following as a response. They have three key criteria which they use:

" 1. the financial assessment process and the ability to factor labour standards, and ethical, social and environmental factors into company selection;
2. avoiding exposure to companies with a material exposure (greater than 10% on key financial measures) to avoid the production or manufacture of tobacco, uranium, armaments, gambling, alcohol, or pornography;
3. selecting optimal manager combinations."

This was fascinating and made me more aware of the package I was "buying into". The issue, however comes as you cannot change your investment mix to reflect personal choices and remove individual companies based on your preferences.

So if you are considering making a positive step for either the environment or "society" through your long-term finances an appropriate superannuation packages might be another reasonable strategy. The key message however, is to look into the investment structure and asked for definitions.
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