The coming together of the world’s leaders this month for the United Nations Climate Change Conference in Glasgow (COP26) has graphically highlighted how the climate crisis is damaging the world – and the countless challenges our generation faces in reducing the impact humans are making.
While many of us may feel helpless as individuals in helping to stop global warming, there are many steps we can all take towards creating a more sustainable future for ourselves and the global community. One way that working Australians can do their part, is by looking at how they choose to invest their retirement funds.
Andrew Lill, Chief Investment Officer at Rest, one of Australia’s largest superannuation providers and a long-time global investor, says employers and employees alike can look at the superannuation investment options available to them through their fund, to discover ways that they can invest in what’s important to them.
“As a community, our collective capability can be our strongest asset in fighting important social issues such as climate change, gender inequality and human rights risks,” explains Lill.
While that may sound encompassing, there is a compelling financial case for choosing funds that invest in climate-positive businesses and technologies or to question and wind down investments in industries that are contributing to the problem, such as thermal coal mining.
Rest’s recent research into ethical and sustainable investing has indicated that choosing to put your money towards greener choices may prove more profitable in the long run.
Scenario analysis and stress testing of Rest’s investment portfolio by asset consultancy JANA, Investment Advisers, suggests Rest members will be better off if the global community acts to keep temperature rises to well below two degrees Celsius by 2100. It showed that if temperature rises are kept well below 2°C by 2100 – aligned with achieving the Paris Agreement goals – investment returns for Rest’s default Core Strategy investment option could be nearly two percentage points higher per annum to 2040(1).
So, what does this mean in simple terms? This means that an average 48-year-old Rest member, with an account balance of $67,000 and salary of $48,000 per year, could be approximately $50,000 better off (a balance that is around 29 per cent higher) when they retire in 2040 aged 67(2).
When you consider that the Association of Superannuation Funds of Australia (ASFA) recommend that today, a single Aussie may spend around $45,239(3) per year to live a comfortable retirement, according to the projection you could live comfortably for an entire year, as a result of positive climate action.
This more favourable return comes down to the assumption in the scenario that the world acts over this next decade to mitigate the worst effects of climate change, and new investment opportunities are identified as the world transitions to a lower-carbon economy.
Rest, recently named a Responsible Investment Leader for 2020, by the Responsible Investment Association Australasia (RIAA), also launched its first low-fee ethical and sustainable investment option. In a first for the fund, it used insights gathered from member engagement and surveys to help design the new investment option. This gave members an active role in shaping the types of investments to be included, as well as excluded. The option was shaped for members by members, right down to giving members a voice in helping to choose the name, Sustainable Growth.
Choosing to invest your superannuation responsibly through your fund, not only helps gain access to investment opportunities individuals may not otherwise be able to, but it also provides the opportunity for us all – as a global community – to create a bigger and more meaningful impact.
With climate change in the spotlight, and scientists all over the world stressing the urgency upon humankind to make changes to limit the earth’s rising temperature, now is the time for us all to reflect upon the ways we as individuals can support a more sustainable future. By reviewing your current super investment options, you have a choice available to you, where you can contribute positively to the narrative and do right by yourself and the community.
It’s never been easier to help save the planet through your super. To find out more about Rest’s Sustainable Growth option click here.
Product issued by Retail Employees Superannuation Pty Limited. Consider if it is appropriate for you and read the PDS and TMD available at rest.com.au/pds before deciding to join or stay.
2 This is based on projections of the potential retirement balance of a 48-year-old Rest member with an account balance of $67,000 and a salary of $48,000 pa. The projections are not intended to be exact figures. They do not take into account any changes in the cost of living between the time of the preparation of the estimate and the future time, or future changes to laws after the date of preparation of these assumptions. Do not rely on this projection to make decisions about your retirement. You should consider your own needs, financial situation and investment objectives and may wish to get advice from a licensed financial adviser before making any financial decisions.
Projected account balances
Using the assumptions below, the retirement balance for this member is estimated at:
- $226,408 in scenario one, in which the world acts to keep temperature rises below two degrees Celsius; and
- $175,855 in scenario two, which is based on the current global policy settings and targets where temperatures are expected to exceed the goals of the Paris Agreement.
The balance in scenario one is $50,553 (or around 29 per cent) higher than the balance in scenario two. The projections make the following assumptions:
- continuous accumulation of Superannuation Guarantee contributions and no additional personal contributions from age 48 in 2021 to retirement at age 67 in 2040;
- progressive Superannuation Guarantee increases to 12 per cent by 2025;
- investment earnings are based on modelling of the impact of two climate change scenarios on Rest’s default Core Strategy option (modelled returns are gross of tax and net of Core Strategy’s investment fees – more information follows);
- annual inflation of 3.2 per cent reflecting increases to wages and the standard of living;
- the member is incurring Rest Super administration fees of $1.50 per week plus 0.12 per cent of their account balance per annum (the account balance fee component is capped at $300);
- earnings are taxed at the relevant rate; and
- the member does not have insurance.
3 ASFA Retirement Standard September Quarter 2021, national. The figures assume that the retiree(s), aged 65-84, own their own home, are relatively healthy and relate to expenditure by the household.