There are a number of different investment methods, or guidelines, that super funds use when evaluating the environmental, social, ethical and governance practices of the organisations in which they want to invest.
- Negative screening
- Positive screening
- Sustainability analysis
- Best of sector
Understanding the different investment approaches of the funds will help you to choose the style that best matches your own level of concern about environmental, social and ethical issues.
Some funds simply avoid investing in certain industries, such as tobacco, armaments, alcohol or gambling but will invest in everything else.
Some funds actively seek out companies which have a positive impact on society and the environment. This may be a company solely devoted to renewable energy or healthcare, but on the other hand it might be a mainstream energy company with above average environmental, ethical and social practices.
Sustainability analysis is the quantitative and qualitative study of all companies on the stock market to determine their environmental, social, ethical and governance performance. This method is often combined with positive and / or negative screening.
Best of sector
Best of sector funds will invest in all industries (with no negative screening) but choose only those companies which are considered to be the most socially and environmentally responsible out of their peer group. The belief here is that the most sustainable companies will be the most profitable in the longer-term and that all industries must strive toward sustainability. How proactive you want your fund to be is up to you.
What’s are my next steps?
Find out how to choose and invest in a responsible investment super fund.