Superannuation funds had an above-average year in FY24, with the average balanced fund returning 7.2% and the average growth fund returning 9.4% in the twelve months to May 31, 2024.
This compares to five-year averages of 5.1% and 6.7%, respectively. With these kinds of returns, investors might be wondering where their funds are actually invested.
Some super members have done the digging and are unhappy with some of the results found in various super funds' environmental, sustainability and governance (ESG) investing options.
The funds are now facing accusations of 'greenwashing', with AustralianSuper at the centre of the controversy.
Superannuation funds in the spotlight
Despite promising ethical investments as part of its 'Socially Aware' product, AustralianSuper has been found investing in coal, oil, and gas industries, according to The Australian Broadcasting Corporation.
The reporting notes that the fund's latest financial disclosures, which list its holdings as at the end of December, show it has invested members' savings in the shares of petrol retailer and distributor Ampol Ltd (ASX: ALD) and resources player Mineral Resources Ltd (ASX: MIN).
An AustralianSuper member was shocked to discover that his Socially Aware option was invested in these fossil fuel companies.
He believed his superannuation was 'ethically' invested, only to find a supposed loophole that allowed investments in property, infrastructure, and direct loans to coal, oil, and gas companies. Huh?
According to AustralianSuper, it only screens Australian and international shares for its Socially Aware option – not other asset classes like fixed income, the ABC reports.
All the investments in question are classified as 'credit', or direct loans to companies, in the form of corporate bonds, that provide fixed income to investors. Per the ABC:
AustralianSuper's financial disclosures show it has been lending members' funds to fossil fuel companies around the world, including Indonesian coal miner Adaro, Canadian oil and gas company Baytex and US-based Magnolia Oil and Gas.
"It looks like greenwashing", the member said, adding that he has taken his complaint to the Australian Securities and Investment Commission (ASIC).
Regulatory reactions
ASIC deputy chair Sarah Court said the regulator had looked into the matter, but did not find sufficient evidence to prove that AustralianSuper misled its members.
Court acknowledged the concerns about the wording of AustralianSuper's policies but said there still wasn't enough flesh to put on the skeleton to form a case.
We think these statements on AustralianSuper's website go pretty close to crossing a line for investors.
On this occasion, we found it didn't cross that line into being misleading.
The fund reportedly plans to announce changes to its investment policies following a separate ABC investigation showing it held more than $26 million worth of shares in companies involved in nuclear weapons.
Superannuation doubling down on fossil fuels
It would appear this trend has been in situ for some time. Environmental advocacy group Market Forces crunched the numbers in May.
It found that Australia's largest 30 super funds had doubled their investments in "high-emitting companies" over the past two years.
The total investment reached $39 billion. Meanwhile, clean energy investment from super funds decreased to $7.7 billion.
It created a "climate wreckers" index to track the exposure of superannuation funds to the high-emitting names. UniSuper was on top, with $2.2 billion exposure to this index.
Meanwhile, Commonwealth Super and MLC had more than $1 billion exposure each.
AustralianSuper had $9.8 billion of funds invested in these companies. But, this made up just 9.7% of its total funds under management. It made up more than 10% of the others.
The report also found that Woodside Energy Group Ltd (ASX: WDS) could make up to 20% of AustalianSuper's investment value.
What's the path forward?
While this controversy relates to ESG-style products, Superannuation funds face a challenging path ahead, regardless of what happens with these accusations.
Investors are also opting to manage their own super more and more. As reported by my colleague Bronwyn, a recent survey found there are more than 616,000 self-managed super funds (SMFs) in Australia.
This came as more than 18,000 SMSFs were set up in 2023. SMSFs could also give more investor optionality in certain cases, adding to the appeal.
The question now is what this means moving forward. After a decent year in returns, will most investors support a shift away from the current regime?
Only time will tell what this means for the superannuation industry.
