A co-op of financial advisers believes superannuation funds are performing poorly when it comes to providing ethical and sustainable investment options, as reflected in a newly launched rating system.
The Ethical Advisers Co-op is launching its own rating system for ethical funds, awarding funds up to five green leaves based on their levels of ethics - however, no fund has achieved a perfect five leaf rating.
Future Super, Australian Ethical's Emerging Companies Fund, BetaShares Australian Sustainability Leaders ETF and BetaShares Global Sustainability Leaders ETF along with the WHEB Sustainability Impact Fund received the highest ratings - at four and a half leaves each.
Ethical Advisers Co-op chair Terry Pinnell told Financial Standard that consumers need ratings to understand the variation that exists between ethical investment products, and to protect against greenwashing.
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"As advisers we are constantly being bombarded by companies that say they are ethically minded and environmentally friendly, but when we look at what their investments are it's a completely different story," Pinnell said.
"It comes down to the screens they've put in place, the screens can give them licence to invest in companies that we wouldn't consider to be ethical or good for the environment."
The 35 advisers who make up the co-op each rate the funds based on their personal ethics and whether they would recommend the funds to ethically minded clients; the co-op averages that score to create its leaf rating.
Fund managers are given an opportunity to comment on the rating their fund received, and based on those comments the co-op may alter their rating.
When asked why none of the ethical funds received a five leaf rating, Pinnell used Australian Ethical as an example, saying its investment in NAB was enough to knock off half a leaf post-Royal Commission.
Pengana's WHEB Sustainable Impact Fund lost a leaf because 6% of revenue from Rockwell Automatic comes from services to the oil and gas sector and because Pengana does not specialise in ethical investments.
"We're saying this is the leaf rating we would give this fund as an adviser knowing what we know about the underlying investments - knowing what we know as a group," Pinnell said.
"But everybody has their own set of ethics."