Ethical Investing Stands the Test of Time

Written By Justin Medcalf

The idea that ethical investing means giving up returns is one of the most persistent and misleading myths in finance. The evidence now paints a far more optimistic picture, in that investors can do well, as well as do good.

Responsible investing is a smart strategy

Responsible investment is a forward-thinking strategy. Companies that integrate environmental, social and governance (ESG) principles tend to be better at managing risk, attracting talent, and building resilience across business cycles.

Research shows that firms with strong ESG performance often experience lower volatility and fewer reputational shocks. Conversely, companies reliant on fossil fuels or operating with weak governance structures face growing regulatory, financial, and social risks. A 2023 study found that negative ESG reputation events were linked to measurable short-term declines in share price performance.

Performance: ethical funds are holding their ground

Across the Australian superannuation landscape, ethical funds have performed on par with, and often outperformed, traditional funds.

  • Australian Ethical’s 2024 Annual Report shows its Australian Shares option ranked #1 out of 42 funds over a 10-year period, returning approximately 10.36% per annum to June 2024 (Australian Ethical, 2024).

  • Over that same decade, its Australian Shares Super option averaged 9.4% per annum, ranking 5th among 53 funds in the SuperRatings benchmark (Australian Ethical, 2024).

  • In FY 2025, MySuper Balanced returned 10.5%, with Growth and High Growth options delivering 11.5% and 12.8%, respectively (AdviserVoice, 2025).

These results mirror long-term data from the Responsible Investment Association Australasia (RIAA), which consistently finds that responsible investment funds meet or exceed mainstream performance benchmarks.

Graph source: Australia’s Responsible Investment Benchmark Report 2021 (Responsible Investment Association Australasia, RIAA).

Why ethical funds perform

  • Better risk management: ESG-aware companies anticipate regulatory and reputational risks earlier and adapt faster.

  • Cost efficiency: Investing in energy efficiency, waste reduction, and fair labour practices lowers long-term operational costs.

  • Exposure to growth sectors: Ethical portfolios typically lean toward clean energy, sustainable agriculture, green infrastructure, and circular-economy technologies.

  • Stranded-asset protection: Avoiding fossil-fuel-dependent sectors reduces exposure to stranded assets as economies decarbonise.

  • Capital momentum: As more super funds, institutions, and retail investors move capital into ESG-aligned options, liquidity and performance benefits compound.

Transparency matters

Ethical investing isn’t immune to challenges and definitely not all funds are created equal. For example:

  • Greenwashing risks: In 2024, Australia’s Federal Court fined Vanguard’s local unit A$9 million for misleading “ethical” claims (ESG Today, 2024).

  • Fee structures: High-fee funds with weak governance can erode returns, regardless of their ethical label.

  • Market variances: Ethical funds sometimes operate in narrower investment universes, which can cause periods of under- or out-performance (Australian Ethical, 2025).

💡 Tip: If you’re curious about how your super fund stacks up, join our free ethical investing webinar, “Where Your Money Sleeps at Night” on 10th October 2025. We’ll unpack how to uncover where your super is really invested, and whether your money is working toward the world you want to retire in. Sign up link here.

References

AdviserVoice (2025). Australian Ethical MySuper delivers 10.5%, demonstrating the strength of ethical investing. https://www.adviservoice.com.au/2025/07/australian-ethical-mysuper-delivers-10-5-demonstrating-the-strength-of-ethical-investing/

Australian Ethical (2024). Super Annual Report 2024. https://www.australianethical.com.au/super/super-annual-reports/

Australian Ethical (2025). Super Investment Performance Update May 2025. https://www.australianethical.com.au/blog/super-investment-performance-update-may-2025/

ESG Today (2024). Australia court fines Vanguard record $12.9 million over misleading sustainable investing claims. https://www.esgtoday.com/australia-court-fines-vanguard-record-12-9-million-over-sustainable-investing-claims/

Responsible Investment Association Australasia (RIAA) (2021). Money jumps ship to responsible funds – RIAA Benchmark Report 2021. https://www.responsibleinvestment.org/events-news/item/money-jumps-ship-to-responsible-funds---riaa-benchmark-report-2021

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