Feb 17, 2011 - 11:30am
Australians face large cuts to their retirement superannuation payouts unless their superfunds dramatically improve their reporting and hedging of their climate change risk, the Climate Institute said today, following the release of a “game-changing” report by leading global investment firm Mercer.
“This game-changing report has major implications for our superfunds and their trustees. We have been urging superfunds in Australia to report and hedge this risk for some time – a hedging investment is key to protecting members’ long-term returns,” said Julian Poulter, The Climate Institute’s Business Director.
The Climate Institute leads a disclosure project now in its third year that has been rolled out globally and provides funds with a methodology to guide them on how to implement the recommendations of the Mercer report.
“The response of Australian Superfunds to our third Asset Owners Disclosure survey closing this month will be a key test of how they plan to implement the recommendations of the Mercer report,” he said.
“Trustees could be in major breach of fiduciary duty if they do not pro-actively report and hedge this risk in the same way they do inflation or interest rates and climate risk could dwarf either of those risks.”
The 2010 Asset Owners Disclosure found confusion over the scope of fiduciary duty. Only 38% of surveyed funds viewed the consideration of ESG issues as being consistent with their fiduciary duties and/or the sole purpose test. Only 3% of funds intend to alter their investment management agreements so that they have longer investment horizons.
Leading environmental, union and social organisations representing hundreds of thousands of members have written to the CEOs and Chairs of Australia’s largest superannuation funds urging them to participate in Australia’s most comprehensive independent survey of Funds’ ability to manage climate change risk and opportunity.
The Mercer report:
- Advocates immediate investment in low carbon assets to hedge climate risk.
- Advocates massive realignment in portfolios to ‘climate sensitive assets’
- Says traditional portfolio models are incapable of managing climate risk
- Policy uncertainty adds 10% to portfolio risk
The implications for Australian superannuation funds are significant with a 40% allocation to climate sensitive assets currently representing approximately $500bn of current and future retiree’s money.
“If applied to the Australian Superannuation industry, superfunds would need to replace 38% of their portfolios with climate sensitive assets to meet the recommended 40% - that is a very significant $486billion worth of assets,” concluded Mr Poulter.
The report also highlighted that a continued delay in climate change policy action could cost institutional investors around the world “trillions of dollars over the coming decades”.
The deadline for the completion and return of the third round of the Asset Owners Disclosure Project is late February 2011.
For further information:
Julian Poulter | Business Director, The Climate Institute |
Harriet Binet | Communications Director, The Climate Institute |