Mar 22, 2009 - 1:00am
Australia’s largest superannuation funds acknowledge climate change as a risk to investments but steps to manage it are only in their infancy, results of the first comprehensive climate change investments survey released today shows.
“With almost a trillion dollars of Australian’s money under management it’s vital that super and other investment funds are facing up to the costs and opportunities of climate change, both of which are emerging now,” said John Connor, CEO, Climate Institute.
Last year, The Climate Institute and the Australian Institute of Superannuation Trustees (AIST) launched both a survey and a process for developing best practice guidelines* into how funds manage, or plan to manage, the risks and opportunities associated with climate change.
73 funds were issued the survey, 42% (31 funds) responded - including the Government backed Future Fund - which was a strong response rate given the concern over the global final crisis.
The survey results – to be released at today’s AIST’s Conference of Major Super Funds at the Gold Coast - show overall that a majority of funds are set to increase their ability to manage climate change risk and opportunity but only a minority know their exposure to climate change risk or have taken steps to evaluate it.
“Clearly super funds have a number of bases to cover when it comes to better managing climate risks such as from physical impacts on assets and climate policies. The same can be said about the extent to which they are moving on low carbon opportunities,” Mr Connor said.
“But at least most have made it to first base in considering responsibilities and future planning issues.
“A range of industry and government reforms are needed to encourage funds to better manage long-term risks and key would be reform of incentives to encourage investment decisions to favour long-term returns, and risk management over the short term gains.”
The AIST’s CEO Fiona Reynolds said the survey showed that climate change is firmly on super funds’ agenda, but there are roadblocks stopping tangible action.
"The survey is showing us that most super funds see climate change as a legitimate part of their responsibilities, however many funds are still grappling with how to build consideration of these long-term risks into portfolio management,” Ms Reynolds said.
“The reality for many super funds right now is that the global financial crisis, and its impact on member returns, is consuming a lot of time and attention. Equally, many funds are waiting in anticipation for regulatory certainty on the design of a carbon pollution reduction scheme,” said Ms Reynolds. “We have some way to go before all funds walk the talk and allocate significant resources towards climate change action”.
Some key results were:
83% consider climate risks as part of trustee responsibilities
85% plan to increase their climate change capability through staffing and training
Only 9% are trying to measure the exposure of their portfolio climate change risks
95% have altered or plan to alter mandates for investment managers to reflect climate change issues and longer investment horizons
70% do not have a method for calculating exposure to carbon prices
78% do not know the value of the low-carbon assets owned.
80% of funds were willing to invest collectively with government and other funds in large scale infrastructure projects.
Noting the super industry’s strong record of collaboration, particularly within the not-for-profit sector, Ms Reynolds said it was hoped the survey results would lead to a greater understanding and willingness to share ideas as to how best to tackle the climate change challenge.
Since launching the survey, AIST has been working with the Climate Institute to develop best practice guidelines to help funds, their asset consultants and their investment managers deliver an appropriate response to climate risks. AIST has also developed an environmental, social and governance (ESG) educational course for super fund trustees.
Senator Sherry has since written to the Australian Prudential Regulation Authority (APRA) to review its guidance to superannuation funds to take greater account of ESG issues in their investment practices and last month the Federal Government established the Responsible Investment Academy (RIA) which aims to unite institutional, individual investors and financial advisors on ESG issues.
Best practice guidelines – or a tool kit for assisting funds to better manage climate change risk and opportunity – will be outlined at the CMSF – the annual conference of the $450 billion not-for-profit super sector.
*The Asset Owners Climate Change Initiative – which includes the annual survey - was launched in September 2008, by Federal Minister for Superannuation, the Hon. Senator Nick Sherry.