By Maddocks Sustainability and Climate Change Team
In March 2010, the Australian Institute of Superannuation Trustees (AIST) and the Climate Institute have released their second annual survey of the Asset Owners Disclosure Project, a climate change investment initiative. The survey assesses Australia's largest superannuation funds' readiness to manage the risks and realise the opportunities associated with climate change.
The survey was of 32 funds with $302 billion under management, representing about 28% of the Australian superannuation fund sector.
The AIST and Climate Institute conclude that the survey shows that superannuation funds are largely ignoring the risks resulting from climate change, have a poor understanding of the potential risks of climate change on the average retirement nest egg and remain illequipped to measure or manage climate risks in their investment portfolios.
Key survey findings
The key findings from the survey were:
- superannuation funds are expecting to rely on climate change advice from their asset consultants, yet 67% of asset consultants have no climate change-related services available
- only 9% of superannuation funds believe the G20 recommendations in relation to managing systemic risks have implications for long-term risk management procedures
- 34% of superannuation funds have considered the implications of Australia's delayed transition to an economy where carbon pollution would need to be constrained, and of those superannuation funds, more than 90% agree that the delay may negatively impact long-term returns
- 38% of superannuation funds have the view that managing environmental, social and governance issues, such as climate change, is consistent with their fiduciary duties and/or the sole purpose test
- only 12% of superannuation funds knew what low-carbon assets they owned
- 76% of superannuation funds do not calculate any climate change risks at the portfolio level
- 78% of superannuation funds are willing to participate in shareholder resolutions regarding climate change issues, with 20- 25% of superannuation funds willing to participate in resolutions that directly relate to exposure to climate risks
- 28% of superannuation funds do not think climate change would cause a collapse similar to the sub-prime crisis.
The AIST and Climate Institute conclude from the survey's results that superannuation funds need to change their attitudes towards climate change and its impact on existing portfolios. They recommend the following:
- Superannuation Funds:
- Trustees need to engage their asset consultants and fund managers to begin integrating carbon pricing into their asset valuation processes in order to address climate risk.
- Asset consultants and fund managers need to be utilised to ensure that climate change factors are taken into account in the long term.
- Superannuation funds need to begin training their staff about climate change risk and opportunities, such as participation in the specialist education programmes offered by the Responsible Investment Association of Australasia.
- Superannuation funds need to set goals such as improving the carbon performance of existing assets or investing in low carbon technologies, in order to address climate change risks.
- Regulators and the Government
- The Australian Prudential Regulatory Authority (APRA) needs to provide guidance and clarification on whether the scope of a trustee's fiduciary duty includes consideration of environmental, social and governance risks, such as climate change and how trustees are to incorporate climate change risk into their existing risk management framework.
- The Federal Government needs to start supporting the superannuation industry in changing its climate change related practices.
APRA and the Federal Government have not yet commented on these recommendations. It will be interesting to see if this survey and the AIST and Climate Institute's recommendations lead the way for discussions to take place between the Australian superannuation industry and its regulators, as to how climate change should be addressed within superannuation funds.
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