Super funds dragging their feet on climate change

Australia’s big super funds will struggle to measure and make decisions about the risks posed by climate change, a new survey by the Climate Institute and Australian Institute of Superannuation Trustees.

The announcement comes as the CSIRO and the Bureau of Meteorology jointly released research showing that climate change is happening and there is a more than 90% certainty that man-made increases in greenhouse gas emissions have caused climate change.

The super survey, which covered 32 funds with $302 billion under management (about 28% of the Australian super funds sector), found that just 34% of funds have thought about the implications for Australia’s transition to a economy where carbon pollution would need to be constrained in some way, such as an emissions trading scheme.

However of these funds that had considered the issue, over 90% believed that Australia’s delay in moving to a carbon-constrained economy may hurt long-term super fund returns.

“This hints at something of a ‘credibility gap’ – funds understand the financial implications of a delayed move to a low-carbon economy, but few are taking the necessary steps to manage this risk,” the survey report argues.

Julian Poulter, The Climate Institute’s business director, argues climate change is one of the biggest threats to long-term super funds.

“The Australian industry needs to act fast as internationally there is a trend towards better management of climate change risks and a move toward global regulation, despite slow policy progress from Copenhagen,” he told a conference of super funds on the Gold Coast.

Poluter also pointed to recent moves overseas to force companies and funds to disclose and improve management of climate change risks.

The US sharemarket regulators, the Securities and Exchange Commission (SEC) ordered corporations in January to disclose climate change risks as part of their annual reports, while the G20 Financial Stability Board has recommended the introduction of regulations to prevent systemic risks markets risks (including climate change).

Despite this push towards better regulation and disclosure, Australian super funds remain unmoved. Only 9% of funds see the G20’s recommendations as having a big impact on long-term risk management procedures, while 38% see no impact.

In another worrying sign for the way climate change risks are going to be addressed, only 3% of funds surveyed intend to alter their investment management agreements so that they have longer investment horizons.

“They’re in the long-term investment business and frankly I don’t think if you are in a long-term business that hiccups around Copenhagen or CPRS are part of fundamental investment strategy,” Mr Poulter told reporters.

“In 20 years’ time, we will have a high carbon price regulatory regime – the drive to the low-carbon world will be unstoppable so that’s the kind of world in which the funds need to envisage themselves in.”

One positive from the survey was the greater willingness of super funds to take an active role in pursuing climate change issues, with 78% willing to vote directly in shareholder resolutions relating to climate change.