Superannuation funds that do not respond adequately to the challenges of climate change, risk making less money for their members.
Investment consultancy Mercer estimates the typical fund would need to direct up to 40 per cent of its portfolio towards investments that would benefit from climate change. These include investments in clean technology and ''green'' commercial property. It's estimated 30 per cent of global greenhouse gas emissions come from property and most big super funds have high exposure to commercial property.
In a report released in February, Mercer says technology designed to achieve a low-carbon transformation is creating a big investment opportunity for super funds. As much as $5 trillion could be invested in such technology worldwide by 2030.
The technology includes energy efficiency, renewable energy, biofuels, nuclear and carbon capture and storage.
At the same time, the move to these sunrise industries will undermine and diminish the value of some existing investments that fail to adapt to a carbon-constrained world.
There's no meaningful global comparison of how the green credentials of Australian super funds stack up. But researcher SuperRatings says only a few funds invest more than 5 per cent of their total net assets in responsible investments. With the likely introduction of a carbon tax next year, whether to invest sustainably is no longer a choice, SuperRatings says. ''Those funds with the most sustainable practices … will be rewarded by the market, while those who further delay addressing climate change will be punished.''
SuperRatings recently assessed the super funds' commitment to sustainable investing. Just more than half of the funds that responded to the survey said responsible investment decisions were made at the investment-committee level.
It's not just about investing sustainably but also about the way super funds reduce their carbon footprints. For example, the survey found nearly three-quarters of super-fund members, or 6 million people, still receive printed communication from their funds rather than electronic communication.
The business director at the Climate Institute, Julian Poulter, says super funds need to hedge or protect their portfolios against long-term climate-change risk in the same way they protect their investment portfolios against rising inflation or interest rates.
While the funds' ''default'' investment options, in which most members have their money, have been relatively slow to embrace environmental, social and governance factors in the way the money is invested, most big funds offer ''sustainable'' investment options. These options have performed as well as, or better than, their ''vanilla'' counterparts during the past five years.
For example, during the five years to February 28, SuperRatings's Sustainable Australian Shares Index produced an average annual return of 5.5 per cent compared with the median average annual return of the largest-50 Australian shares options on SuperRatings's database of 4.42 per cent.
Key points
- Retirement savings at risk from climate change.
- Superannuation funds are not doing enough to mitigate risks.
- Need to invest in new technologies to achieve
- low-carbon transformation.
- Six million fund members still receive printed communication from their funds, rather than electronic communication.
Local Government Super wins award
After reviewing the commitment of super funds to environmental and social responsibilities, SuperRatings gave its 2011 Infinity Award to Local Government Super (LGS).The researcher says the fund has ''impressive commitments to all categories assessed''.
LGS first ventured into responsible investing in 1999. About $1.8 billion of the assets held by LGS on behalf of its 80,000 members are held in responsible investments, the largest amount of any super fund, SuperRatings says. The award wasn't just because of the money invested but also because of the fund's ''excellent practices in measurement, reporting and reductions in its environmental footprint''.
