Super funds must follow through on climate plans

A new report by the Australasian Centre for Corporate Responsibility, released this week, says long-term targets must be supported by short-term milestones.

Measuring progress relies on reliable, trackable data. ACCR’s research found that our super funds are failing in this area.

Most funds don’t report carbon data and the lack of standardised disclosure metrics means any reporting is infrequent, messy and hard to understand.

But the crux of the journey to net zero is the plan for getting there.

Super funds have long justified putting cash into high-polluting companies by trumpeting the wonders of engagement with the firms in which they invest, to persuade them to cut carbon emissions. Having a stake in a company gives you a seat at the table, an opportunity to push for change. Now it’s time to prove it.

ACCR’s lead researcher, Dan Gocher, says the days of engagement behind closed doors are over.

Super funds must pursue “forceful engagement” – make climate goals publicly known, set a time frame and, if a deadline is missed, divest, he says.

Aviva, one of the UK’s largest asset managers, issued a blunt message to its polluting companies this week. Decarbonise soon, or you will lose our money.

Australian super funds could take a leaf out of Aviva’s book.

Funds might be afraid of politicians coming out with pitchforks, but now is not the time to shy away from activism, says Gocher.

“If they’re trying to prevent companies from having stranded assets, they have to be activists,” he says . “It’s about getting the best returns for members.”

Funds are looking to take shortcuts to their net-zero goals by quietly removing heavy emitting companies from their portfolios. A list of divested stocks appeals to members and can quickly improve a portfolio’s “carbon numbers”.

However, these investments are simply sold to another investor and the planet continues to warm.

Gocher says quiet divestment, like hidden engagement, would do little to achieve the ultimate objective – reducing carbon emissions in the real world. “We need public signalling.”

Climate change poses more risks to super funds than simply stranded assets. Extreme weather displaces populations, makes communities uninsurable and threatens supply chains across the corporate spectrum.

The ACCR says funds need to focus not only on investment risk but structural risks posed by a changing planet.

“Reducing portfolio carbon exposure does not grapple directly with the systemic risks of climate-related upheaval,” the report says. “To put it another way, not even a carbon-free portfolio will guarantee strong returns in a scenario with extreme or runaway climate change.”

This year is set to be a landmark one for action on climate change. A climate denier has been removed from the White House, more than 100 countries have committed to net zero emission targets and global leaders will meet in November to track progress on decarbonisation.

So while momentum is building towards a more sustainable future, now is not the time for super funds to give themselves a collective pat on the back. The journey has just begun.