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Carbon complacency in portfolios not an option

Dan Purves




As focus shifts from a qualitative to quantitative analysis of risks and opportunities to portfolios posed by climate change, super funds have been warned not to become complacent.

Moving from a qualitative to a quantitative world requires a commensurate increase in the sophistication of an institutional investor’s approach, Emma Herd, chief executive of the Investor Group on Climate Change (IGCC), told super fund representatives at ACSI’s national conference last week.

“We have now moved into a world where investors and companies need to make quantitative analysis and assessments of the financial implications of climate change,” Herd said. “You are invested across the entire economy, both globally and in Australia, so there is no question you are exposed to climate change.

“The question I have is: do you know what your exposure is in a comprehensive way? Not just your exposure to coal companies, but what’s your exposure to carbon risk? And do you have a specific understanding of what carbon risk entails in terms of transition risks, market risks, physical risks as well as the regulatory settings?”

She added it was laudable that super funds have shown leadership in tackling climate change, but cautioned that they should not get complacent, as what is considered good performance is quickly changing.

“Being able to articulate climate change risk, not just in terms of how you are managing the risk, but also how you are pursuing the opportunity in the emerging upside … is incredibly key … because it’s not just a question of dollars invested in clean tech. It’s also a question of emissions impact on the total portfolio and also what role you are playing in the transition to a less than two degree global economy.

“They are two separate things. One is about disclosing the emissions performance in your strategy. The second is around articulating your impact.”

Fiona Reynolds, managing director of the UN backed Principals for Responsible Investing (PRI), also spoke on the theme of opportunities for super funds, saying the biggest focus post-COP21 is how to get the money moving into the low-carbon economy.

“This isn’t all about risks, this is about investment opportunities and how do we find them. And how do we make money out of them as well,” Reynolds said.

She added Local Government Super and Australian Catholic Super had contributed to a PRI guide for asset owners on how to think about climate change across sectors.

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    Anna Skarbek, chief executive officer of ClimateWorks Australia, said the good news is there is enough technology invented already to answer the question “yes, we and all those other countries can reduce emissions to near net zero by mid-century as is required by the two degree science”.

    “That is great news for us and our children and that’s before we include breakthroughs in technology.”