Cbus benchmarks managers’ climate change care factor

Alice Uribe

By

12/10/2018

Cbus head of responsible investment Nicole Bradford (Pic: Supplied)Cbus head of responsible investment Nicole Bradford (Pic: Supplied)

Cbus Super is benchmarking its asset managers to determine how well they are factoring climate change into their investment decisions and is now making this specific strand of responsible investment a consideration in awarding future mandates to active managers.

But the industry superannuation fund’s head of responsible investment, Nicole Bradford, said despite undertaking the ongoing benchmarking survey, the fund has to “keep in mind many of our members work in industries and live in communities that are likely to be impacted by the transition to a low-carbon future”.

Cbus is one of the country’s older superannuation funds and represents construction and building workers. It has 778,000 members.

“We want to make sure we don’t starve companies of capital that are investing in the transition,” Bradford tells Investment Magazine. “We are also mindful that our portfolio needs to be heading towards a future where climate risks are increasingly central to investment strategy.

“From an active equity perspective, we have a high proportion of active managers, globally; therefore, manager engagement is critical. We have undertaken a fund manager review with detailed questions on their approach to managing transition and physical climate risk.”

On Monday, the $46 billion Cbus became the fifth signatory to the Australian Asset Owner Stewardship Code, joining HESTA, AustralianSuper, Christian Super and Vic Super.

Signatories to the code are required to disclose their approach and outcomes regarding key stewardship activities: voting, engagement, policy advocacy and the selection, appointment and monitoring of external asset managers.

“Responsible investment for Cbus means taking environmental, social and governance risks and opportunities into account in the investment decision-making process, and exercising positive influence through our investments and the way the fund operates. Our approach supports the delivery of strong returns to members,” Cbus chief investment officer Kristian Fok said.

This comes as fellow industry fund REST stares down a claim that it breached its trustee duties by not taking into account climate change-related risks when making investment decisions on behalf of its members.

Legal advice co-authored in 2016 by Noel Hutley and Sebastien Hartford-Davis, which was commissioned by the Centre for Policy Development and the Future Business Council, suggested directors not thinking about climate-change risks today could be found liable for breaching their duty of care in the future. Corporate regulator the Australian Prudential Regulation Authority has publicly said climate change should be viewed as a business risk and ASIC has also emphasised its importance.

The claim against REST was brought by 23-year-old REST member Mark McVeigh and lodged in Federal Court last month. It alleges that to satisfy the trustee’s duties, REST must seek information from its investment managers about climate risks and comply with the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD).

The TCFD offers a voluntary framework that advises companies on how to disclose climate change-related risk and opportunities either due to legal obligation or when voluntarily disclosing information via a corporate sustainability report.

Bradford said Cbus was incorporating TCFD disclosure into the investment management agreements it has with active fund managers “where relevant”.

“We also use engagement and voting with companies in which we invest as a tool to influence change,” she said. “We are also looking at how we manage downside risk where we hold passive investments.”

Cbus considers managing climate risk “central” to its capacity to deliver strong, sustainable returns to its members. Bradford said the fund has undertaken initiatives such as its Climate Change Road Map, which provides a framework to review and analyse the portfolio over a two-year horizon in a systematic way.

In September, the fund announced it had set a target for all its property holdings to be net-zero emissions by 2030, when that portfolio is tipped to be worth $10 billion. Currently, the fund’s flagship Cbus Property subsidiary and property fund managers such as ISPT and AMP manage about $5 billion of property.

“In our real assets, like property and infrastructure, there are potentially physical impacts on assets from climate change that need to be incorporated into analysis,” Bradford explained. “This will involve engaging with our managers to help them set targets and deliver on this overarching target. The 2030 target is important from an investment lens, as it is being driven by the market.”

Cbus has engaged its asset consultant to consider whether a similar arrangement could be used for the fund’s infrastructure investments.

Nicole Bradford will appear on a panel titled “Raising the Bar on Climate Risk Disclosure” at the CIMA Society conference in Sydney on November 1, 2018.

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