Funds fail climate risk test
A small Australian superannuation fund has achieved top marks in a survey which otherwise reveals "reckless mismanagement" and poor disclosure of climate change risks in the portfolios of the world's 1,000 biggest investors.
The $6.5 billion Local Government Super fund scored a triple-A rating in the Asset Owners Disclosure Project (AODP) for its performance on five measures of managing climate risk, including transparency to members, low-carbon investments and taking a proactive approach to investments.
The survey found, however, that most of the world's biggest funds were lacking, with AODP chairman, the former federal opposition leader Dr John Hewson saying the survey painted "a disturbing overall picture of greenwash and reckless mismanagement".
"With around $60 trillion under management the investment decisions made by these investors will be critical to a safe climate and our future prosperity," he said.
Second-ranked Government Employee's Pension Fund (GEPF) of South Africa was the only other fund to achieve a AAA rating.
AODP executive director Julian Poulter said GEPF calculated the fossil fuel reserves held by companies in which it held shares and assigned a risk to the likelihood those reserves "won't be able to be burned under any reasonable set of carbon regulations moving forward".
"The likelihood is there is an exposure that will result in a reduction in the value of those companies greatly impacting the portfolios - that was a standout finding from the survey," Mr Poulter said.
The AODP survey put questions to the largest 1,000 superannuation funds, sovereign wealth funds and insurance companies in the world, representing $60 trillion in funds under management.
Only 17 responded directly to the questions.
Australia's $80 billion Future Fund was among those that did not respond, citing "inadequate resources" to deal with the request.
The intention of the AODP survey, which expands to a global level surveys done by The Climate Institute in Australia since 2008, is to give fund members an understanding of how climate-related risks to their savings are being managed.
Mr Poulter said the short-term focus of investment returns was a problem.
Asset owners, in order to meet their future liabilities to investors, "must accept the fact that at some point in the next ... let's say five to 20 years, there will be some sort of carbon re-pricing event".
"We don't know how a low carbon economy will occur but we do know that when it does it's likely to produce a tipping point that will resemble the sub-prime crisis and so how they're prepared for that rapid repricing event in the market as asset owners is very important," he said.
"Nobody will be able to stock pick their way out of climate change."
Mr Poulter said he expected transparency among investors to increase in coming years.
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