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Super returns at risk from climate inaction, study finds

The greater frequency of extreme weather events has already started to drive insurance premiums higher, which will drive down the value of unlisted assets – infrastructure by 2 per cent and property by 1.5 per cent per year, according to the research.

“With compound interest each year, you’re talking about some really large numbers in retirement,” Dr Guyatt said.

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The researchers called on the Australian government to prioritise low-carbon infrastructure projects to drive economic growth following the COVID-19 crisis – such as upgrading grid technology or improving recycling schemes.

Dr Guyatt said super funds could provide the capital to capture the growth opportunities of the green infrastructure market, while limiting exposure to assets likely to become stranded, such as thermal coal and other fossil fuel projects.

“If the government is serious about trying to attract more super funds assets, I hope it would focus on boosting infrastructure in those areas, not just building more roads,” Dr Guyatt said.

The federal government has promoted gas as a transition energy source, but the researchers said funds should exercise caution before expanding exposure to fossil fuels. “It’s a better evil but it’s still a fossil fuel,” Dr Guyatt said, adding carbon capture technology would need to be developed prior to investing.

JANA’s head of responsible investment research, Tim Conly, said board-level understanding of climate risk had improved over the past five years but there was “a long way to go”.

“It’s become a far more proactive and deliberate conversation,” Mr Conly said. “It’s now about understanding that all investments today are impacted one way or the other [by climate change] and government regulation is such a swing factor in how investments will perform.”

The research included a survey of 29 clients and found over 90 per cent of executives thought the government had failed to provide investors with sufficient long-term certainty around climate change policy and 89 per cent said more regulatory action was needed to address climate change.

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Many super funds now claim to be responsible investors, but the researchers said greater transparency around portfolio holdings and engagement outcomes was needed to stamp out “greenwashing” in the industry.

“There’s a difference between words and actions. A lot have strong words, but the action does not match,” Mr Conly said.

Large investors, including Cbus and BlackRock, claim exposure to certain assets like thermal coal companies are passively invested and therefore engagement over climate strategy was not possible. However, Mr Conly said this response did not stack up.

“Whether you use active management or passive, being an owner of those shares gives you engagement and voting rights. Large assets owners that have money passively can still engage actively to address some of these issues at a company level,” he said.

Australians are increasingly becoming more engaged with how superannuation money was managed and shifting consumer sentiment towards sustainable products created further investment risks for funds that overlooked climate risk, according to the researchers.

“If you stand still, you will fall behind,” Mr Conly said.

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