Most large super funds have specialist responsible investment options but the uptake of these is small, with most retirement savings held in the funds’ main portfolios.
Climate-change lobbyists are increasingly putting pressure on funds to take of a “whole-of-fund approach” to managing the financial risks due to climate change.
Environmental campaigner Market Forces is targeting UniSuper, the not-for-profit super fund for academics, researchers and university employees. It wants the fund to sell billions of dollars of investments it has in companies involved in fossil-fuels.
A spokesperson for UniSuper said the fund assesses environmental, social and corporate governance (ESG) factors across all of its investment options.
“As a responsible investor, we prefer engagement over divestment. As Market Forces notes, many organisations have made significant progress towards the Paris Agreement [to keep the rise in global temperature to below 2°C and for net zero emissions by 2050.],” the spokesperson said.
“We believe this is due in large part to the approach of major investors, such as ourselves,” the spokesperson said.
As a shareholder, the fund can be part of the conversation in getting companies to improve their climate change practices, the spokesperson said.
UniSuper also has seven fossil-fuel free investment options available for members.
The giant industry super fund, Rest, is subject to a court case brought by one of the fund’s members who alleges the fund failed to act with “care, skill and diligence in its investing, by not properly considering climate risk”.
The case has the potential to clarify whether there is a specific legal obligation to consider climate change when investing and the extent to which the processes used should be more transparent to fund members.
The obligations of the trustees of funds are to identify, monitor and manage material risks generally.
A spokesperson for Rest said climate-change risks are factored into the fund’s investment strategy and decision-making processes, including asset allocation and strategy reviews, as well as in the selection and review of its investment managers.
The spokesperson pointed to its Climate Change Position Statement on its website for those interested in the fund’s approach to responsible investing.
New York-based fund manager, BlackRock, recently said it would sell more than $US500 million dollars of thermal coal shares.
The move by the world’s largest fund manager could be a precursor that could see other funds follow.
Blackrock is no climate-change activist but manages money on behalf of super funds who are increasingly wanting the fund managers they hire to invest with a view to climate-change risk.
Laurence “Larry” Fink, chairman and chief executive of BlackRock, said in his annual letter to investors that climate risk is investment risk.
“Our investment conviction is that sustainability and climate-integrated portfolios can provide better risk-adjusted returns to investors,” he said.
How to find an ethical fund
What is “ethical” will vary from fund member to fund member.
Much of the debate concerns disclosure and transparency by super funds on how they are managing their risks, not only of climate change, but other aspects of responsible investing, such as gambling or human rights.
With more transparency, fund members are in a better position to judge if a fund is right for them.
The Responsible Investment Association Australasia has a handy search function that will select super funds, as well as banking and investment products, on the basis of what the user says they are looking for.
The RIAA said in a report released in December that there is rising public concern and increasing financial materiality of climate change, and the consideration of climate risk by super fund boards continues to grow, but there remains room for improvement.
“Half the super funds involved in corporate engagement are not reporting on their activities publicly,” said Simon O’Connor, the chief executive of RIAA.
Writes about personal finance for The Sydney Morning Herald and The Age.