Are Australian super funds aligned with Canberra’s 2030 emissions target?
Australia’s asset owners are looking to ‘super’ charge the country’s transition but some are making more progress than others
“Australia, not long ago tagged as a climate pariah, is now firmly in the race. Headlining our position is the targeting of a 43% reduction in emissions by 2030”, says John Pearce, the chief investment officer at UniSuper – an Australian asset owner.
The 43% emissions reduction goal Mr. Pearce cites is enshrined in Australia’s Climate Change Bill. It was introduced back in August 2022 by Australian Prime Minister Anthony Albanese, just 75 days after his government entered office.
18 months since, most Australian super funds have aligned themselves with Canberra’s vision 2030. Yet, when it comes to their climate strategies, leaders and laggards coexist – separated by the fine print of their plans.
A 2023 assessment of super funds by the Responsible Investment Association of Australasia (RIAA) found that 10 super funds could be classified as “responsible” under the RIAA’s framework. A deep dive into these funds reveals key differences in ambition, allocation and aggression.
Super fund, super power
Superannuation funds or “supers” as they are known locally - are the bedrock of Australian asset ownership. Collectively, they manage over A$3.5 trillion*. While most have been around since the late 1980s, the industry has been through several rounds of high-profile mergers.
As the number of supers decreased, the concentration of economic muscle has increased: 14 supers now control 80% of the industry’s assets. Asset allocation and stewardship by super funds is therefore a critical determinant of Australia’s energy transition.
The average Cbus member is 39 years old. It’s our responsibility to safeguard their investments as the financial impacts and physical effects of climate change intensify
Policy tailwind
While Paris shapes the long-term climate plan for most supers, Canberra impacts the short-term. All 10 super funds have set a net zero by 2050 target, citing the Paris agreement. However, advocacy groups argue the devil is in the detail.
Consider the case of UniSuper – a fund that manages over A$124 bn on behalf of a million members. In a letter addressed to the fund’s trustee on behalf of a member, the Environmental Defenders Office said “UniSuper’s own climate plan may not be Paris-aligned because it focuses on ‘a well below 2 degrees’ warming limit rather than 1.5 degrees and it fails to include Scope 3 emissions”.
On the other hand, most interim targets are influenced by Australian climate policy incentives. Several funds have matched Canberra’s target. Care Super, which manages over A$20 bn says it will cut portfolio emissions intensity by 45% by 2030. Similar targets have been set at Aware Super and Cbus Super, which manage over A$150 bn and A$85 bn respectively.
Fiduciary responsibility
When Cbus Super announced its 2030 emissions target, chief investment officer Kristian Fok also cited membership demographics as a motivation. “The average Cbus member is 39 years old. It’s our responsibility to safeguard their investments as the financial impacts and physical effects of climate change intensify”, he said.
Fok’s is a widely shared concern. The average Australian retires at 56 years of age and the country has a median age of 38. For supers, it implies a fiduciary responsibility to care about emissions reduction in the next 20 years.
We believe a smooth and orderly net zero transition over time will deliver the best investment outcomes for members
To screen or not to screen?
Some super funds are convinced tilting and screening should be on the table, particularly when engagement might be unsatisfactory.
Two of the top 10 have been early adopters of screening i.e. avoiding companies with a negative environmental footprint. Hesta, a super fund that manages A$80 bn began reducing its exposure to thermal coal production nearly 10 years ago. Rest, a fund that is similar to Hesta in size, also applies a screen for thermal coal with a revenue tolerance threshold of 10%.
Australian Ethical, which tops the charts in terms of responsible investment, has the most extensive screening process of them all. The fund’s screen is aligned with the Australian ethical charter which includes environmental thresholds.
“This process identifies companies we believe can influence progress towards a better future for people, animals and the environment, and restricts investment in those that we believe are a threat to that progress”, the fund says in its latest climate report.
For those who do so, screening is often complemented by a portfolio tilt towards renewables and climate solutions. Telstra Super says it will deploy A$250 m in “low carbon opportunities” by 2025. Rest Super has committed to invest A$2 bn in renewables by 2025. Hesta will deploy 10% of its capital in climate solutions by 2030. Tilts are common, it’s the angles that vary.
Unintended consequences
Some super funds aren’t convinced that now is the right time for aggressive divestments, screening or portfolio tilting. For instance, Aware Super’s climate transition plan 2023 states:
“An unintended consequence of having emissions reduction targets however cannot be to reduce diversity of investments, which would introduce greater concentration risk into the portfolio, or to avoid investments in companies or sectors that desperately need investment to transition”.
Australian Super – the country’s largest super fund has also thrown its weight behind the cause of a smooth and orderly transition. “We believe a smooth and orderly net zero transition over time will deliver the best investment outcomes for members”, says chief investment officer Mark Delaney.
Given their weight, scale and power - super funds will continue to play a vital role in shaping Australia’s net zero journey. Whether or not Canberra can achieve its ambitious 2030 targets depends in no small measure on how ambitious Australia’s super funds are and how willing they are to chase down those targets.
Australia's Rest allocates $1bn to Quinbrook's renewables strategy
Australian asset owner group: not all net zero commitments are created equal
