Australian superfunds have ‘crucial leadership role’ to play in net-zero transition

Climate change ‘is a source of risk’ for superfunds, ASFA says in a new report, and renewables investments could help to mitigate this.

The Association of Superannuation Funds of Australia, a trade body representing Australia’s superfund sector, has said that decarbonising fund portfolios is “fundamentally consistent with the statutory requirement on funds to act in members’ best financial interests”.

In a research paper published Thursday, Super and the Net Zero Challenge, ASFA said that individual superfunds’ progress to net-zero emissions was “intertwined” with economy-wide efforts to reduce emissions and that the sector has a “crucial leadership role” to play in decarbonising the Australian economy.

The industry body called on government to help private capital access decarbonisation opportunities, in particular to reduce barriers related to regulation and planning that can hold up renewable energy investment, and to enable critical infrastructure investment through risk-sharing between government and the private sector.

ASFA was also clear that investing in renewable energy and other decarbonisation-related assets aligned with the best interests of fund members.

“For funds, climate change is a source of risk to investment portfolios – where invested assets are impacted by the physical impacts of climate change and the transition to net zero – as well as investment opportunities arising from the transition to net zero. A prudent management of climate change risks (noting, of course, their systemic nature), while taking advantage of investment opportunities will increase the probability of funds meeting their investment objectives for members,” it said.

ASFA also supported the Australian federal government’s plan to introduce sector-specific decarbonisation pathways.

It said: “For institutional superannuation funds, the transition to net-zero portfolio emissions requires targets for decarbonisation at specific points in time over a long-term projection period – that is, transition targets. Transition targets provide the reference for funds to manage physical and transition climate change risks and to take advantage of transition opportunities.

“Government policy will play a crucial role. Coherent and stable policy settings will provide all entities in the economy – including superannuation funds – with a framework to anchor and guide their transition targets. Clearly, policy settings need to provide an ambitious, but achievable timeframe for net-zero emissions and the required trajectory – which itself should be consistent with global norms.”

It highlighted the particular challenges facing the energy sector, too, saying: [The] Australian government has a key role in developing, and evolving the transition path for Australia’s energy sector – which the government committed to in mid-2023.

“A credible, coherent transition pathway for the energy sector (that is also consistent with anticipated transition pathways for other key sectors of the Australian economy) will help superannuation funds to better understand the type, timing, quantum and location of fixed capital investment (and thus deployment of financial capital) required for energy infrastructure.”

ASFA’s research showed that the amount of renewable generation capacity owned by Australian superfunds has increased sharply in recent years, rising to 554MW in 2023 from 113MW in 2018.