24 January 2012 – More than half of the 12 superannuation funds surveyed in a report by actuarial firm Mercer have included climate change risks into investment decisions.

The funds surveyed including AustralianSuper and VicSuper had combined assets of almost $US2 trillion ($1.9 trillion).

The funds were surveyed to determine what action they had taken since Mercer found in a earlier report, Climate Change Scenarios – Implications for Strategic Asset Allocation that climate could account for 10 per cent of typical portfolio risk.

AustralianSuper, which has significant property assets, reported that the potential risks posed by climate change to its top 20 property assets and top 20 infrastructure assets’ were being seriously addressed.

Other key findings of this latest Mercer report, Through the Looking Glass – How Investors are Applying the Results of the Climate Change Scenarios Study are:

  • 50 per cent of project partners have undertaken or plan to make changes to their actual asset allocations
  • 80 per cent of partners have or will increase their engagement on climate change with companies and policy makers
  • One-third of project participants have begun to or plan to allocate more to “climate sensitive assets” (identified in the report as real estate, infrastructure, private equity, sustainable equities (listed and unlisted), efficiency/renewables (listed and unlisted) and commodities (including agricultural land and timberland)
  • More than half of participants either have, or plan to review, climate risks within climate-sensitive asset classes identified in the report

Global head of responsible investment for Mercer Jane Ambachtsheer, who launched the report at the investor network on climate risk meeting and investor summit on climate risk and energy solutions in New York said: “We are encouraged to see that partners have clearly made efforts to understand and act on the findings from our climate change report. As expected, priorities and areas of focus differ among the partners, and in some cases, the findings have been used to support decisions which were already under consideration, such as an enhanced allocation to infrastructure investments.”

Helga Birgden, head of responsible investing for Asia Pacific at Mercer, said there is still a long road ahead both globally and locally.

“The recent climate negotiations in Durban suggest that we are a long way off from seeing strong, internationally coordinated action on climate policy, and this creates a significant investment risk for the foreseeable future.”

“However, Australia’s decision to adopt a carbon tax now means that investors in our region are required to recognise capital market signals associated with climate change entailing costs and prudent risk management,” she said.

Findings from the Looking Glass report show participant education of boards on the report’s conclusions and policy implications is currently about 50 per cent complete.

Many partners have indicated that they are focused on training asset class teams about the study, as well as leveraging the asset class and regional-level findings in order to develop a deeper understanding of climate change risks and opportunities in existing and future investments and engagements.

AustralianSuper
Part of the report focused on analysis of AustralianSuper’s current asset allocation, which revealed a number of climate change risks across various assets in its portfolios.

Property
In property AustralianSuper conducted a “high level assessment” of the impact of climate change-related policies and potential environmental impact on its top 20 property and infrastructure assets, which are all in Australia.

Risks vary but could include “increased days of extreme heat, fire risk, higher rainfall levels and greater wind speed,” leading to higher building operating costs, and greater capital expenditure to mitigate these environmental impacts, AustralianSuper said in the report.

The institution last year joined the Global Real Estate Sustainability Benchmark, an initiative that will assist it to assess its performance in areas such as environmental and social performance, peer benchmarking and reporting by region, sector, and investment universe.

Infrastructure
In infrastructure AustralianSuper’s top 20 assets, could be at risk of impact from heat, fire risk, flooding and storm damage, the review found.

“As a result of this high level review, AustralianSuper is working with a specialist engineering firm to undertake a thorough assessment of the physical risks that could impact our assets due to climate change up to the years 2030 and 2050,” AustralianSuper said in the report.

“Good risk management requires us to understand the risks that are posed by climate change. Following the engineering firm’s review, AustralianSuper aims to incorporate climate change risk management as standard practice into due diligence and ESG processes.

“AustralianSuper will then  work with fund managers and management at the companies in which they are invested to ensure decisions relating to these investments are made in the context of likely future scenarios.”

Equities
In equities AustralianSuper said it had commissioned Trucost to analyse the carbon footprints of its total equities portfolio.

“AustralianSuper then engaged with its Australian equities fund managers on this data. In addition, AustralianSuper undertook a carbon valuation analysis on its portfolio, based on the upcoming Australian carbon price scheme.”

See the reports https://www.mercer.com/climatechange