Despite being a growing reservoir of funds under management, this critically important pool of capital is confronting mounting problems collating and disseminating key data in a timely manner.
The ratings house is pinning its growth strategy on a revamped methodology that increases the emphasis on governance to 25 per cent – a timely move considering APRA’s proposed reforms.
Australian funds hot on climate change
(pictured: Julian Poulter)
Australian super funds have been ranked third in the world overall for taking action on climate change, with 10 of our funds getting into the top decile of the annual ‘Climate 500 Index’ of big funds published by the Asset Owners Disclosure Project. Local Government Super was ranked second in the world and AustralianSuper seventh.
Now in its fourth year, the AODP index ranks funds on three core criteria in relation to climate change action: portfolio carbon risk management; engagement; and, low carbon investment.
Based on a range of underlying details the AODP grades each fund into five basic categories ranging from ‘leaders’ to ‘laggards’ with sub-grades at the top three levels.
The 2016 index rates the UK Environment Agency Pension Fund at number one followed by the Australian Local Government Super, which came first in last year’s study. Australian Super, also scored highly with Sweden, Denmark, Netherlands, USA and France represented in the top 10.
The US$773 billion Abu Dhabi Investment Authority Fund was the biggest ‘laggard’ in the AODP index. Funds from China, USA, Japan, Kuwait and Saudi Arabia filled out the list of 10 largest climate change laggards.
While the AODP report notes some improvement at the top end of the scale, the number of ‘laggards’ also jumped to 246 compared to 232 in the 2015 study.
About US$14 trillion of the total US$38 trillion managed by the 500 funds ranked by the AODP would fall into the ‘laggard’ category, the report says. At the same time, almost 20 per cent of the funds, representing some US$9.4 trillion are “taking tangible action” on climate change, the AODP says, and a further “157 worth $14 trillion are taking the first steps”.
In a statement, Julian Poulter, ADOP chief, said climate change was now seen as a “mainstream issue” by institutional investors.
“However, only a handful are protecting their portfolios from the very real danger of stranded assets, and it is shocking that nearly half the world’s biggest investors are doing nothing at all to mitigate climate risk,” Poulter said. “Pensions funds and insurers that ignore climate change are gambling with the savings and financial security of hundreds of millions of people around the world and risking another financial crisis.”
The AODP 2016 report “key developments” over the year include:
- 31 Leaders rated A and above, an increase of 29 per cent
- 12 asset owners are rated AAA, a 33 per cent increase
- The most significant increase is a 52 per cent rise in asset owners rated CCC-C to 41, indicating many more are acknowledging and more importantly taking action on managing climate risk in their portfolios.
- Nearly half the index remains X rated, with no evidence they are taking any action.
Former Australian Liberal Party leader, John Hewson, chairs the AODP in a board that includes compatriots Sharan Burrow, General Secretary at the International Trade Union Confederation, John Connor, head of The Climate Institute, as well as the ex Goldman Sachs Asset Management US chair of quant investment strategies, Bob Litterman.
The AODP describes itself as “an independent not-for-profit global organisation whose objective is to protect retirement savings and other long term investments from the risks posed by climate change by improving disclosure and industry best practice”.
The top 10 Australian funds, with their world rankings, were:
2 Local Government Super
7 AustralianSuper
12 First State Super
21 Victorian Superannuation Fund (VicSuper)
24 BT Financial Group
28 Cbus Super
35 MLC Superannuation Fund
36 NAB Superannuation Fund
37 Plum Superannuation Fund
40 Mercer Super Trust.
Meanwhile, both New Zealand-based funds covered in the Asset Owners Disclosure Project (AODP) ‘Climate 500 Index’ sit well down the rankings in the lobby group’s latest annual report.
According to the AODP 2016 index, the New Zealand Superannuation Fund (NZS) and the Accident Compensation Commission (ACC) fund sit at 108 and 255 respectively.
Last year the AODP index ranked New Zealand as the fifth-best country in addressing climate change via investment funds, presumably based solely on the NZS data at the time.
– David Chaplin, Investment News NZ, with Greg Bright
