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Why big super leads the pack on impact

The bias towards investing in domestic securities and the complexity of the local benchmarks mean the impact investing conversation is “very advanced” Down Under, according to global asset manager Ninety One.

Australian investor attitudes towards impact investing have seen radical change in just a handful of months, according to Deirdre Cooper, head of sustainable equity at Ninety One, who notes that big super funds and family offices now show “huge interest in investing in decarbonisation”.

“What’s interesting is how advanced the conversation is on impact investing in Australia,” Cooper said. “(Australian institutional investors) have reasons they want to own Australian equities and Australian equities are quite resource heavy and other regulation makes divestment more difficult. In some ways, I think that’s meant they have a more sophisticated view than other investors elsewhere where the easy answer is to exclude sectors because in a global equity benchmark they’re not very big anyway.

“In Australia, they have to think more deeply about investing in decarbonisation; they need to have a positive allocation, and really thoughtful, impactful KPIs attached to that to be able to monitor that allocation and report to stakeholders.”

The amount of capital required to transition the real economy is already in the trillions and keeps growing – even as central banks eye the possibility that they’ll have to keep interest rates higher for longer.

“We would rather have lower interest rates than higher interest rates for companies and governments and infrastructure funds and all the people who will spend that money,” Cooper said.
“I’m not unique among equity managers, but one of the single biggest worries is that we aren’t getting closer to the end of the interest rate cycle.”

“That would make it very hard for our strategy to outperform; not because we’re uber-growthy… but because the end market is to some extent interest rate sensitive. This requires a large amount of investment and you’d rather have a lower cost of capital to make it.”

Meanwhile, the belief that Russia’s invasion of Ukraine has caused a long-term hit to the valuations of sustainable assets – ostensibly because investors are fretting energy security and the reliability of renewable sources – isn’t borne out when you take a closer look at the underlying factors.

“In early 2022, you had the beginning of a big move in long-term interest rates,” Cooper said. “And then you have Russia-Ukraine, which clearly exacerbated inflation, particularly energy price inflation. which in turn led to concern you were going to have higher and higher interest rates.”

That hit the valuation of sustainable stocks. But the idea that Russia/Ukraine means we need to invest more in fossil fuels and that green energy is not going to provide energy security is a complete fallacy perpetrated by the oil and gas industry… If Europe had 100 per cent renewable energy, nobody would have cared. Mr Putin would no longer have held a weapon against Europe because nobody would have needed natural gas.”

Making the trip from London to Australia each year to see the local client base, Cooper said she’s looking forward to seeing how much more advanced the superannuation industry has become on impact and sustainable investment when she returns again in 2024.

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