Home / Analysis / Why divestment should be ‘the last port of call’ for super

Why divestment should be ‘the last port of call’ for super

Analysis

While exclusionary strategies seem to be rising in popularity, super funds should think about how to create a “just transition, not just a transition.”

“Divestment should always be the last port of call, not the first port of call,” says Andrew White, director – climate risk, financial services at global consultancy Baringa Partners. “It’s critically important for super funds to have a credible transition plan embedded with their clients or wherever they’re investing, so they can manage the significant amount of market power they have.”

“We need to have a just transition, not just a transition. The consequence of immediate divestment needs to be thought through. The last thing we want is unintended consequences because of – not necessarily reckless – but unconsidered actions taken by super funds around divestment.”

White recently joined Baringa from Suncorp to lead an expansion of its financial services operation in Australia. The consultancy was founded in the UK and has been advising 10 of the 18 banks associated with the Bank of England stress test using a climate model that it developed and which was recently acquired by BlackRock with an eye to integrating it into Aladdin.

Some fund managers have grown sceptical of the orthodoxy around fossil fuel divestment, warning that too rapid a divestment risks a global energy shortfall that will ultimately impact consumers (and performance) to a much greater degree than a more gradual wind-down. There are, of course, going to be assets that will lose value. This shouldn’t be a race to the exit, White says, “but we do need to be mindful that last movers will have increased risk.”

“I think there’s a key point around managing the wind-down of those investments as well as the ramp-up of the associated transmission and renewable pathway so there is stability across the energy system, as well as investment in the newer technologies that will lower the cost of capital and develop economies of scale that will ultimately reduce emissions,” White said.

Engagement can also help super funds overcome the dearth of carbon emissions data , and “taking a consistent and industry approach means less burden on those industries and assets that need to create the data.”

“In terms of developing metrics, you need to have some level of engagement with where you’re investing so you can access the right data – like finance submissions data, which is normally a key one in the case of net-zero. Without having publicly-available information, that requires a level of engagement to ensure that you can access it.”

However, super funds might fall foul of another wicked problem. Recent fund launches suggest that a strong exclusionary approach is what members really want, and it will be hard to justify engagement with pollutive companies and the setting of tolerance levels for a member base increasingly looking to explicitly sustainable or ethical funds like Future Super and Australian Ethical.

“There is always the risk that members have the choice of moving their superannuation, and climate and ESG is always going to be one of those factors – if anything it’s going to be a growing factor,” White said. “And as part of that, disclosure to members is becoming significantly more important to explain what funds are actually doing to engage with their investments, and explaining the level of influence they’re trying to exert over those investments.”

“That should be a foundational layer for members – potential members, as well – to weigh up the right fund to invest in. And having that demonstrable action also helps avoid the accusation of greenwashing.”




Print Article

Related
Why taming the inflation tiger will be harder than the 1970s

Inflation is making a latter day comeback, and a financial system “sanitized by 15 years of free money” is totally unprepared. It’s time, once again, for tough medicine. Inflation hasn’t been this high in 40 years, but investors have become convinced that central banks can still tamp it down it with relative ease – a…

Lachlan Maddock | 27th May 2022 | More
Bragg offers a super manifesto (from opposition)

One of the Coalition’s few surviving  “super soldiers”, Andrew Bragg has called on his party to go further down the route of “flexibilising” super – if not abolishing it completely. Senator Andrew Bragg finds himself in a curious position following Labor’s election win. He’s one of the few super partisans to survive the teal clean…

Lachlan Maddock | 27th May 2022 | More
Appen left at the altar. Market heads lower. Good week continues for US markets.

Appen left at the altar A bizarre blink-and-you-missed takeover approach came and seemingly went for one of the local market’s tech leaders Appen, which develops the datasets for machine learning and artificial intelligence. Canadian company Telus International sprang a $9.50 a share bid on the company, which said it would talk to Telus to try to…

Drew Meredith | 27th May 2022 | More
Popular
1
News and OneVue go live with brightday
Alec Law | 11th Jan 2015 | More
2
Perrignon off to HK with Credit Suisse
Alec Law | 22nd Dec 2013 | More
3
Sports betting as a new asset class
Alec Law | 3rd Jul 2016 | More
4
BlackRock ahead of consensus with bullish view
Alec Law | 14th Jan 2017 | More
5
Statewide seeds bespoke Apostle fund
Lachlan Maddock | 23rd Mar 2022 | More
6
UniSuper’s VC foray a sign of things to come
Lachlan Maddock | 25th Mar 2022 | More