Ethical Performance
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Carbon trading could benefit Australasian pension funds

October 2008

Australian superannuation funds could continue to be successful with carbon-efficient investment policies under a carbon emissions trading scheme, a new report has suggested.

The report claims that those with large carbon footprints that may be more exposed to costs under Australia’s planned Emissions Trading Scheme could significantly cut their emissions by rebalancing their holdings – without sacrificing returns or portfolio diversification.

The survey, by the UK-based environmental research consultancy Trucost and commissioned by the Australian Institute of Superannuation Trustees, assessed 14 of the country’s largest funds. The portfolios covered were valued together at A$31.6billion ($26.5bn, £14.3bn).

The report revealed a wide divergence in carbon performance. There was a 36 per cent difference between the largest and smallest carbon footprints of the funds, but there was an eightfold difference in the case of the equity investment portfolios.

Growth portfolios were found to be the most carbon-efficient. The enhanced index portfolios – with their bias towards more basic resources, construction and materials, oil and gas and utilities stocks – had the greatest carbon intensity.

Fiona Reynolds, the institute’s chief executive, said funds needed to manage long-term risk, and climate change was one of the biggest risks. She hoped the findings would encourage funds to see climate change as a fiduciary issue and, more specifically, highlight investment risks and opportunities as Australia prepares to bring in an emissions trading scheme by 2010.

She said: ‘Superannuation funds, as owners of Australia’s major corporations, need a greater understanding of how the value of their investments may change under a carbon trading scheme.’ Fund members, in turn, were entitled to ask what the long-term consequences of investing in a carbon-constrained economy were, and what action their funds were taking.

‘While it’s still early days in the brave new world of carbon pricing, this research suggests that, far from being a doom and gloom scenario for superannuation funds and their members, there may be just as many investment opportunities as there are risks,’ said Reynolds.

Australian Institute of Superannuation Trustees | Australasia | Carbon Trading

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