Isramart : Australia's pension funds lag on carbon risk -survey

Isramart news:
Australia's pension funds industry, the fifth largest in the world with A$1.2 trillion ($1.1 trillion) under management, is dragging its feet on climate change risk when making investment decisions, a survey has found.

Distracted by the global financial crisis, the failure to agree on a new climate pact in Copenhagen and a delayed emissions trading scheme have contributed to reduced interest in climate change risks, said the survey released on Tuesday.

The second annual survey by the Australian Institute of Superannuation Trustees (AIST) and the independent Climate Institute think tank had a low reponse with just over 30 percent of the invited funds responding.

Those that did had A$302 billion under management, 28 percent of the entire pension fund industry in Australia.

"After last year's world first survey of superfunds, this year's survey results indicate that superfunds are generally aware of the potential impacts of climate change risks on their portfolio but are still ill-equipped to measure or manage them," the report says.

The risks include regulatory, legal, trade and credit.

Australia's proposed carbon pollution reduction scheme (CPRS) has slipped off the radar screen for many funds because of the failure of the Senate to pass the carbon trading laws.

The Climate Institute's business director Julian Poulter told reporters during a teleconference that many superfunds were putting their investment portfolios at risk because of short-term problems in reaching agreements on fighting climate change.

"They're in the long-term investment business and frankly I don't think if you are in a long-term business that hiccups around Copenhagen or CPRS are part of fundamental investment strategy," Poulter said.

"In 20 years' time, we will have a high carbon price regulatory regime -- the drive to the low-carbon world will be unstoppable so that's the kind of world in which the funds need to envisage themselves in."

ACT FAST

He said Australian industry needed to act fast as internationally there was a trend toward better management of climate change risks and a move toward global regulation, despite slow policy progress at Copenhagen in December.

Many in government and green circles regard the non-binding agreement reached in Copenhagen to curb the growth of greenhouse gas emissions as a bare-minumum outcome that increased uncertainty on carbon pricing in the near-term.

"With no clear, global, price on carbon having yet materialised it is understandable that superfunds (and other investors) might be having difficulty accurately valuing the financial costs/benefits of climate change risks/opportunities," said the report.

Nonetheless, companies were facing growing pressure to assess the cost of carbon and other climate change policy risks.

In January, the U.S. Securities and Exchange Commission ordered corporations to disclose climate change risk in their annual reports.

As well, in response to the sub-prime meltdown the G20 Financial Stability Board is recommending regulations to prevent long-term systemic risks of which climate change is one.

"The need is for funds to get back to their knitting, back to their long-term returns and take a proper and sensible approach to climate change risk and carbon pricing has to be part of that," said Andrew Barr, policy and research manager at the AIST.

As examples, the report pointed to India's intention to charge a levy on coal, including coal imports, carbon costs imposed by Europe's emissions trading scheme and the threat of carbon tariffs on goods from nations with weak climate policies.

Barr said there had been some degree of disengagement from the management of climate risk because of the financial crisis.

The survey found the main funds responding to climate change were industry funds but a key area where all funds were falling behind was at the portfolio level where they did not have systems in place to manage climate change risks.

Climate change risk disclosure was another problem facing Australian funds at a time when stock exchanges around the world were in the process of increasing such disclosure requirements.