Virtual Summit Shorts: Super funds investing in a time of climate change

The Concurrent session, held on Wednesday 5 May, looked at the shifting investor environment for super funds, including regulatory and member expectations. The panel also revealed how super funds are responding to the risks they face, the opportunities available, and the need to achieve net zero targets, resilience and still deliver on investment objectives.

Jillian Reid, Mercer’s Senior Responsible Investment Specialist, provided the audience with the key trends and context of climate change within the superannuation industry. ‘Climate transition’ is a current investment focus, given the shifting policy and technology context and the ‘race to zero’ emissions reduction targets being set at pace now by governments, companies and investors.

“Transition to a low-carbon economy is already happening,” Jillian said.

Attention is also turning to resilience and adaptation requirements, which can’t be forgotten, as the most likely climate scenarios all include physical damages to prepare for.

Dr Graham Sinden, the Head of Climate Risk at the Australian Prudential Regulation Authority (APRA), presented the prudential framework associated within risk management, governance, and climate change financial risks.

In commenting about APRA’s draft CPG229 Climate Change Financial Risks guidance, Graham reminded practitioners that “this is a two-sided piece. Yes, there are climate risks but there are also opportunities.”

The regulator expects that an institution will take a strategic and risk-based approach to the management of risks and opportunities arising from climate change, recognising the unique nature and far-reaching potential impacts of a changing climate.

The draft guidance CPG229 outlined five better practices in the management of climate change financial risks:

1. Identify and measure risks;
2. Monitor risks;
3. Consider scenario analysis;
4. Evidence plans manage risks; and
5. Report information to appropriate personnel.                                                                                                                                                                                                                           

Providing the perspective from a superannuation fund, Naomi Edwards, Actuaries Institute Vice President and Chair at Spirit Super discussed the pressures and influences a trustee must consider when thinking about climate risk. The recent simmering tension between proxy advisers and corporate leaders has led to a rapidly changing discussion across the industry. Super funds are being squeezed between the direct reporting of climate risks, cost efficiency and members’ strong desire to divest.

“We need to move quickly in this space. The race to address climate change is happening fast and superannuation needs to move quickly to catch up with it,” Naomi said.

Sharanjit led a lively discussion with audience questions posed to the three panellists. Actuaries in the audience were encouraged to get involved more in the risk management, measurement, modelling its interpretation within the climate change investment space. In conclusion, Naomi commented that “actuaries are very good at [risk management], in some ways we haven’t participated as much as we should and it’s incredibly impactful work”.

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