Cbus’ climate change quotas queried

06 Sep Cbus’ climate change quotas queried

Joanna Mather – The Australian Financial Review – Friday 06 September

 

Liberal Senator James Paterson has questioned the use of an “artificial quota” to decide how much a superannuation fund invests in climate change-related initiatives.

Construction industry fund Cbus has announced it will direct 1 per cent of its $52 billion in funds under management to assets and projects that fit with a new “climate change thematic”.

The first allocation was made last month to Capital Dynamics, which specialises in clean energy infrastructure in North America and Europe.

Senator Paterson, who chairs the Parliamentary Joint Committee on Corporations and Financial Services, said setting quotas seemed like a bad idea.

“Super funds have a clear obligation to meet the financial needs of their members in retirement.

“They should not use any other criteria for their investments,” he said.

“Climate-related investments should stand on their own feet based on expected returns to members, not artificial quotas.”

Scott Donald, the director of the Centre for Law, Markets and Regulation at the University of NSW, said Cbus’ decision did not breach any laws, including the sole purpose test.

“They have signed up to the United Nations Principles for Responsible Investment so they are required to have returned to environmental, social and governance issues across their entire portfolio,” he said.

Earlier this year the Australian Prudential Regulation Authority announced it would increase its scrutiny of how banks, insurers and superannuation trustees are managing the financial risks of climate change.

Asked if members working in coal mines, for example, could opt out if they objected to spending on clean energy, a Cbus spokesman said: “Our investments support jobs right across all sectors of the economy.

“All investments must be compelling on a risk/return basis and consistent with our objective of maximising long-term risk-adjusted returns for members.

“In Hobart today APRA made it very clear that investors need to consider climate related-opportunities and not just risks.”

The Hobart reference is to a conference being held by the Australian Institute of Superannuation Trustees.

Super funds typically allocate a certain percentage of funds to each asset class. Cbus’ investment team will have the flexibility to direct the $520 million earmarked for climate change-related initiatives to wherever they can find the best risk-adjusted returns.

Cbus chief investment officer Kristian Fok said the initiative was entirely consistent with the sole purpose test.

“What we did was we had a really hard look at the whole climate change thematic, and what it’s likely to do with the whole portfolio,” he said.

“We wanted to know, what are opportunities that are aligned with sole purpose test that we could get exposure to? And we felt that if we have a dedicated portfolio it would engage the investment team to look more deeply into that.”

Dominique Hogan-Doran, SC, an expert in superannuation law, declined to be interviewed but pointed to a paper she wrote about the sole purpose test earlier this year.

The Superannuation Industry (Supervision) Act, she writes, “intentionally avoids overly restrictive regulation of investment practices of superannuation funds”.

“Consideration of social and environmental responsibility in fact might be so far bound up in long-term financial success that a superannuation trustee would be closer to breaching the sole purpose test by ignoring corporate responsibility.

“Climate change risks can – and it seems, should – be considered by trustee directors to the extent that those risks may intersect with the financial interests of a beneficiary of a superannuation fund.

“So far, APRA’s remarks have focused on climate as a factor to be taken into account in a trustee’s risk management strategy rather than as a matter overriding strategy for their investment portfolio.”

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