‘A lot at stake’: Investors must collaborate and use pension capital to tackle climate crisis, says IFM boss
Investors must join forces to tackle the risks of climate change and support a smooth transition to a clean economy, says the head of industry super fund-owned IFM Investors, warning a lot is at stake “if we don’t get this right”.
David Neal, the chief executive of the $199 billion funds manager, will tell a Governance Institute of Australia conference on Tuesday that to maximise returns for workers who are saving for retirement, investors have a fiduciary duty to consider climate risks.
IFM Investors chief David Neal: “You can’t stock pick your way out of systemic risks like climate change.”Credit:Domenico Pugliese
“Healthy long-term investment returns are dependent on healthy environmental and social systems, now and in the future. The quality of investment returns in 10 and 20 years’ time depends on the quality of the system in 10 and 20 years’ time,” he will say.
“You can’t stock pick your way out of systemic risks like climate change. And risks like this are impossible to diversify away from. They will, and are, impacting our entire economy.”
IFM is one of the world’s largest infrastructure investors, and manages the retirement savings of more than 120 million people. It is owned by 19 Australian industry super funds and manages funds on their behalf as well as hundreds of other institutional investors from around the world.
The speech comes amid a renewed debate about the purpose of Australia’s $3.3 trillion pool of retirement savings. At a superannuation roundtable last month, Treasurer Jim Chalmers suggested trillions of dollars in assets held by super funds could be used to address issues such as housing affordability and the energy transition.
Neal will tell the conference that the impact of a single investor or investment manager on the systemic risks brought about by climate change is tiny, and they must organise and collaborate more strongly to influence systemic risks. One priority should be investing in clean energy infrastructure.
Super funds are well-placed to do this, he said, as they have highly diversified portfolios, a long-term outlook, are growing substantially, and are not-for-profit organisations, which means they should be focused on good outcomes for their beneficiaries.
“I think we are going to start hearing a lot more about pension capital as a class because it is ideally suited to collaboration in systemic risks,” he said.
However, Neal warned that pension funds should ensure agents such as commercial investment managers, who are competitive and for-profit, are aligned with their goals.
“Pension funds I think need to be careful and engaged with their management of their agents to
ensure their intentions are being realised in practice,” he said. “Because there is a lot at stake if we don’t get this right.”
Neal will also tell Tuesday’s conference that investors should be “willing and keen” to buy assets with significant emissions output, so they can help those assets with a transition plan to reduce emissions.
“One of the challenges we face as an investment manager is that in the rush to appear at the leading edge on ESG, many investors are designing their policies to screen out assets with emissions,” he said. “But driving the emissions of individual portfolios down by selling emission-heavy assets won’t have a systemic impact.”
In a report released on Monday, the Responsible Investment Association of Australasia found that stewardship is on the rise, with the proportion of investment managers using corporate engagement to try and influence the behaviour of companies on environmental, social and governance (ESG) issues doubling in the past two years.
IFM set a target in September last year of cutting emissions from its existing infrastructure portfolio by 40 per cent from 2019 levels and exiting all coal exposure by 2030, before hitting net zero emissions in 2050. Its current fossil-fuel assets include petroleum and gas pipelines, distributors and terminals in North America, the natural gas and electrical utilities company Naturgy in Europe. It also owns airports across Australia and Europe.
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