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Industry super flexes muscles on emission reduction

Greg Combet
Greg Combet, chairman of Industry Super Australia and IFM

Industry superannuation fund IFM Investors is pushing for carbon emissions reduction targets across a suite of assets including ports, airports, rail and electricity distributor Ausgrid.

The move drew rancour from The Australian, which suggested the announcement conflicts with Government opposition to industry super funds pursuing political investment agendas.

To imply that reducing pollution is a political rather than a pragmatic matter is somewhat out of step with current financial realities, with a recent Investor Group on Climate Change report showing the majority of big investors have an appetite for low carbon assets and science-based targets for emissions reduction.

The IFM asset targets range from 8 to 25 per cent reductions by 2024 and 38-100 per cent by 2030. Assets that have set targets in place include Melbourne Airport, Brisbane Airport, Northern Territory Airports including Darwin, NSW Ports Botany and Port Kembla, Southern Cross Station and Ausgrid.

IFM, which is chaired by former ACTU head and Labor minister Greg Combet and co-owned by 27 major industry super funds, estimates the targets will collectively see emissions reduced by more than 200,000 tonnes CO2 equivalent annually by 2030 – the same as removing 70,000 cars from the road.

Currently, it manages $57.9 billion in infrastructure assets on behalf of more than 360 institutional investors, and has interests in 33 major long term infrastructure asset investments across Australia, North America and Europe.

The specific science-based targets for each asset were developed with expert assistance from Energetics.

Some of the specific Australian organisations named have had carbon reduction targets and strategies in place for some time now. Brisbane Airport, for example, announced it was working on Scope 1, 2 and 3 emissions reductions back in 2016. Melbourne Airport has signed up for the Victorian government’s Take 2 Pledge.

Ausgrid already had plans to cut emissions, including swapping fleet to electric vehicles, upgrading its network street lights to LED street lights and installing renewable energy for its own facilities.

Last year the CEFC invested $150 million into emissions reduction initiatives across multiple infrastructure assets, including some in IFM’s wholly-owned or partly-owned portfolio.

“IFM Investors is pleased to be taking an active role as a major infrastructure investor to work with the CEFC and our assets’ management teams to set carbon abatement targets and commit to annual progress reporting,” IFM’s head of Australian infrastructure Michael Hanna said.

“This exciting initiative represents a genuine commitment and start to aligning our assets to the Paris Agreement, and it makes perfect business sense by reducing costs, mitigating future business risks and contributing to outcomes that our customers value.”

CEFC chief executive Ian Learmouth said that cutting emissions delivers both a long-term environmental dividend, and in “most cases”, an improved financial performance.

“These infrastructure assets will operate for generations, with the targeted emissions reductions having the potential to make a material impact on cutting Australia’s carbon footprint,” he said.

IFM will be applying the lessons from the Australian portfolio across its global portfolio.

The latest data from the Clean Energy Regulator shows that infrastructure-related emissions account for more than half of Australia’s total carbon output, with power stations alone accounting for 50.3 per cent of emissions.

The investment in April last year was the CEFC’s first equity commitment to Australia’s diversified infrastructure sector.

IFM Investors will apply the lessons learnt from its Australian infrastructure assets to its global portfolio. The fund is a signatory to the UN’s Principles of Responsible Investment, ESG Research Australia and the Investor Group on Climate Change.

The Accelerating Change report released by IGoCC this month highlights the unstoppable force of global capital in the quest to mitigate climate change. It found that appetite for investment opportunities is growing and activity accelerating despite regulatory uncertainty in Australia.

The survey canvassed the positions and insights of institutional investors managing in excess of $1.3 trillion in assets in total over the period June to July 2019.

It found that 90 per cent of investors are undertaking low carbon strategies, between 50-80 per cent are undertaking or actively considering low-carbon investment across most asset classes and more than 70 per cent have established or are considering climate-aligned targets for their portfolios.

“The search for climate opportunity is moving into more asset classes. Diversification is a key theme, with investors allocating capital across a broad range of classes including listed equities, private equity, fixed income, infrastructure, timber, forestry and agriculture, and real estate,” IGoCC chief executive Emma Herd said.

A key point the government might want to consider is that when faced with policy uncertainty, the money goes elsewhere with more than 40 per cent of investors redirecting investments to jurisdictions, sectors or markets with less uncertainty.

“Perceived barriers to climate investment have evolved in response to increased investor activity. Lack of investable deals at scale and policy uncertainty remain major barriers to increased investment,” Ms Herd said.

“When faced with increased policy or regulatory uncertainty in key markets, investors go offshore to find climate investment opportunities, and they ratchet up active engagement with companies they own.”

Ms Herd said widespread adoption of the final recommendations of the Taskforce on Climate-related Financial Disclosures is impacting investor practice, through increased target setting and public commitments.

“The emergence of the Australian Sustainable Finance Initiative in Australia and the Sustainable Finance Forum in New Zealand, will likely accelerate this trend of mainstreaming climate change into investor practice,” she said.

Kim Farrant, VicSuper portfolio manager, responsible investment, said the report “resonates” with the fund’s experience.

Having incorporated the financial risk due to climate change into its investment beliefs and committing to investing in line with a “just transition” to a low carbon economy, the fund has a strong appetite for climate aligned investments with the right risk/return profile, he said.

“The shift toward mainstreaming of climate aligned investment opportunities is demonstrated by our own implementation last year of a $1 billion international equity customised carbon strategy that delivers a 70 per cent reduction in greenhouse gas emissions against its benchmark, without compromising returns.”

  • Read the IGoCC report here

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