Some of Australia's largest superannuation funds rank among the best in the world in protecting their members from the adverse effects of climate change.
In a survey of superannuation funds and other "asset" managers, such as insurers and sovereign wealth funds, the Australian industry super fund for NSW public servants, Local Government Super, ranks second in the world. It was beaten to first place by UK-based pension fund, The Environment Agency Pension Fund.
The $120 billion Future Fund, Australia's sovereign wealth fund, ranks No. 93 in the world.
The 500 largest asset owners in the world are ranked on three capabilities – engagement, risk management and low-carbon investment. Superannuation and pension funds account for nearly two-thirds of the 500 asset managers.
It is the fourth time that the Asset Owners Disclosure Project, an independent global not-for-profit organisation, has released its ratings of the 500 largest asset owners.
"No fund has gone anywhere near as far as Local Government Super in responding to climate change in a way that reflects the gravity of the issue," says Julien Vincent, lead campaigner at Market Forces, which is an affiliate of Friends of the Earth.
Local Government Super has a long history of ethical investing. It was the first industry fund to exclude tobacco stocks, in 2000.
In 2014, the fund announced it would exclude companies with a material exposure to "high carbon-sensitive" activities as well as coal-fired electricity generators. It does not invest in companies that make more than a third of their revenue from high-carbon activities, such as coal.
Peter Lambert, chief executive of Local Government Super, says: "Climate change is going to increasingly become an investment risk that funds have to deal with as governments take actions to mitigate the affects of climate change.
"We wanted to be ahead of the curve in moving out of what we increasingly see as a sunset industry," he says.
About half of Australia's largest-50 superannuation funds offer socially responsible investment options, but they have only a small amount of money in them.
More and more super funds are taking action to reduce the threat to the investment returns of their members from climate change.
They are doing so through their mainstream investment offerings, because climate change is increasingly recognised as a financial risk. Fossil fuel miners risk becoming "stranded assets" as government policies favour companies in the renewable energy sector.
The global rankings are based on how funds are managing all of their investments not just their specialist socially responsible options.
Only 12 of the 500 asset owners received the highest-AAA rating, but this included three Australian super funds: Local Government Super, AustralianSuper and First State Super.
Industry fund AustralianSuper, with more than 2 million members, came in seventh in the world, while First State Super, the fund for NSW government employees, is ranked 12.
No Australian super funds scored a AA rating, as the table shows. However, funds scoring an A rating include the Westpac-owned BT Financial Group, VicSuper and Cbus Super.
MLC Super, NAB Super and NAB-owned Plum Super significantly upped their game to achieve a BBB rating, up from D last year. Mercer Super Trust also achieved BBB, up from CCC.
The report covers the largest 500 asset-owners in the world by value of their investment portfolio.
As such, the smaller specialist ethical superannuation funds, such as Australian Ethical and Future Super, which ought to be the most green of all, are not included in the rankings.
Australia has the highest number of AAA-rated funds of any country in the world. Ranked by average scores, Australia as a nation is third behind Sweden and Norway.
The Climate Institute pioneered an Australian survey of asset owners in 2008 and is the Australian agent of the Asset Owners Disclosure Project.
John Hewson, the chairman of the Asset Owners Disclosure Project, says climate change is now moving up the investment agendas of the world's biggest asset owners.
However, about half of the 500 appear to be ignoring climate risk completely, he says.
"That is endangering retirement nest eggs, shareholder value and potentially even the stability of our financial system," Dr Hewson says.
The "laggards" with the lowest "X" rating, reserved for those taking no action, are predominantly sovereign wealth funds from oil-producing nations and large Asian insurers.
Australia's Future Fund receives a "C" rating this year, up from last year's "D".
"D" is the lowest rating that can be achieved for those deemed to be taking some action.
In September last year, the Future Fund's chairman, Peter Costello, said the fund would not join the global fossil fuel divestment push.
Sovereign wealth funds generally do poorly in the ratings. The highest rated are two French funds that rank 13 and 16.
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