State Super has announced a net-zero emissions goal for its investment portfolio by 2050, joining some of Australia’s largest super funds such as AustralianSuper and AwareSuper that have issued ambitious net-zero commitments.
The targets, which include a 45% reduction of direct greenhouse gas emissions by 2030, are in line with the Paris Agreement, the 102-year-old fund said in a statement on Monday (December 13).
“Being a super fund, our focus is obviously financial returns for members. So we've understood climate risk to play a fairly significant role in the risk of our assets. But it became clear to us that as the world moves towards decarbonisation along a particular path, if we were to manage our investments appropriately, from a risk mitigation perspective, we should adopt the same path because everyone's getting to net zero by 2050,” chief executive John Livanas told AsianInvestor in a video call on Monday.
To meet those goals, Livanas said the firm recognised the need for a proper system to track progress, which includes having “governance oversight with our managers so that when they are implementing it, we actually are directing them in a particular way.”
Instead of implementing an exclusion policy, State Super will instead rely on managers to make decisions on which companies or assets to divest from.
“We put the same targets onto our managers. And it's no different to an investment mandate, [in which the] manager has to adopt the processes to meet our investment mandate, whether it be in terms of the style that they have, or in terms of the target, and we will monitor managers and their capability to meet those targets,” Livanas explained.
Keeping managers accountable involves “monitoring and measuring”, he said, which entailed creating a baseline of carbon emissions in each manager’s portfolio and a set of guidelines.
The fund will also engage with managers regularly “in a few years’ or maybe one or two years’ time” to monitor if they are on track to meet targets.
“It might be that some managers will get there faster than others. And that actually is okay, because in aggregate we're getting there in the right sort of pace. What that guarantees or supports for us is to make sure that we get the best investment returns for our members on a risk-adjusted basis,” he said.
State Super developed the guidelines with the support of consultancy firm Mercer and carbon footprint indices by the likes of MSCI.
However, Livanas acknowledges that data accuracy remains a challenge in measuring carbon emissions in a portfolio. But he believes that data quality will improve over time.
“We are much more interested in the direction,” he said. “When we talk about a net 45% reduction between 2020 and 2030, we will use the same methodology in the process of measuring towards 2030. But as the data improves, we'll be able to get much more granular.”
The majority of baseline emissions are represented in the fund’s listed equities portfolio, the statement said, but the fund will also work to decarbonise its alternatives and real assets portfolio – including those that are directly held.
“For example, each airport has its own net zero plan, so we work with them to achieve that. Regarding equities, under the TCFDs, companies have to report their greenhouse gas emissions, so we use those as baselines for other portfolios,” Livanas said.