Essay by Eric Worrall
Australian Superannuation (retirement) funds have convinced the government to allow them more freedom to “invest” in risky green tech startups.
How Australia’s huge superannuation funds can do much more to fight climate change, with a little help
Published: January 23, 2024 10.25am AEDT
Arjuna Dibley
Head of Sustainable Finance Hub, The University of Melbourne…
These accumulating automatic payments have turned the Australian super fund industry into one of the world’s largest, and the fastest-growing. Worth $A3.5 trillion, our superfunds sit alongside funds from Canada, Japan, Netherlands, Switzerland, the United Kingdom and United States to make up 92% of total global pension assets.
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At the same time, many Australian funds continue to invest in carbon-producing companies, such as oil and gas, even when they claim to be making “green” investments.
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The government has said it will make reforms on one roadblock – the funds’ performance-testing framework.
Why super funds rarely invest in clean energy
Because superannuation funds are required by law to invest retirement savings for the best return for their members, they give preference to investments that offer the best financial returns with the lowest level of risk.
Funds see companies that are developing and deploying new technologies or operating in areas of significant public policy change as higher risk. That’s a big reason why new green technologies struggle to attract institutional capital compared to those based on fossil fuels.
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The current 8 year simple performance test forces fund managers to stick to high return, low risk investments, or face various levels of censure.
The government has suggested it will increase the performance horizon to 10 years, and suggested it might adjust the performance test to reduce the negative weighting of green technology investments which currently fail the prudent investment test.
It is no mystery when a high risk new technology play fails, or when any kind of startup company fails. But this kind of risk is exactly the opposite of what most savers want in a retirement fund.
This relaxation of standards is a potential disaster for retirement savings. The main opposition party has suggested their focus will be nuclear power rather than renewables. If they stick to this commitment, large scale investment in nuclear could obliterate the value of renewable green tech, even in cases where the tech actually works, leading to a significant loss of retirement capital invested via the relaxed green investment rules.
I have no problem with people who want to gamble their retirement cash on high risk green investments. But people should have to actively choose this option, it shouldn’t be the default option.
Retired people are the most vulnerable investor group, many retirees have failing health, and in many cases do not have the health or energy to pursue fund managers who gamble away their money. Degrading the risk protections on their savings and return on investment, to satisfy the government’s desperation to show progress on their faltering Net Zero fantasy, in my opinion could turn out to be a horrible betrayal of trust.
The author of the quoted article attempts to justify this loosening of investment oversight by suggesting climate change is “a grave risk to the health, wellbeing and finances of all Australians, including retirees”. But given more than 30 years track record of failed climate doomsday predictions, I suggest the risk to retirement savings capital from speculating on green tech startups far outweighs the alleged risk presented by yet more climate doomsday predictions.