Australia’s AUD2.3trn (€1.5trn) superannuation industry is lacking in its disclosure of climate risk, according to a new report.

Financial activist group Market Forces – an affiliate of Friends of the Earth – warned that Australian trustees were putting themselves at risk of breaching their fiduciary duties to members.

In a survey of Australia’s 100 largest superannuation funds, representing 99% of all large super fund assets, Market Forces found that only 18 funds, with assets totalling AUD646bn, had adequate disclosure on climate risk management.

Meanwhile, 60 funds – responsible for more than AUD393bn – disclosed no tangible evidence of having considered the impact of climate risk on their investment portfolios.

Another 22 funds, with assets totalling AUD306bn, disclosed “inadequate” evidence that they had considered climate risk, Market Forces said.

The group highlighted recent guidance from the Australian Prudential Regulation Authority (APRA), which identified climate risk as “distinctly financial in nature”.

Market Forces said APRA highlighted that these risks were “foreseeable, material and actionable now”.

Many funds seemed still to consider climate risk a “future problem”, the report said, and not one that would impact their portfolios in the short or medium term.

The report cited recent developments in technology with major implications for the energy and utilities sectors in particular – including the potential to reduce coal, oil and gas demand in the short to medium term. Oil production giant Royal Dutch Shell has forecast demand for oil to peak in as little as five years, the report said.

Market Forces also warned about the transition risk facing the Port of Newcastle in New South Wales. Seven super funds acquired a stake in what is currently the world’s largest coal-exporting port in May 2014 through a fund run by infrastructure specialists Hastings.

The asset accounted for roughly 20% of Hastings’ AUD1.75bn Infrastructure Fund at the end of 2016, according to the manager’s website.

“Despite the uncertain future facing the coal industry, none of the seven funds has disclosed to members the risks involved,” Market Forces said.

Its report claimed that only one of the seven funds, Energy Super, actually disclosed the existence of the port investment in its own documentation.

Ethical issues sidelined?

For many super funds, climate change was perceived as strictly an ethical issue, Market Forces argued.

One of the most common responses by super funds to member enquiries about climate risk, according to the report, was to pigeonhole their concerns as an ethical issue rather than a material financial risk.

To appease concerned members, dozens of funds created or “modified ethical” or “socially responsible” investment options, the authors claimed. “These options restrict investments in carbon-intensive companies, with screens varying greatly from one option to the next.”

Funds with “adequate” disclosure, according to Market Forces, included the country’s largest super fund, the AUD104bn AustralianSuper. Eight of the 20 largest funds were deemed adequate by the report, including UniSuper, First State Super, SunSuper, and HESTA.

Australian funds with ‘adequate’ climate risk disclosure

FundAssets (AUD)MembersType of fund
AMP 109.8bn 3.6m Retail
AustralianSuper 103.7bn 2.1m Industry
BTFG 80.1bn 1.2m Retail
First State Super 57.1bn 751,000 Public sector
UniSuper 56.6bn 421,000 Industry
Sunsuper 39.3bn 1.1m Industry
Commonwealth Super Corporation 37.6bn 664,000 Public sector
HESTA 36bn 833,000 Industry
Cbus 34.5bn 735,000 Industry
Mercer 22bn 214,000 Retail
VicSuper 16.7bn 240,000 Public sector
State Super Retirement Fund 16.4bn 75,000 Retail
Local Government Super 9.5bn 92,000 Public sector
Catholic Super 9.3bn 73,000 Industry
Russell Investments Master Trust 7.9bn 74,000 Retail
Vision Super 7.8bn 101,000 Public sector
Christian Super 1.2bn 25,000 Industry
Australian Ethical Retail Superannuation Fund 1.1bn 26,000 Retail

Source: Market Forces