The Investor Group on Climate Change (IGCC) and Mercer have produced a video training module featuring superannuation trustees and professionals acting in a trustee board meeting role-play that considers concrete steps for integrating climate change risk into a superannuation portfolio.
The Perfect Storm Pension Fund features videoed discussion of the superannuation professionals as they work through seven model resolutions put to a mock trustee meeting, covering investment policy, implementation, investment strategy, timeframes, investment allocations, measurement and disclosure. The project was designed to show superannuation fund trustees how they can conduct a board meeting that discusses the impacts climate change might have on the investment portfolio, said Nathan Fabian, chief executive, IGCC.
“We want to show what a board conversation on climate looked like,” he said. “We tried to demonstrate that by picking up the voices that were part of our trustee board and use a role play approach, and our aim was to work through some of the barriers that often come up in those discussions.”
The role play was scripted, and featured Cate Wood, chair of Care Super, outgoing president of the Australian Institute of Superannuation Trustees, Frank Pegan, CEO of Catholic Super, chair of IGCC, Gary Weaven, chair of Industry Funds Management, Jon Glass, past CIO of Media Super, Geoff Lake mayor of Monash, Victoria, trustee board member of Vision Super and Cath Bowtell: recent CEO of AGEST Super and past director of AustralianSuper. The conversation focused on targets, the amount of abatement and tradeoffs between physical impacts and mitigation pathways of climate change, and how trustees can implement policies based on these scenarios.
“One of the issues is that there is a lack of consensus about the degree to which trustees should address climate change because of the principles based approach of fiduciary duty,” said Helga Birgden, head of responsible investing for Asia Pacific at Mercer and a close collaborator on the project. “The key is to encourage trustees to exercise their minds, to consider it a part of their risk approach and risk mitigation strategy and also to be able to encourage their investment team and managers to explore new ideas and new ideas and new opportunities in this space.”
Legal experts are increasingly advising trustees that they have an obligation as part of their fiduciary responsibility to consider climate change’s impacts on their investment portfolios, but there is still a lack of understanding of the possible impacts of containing global warming to two degrees centigrade, or even more warming, Fabian said.
“The most challenging issue is still the understanding of trustees about how quickly this will move and for them to interpret the 2 degree world and a 3 degree world and a 4 degree world,” he said “The thing that most people in the community – let alone trustees – haven’t got clear in the minds is that even 3 sand 4 degree warming will require significant abatement activity. I think there’ still a view that a stable outcome might be possible even if significant abatement isn’t taken for a few more years, and that view was reflected.”
This project can serve as an information point for trustees, and Birgden cited other sources of information that trustees should use to formulate their responses and policies.
“There are lots of sources for trustees to tap into – IGCC are an excellent resource for trustee boards to immediately tap into the research and latest industry thinking down to the sorts of products that they might consider as part of their portfolio structure and approach,” Birgden said. “Many trustees could also be mining their investment manager expertise in this area a great deal more, and the agents that support investment managers as well, such as brokers. There is excellent research that is produced by some of the broking houses. In that mix, there is a role for the asset consultant to test the investment thesis, to provide the latest developments and information about investment products that are investible for institutional investors, to provide tools and provide information about the materiality of the issues and how the board might think strategically about systemic risks.”
Climate change should be seen as a meta-theme that represents a family of risks, such as resource scarcity issues, demographic change issues, energy issues, technology issues among other issues. That convergence and interplay of risks should be integrated into how trustees think about the investment and operating environment now and in the future, Birgden said.
“The other thing that is important is to go back to the role of the trustee board in the process in defining what are its investment beliefs, what are the processes that the board is going to take a look at, how does that need to be reflected in policy and how are those policies coming to life in the day to day process of investing,” Birgden said. “That includes discussing how this is actually going to be articulated through the portfolio – where are the allocations occurring, to what degree do they take in all this information, and invest according to these wider sets of factors.”
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