As long term investors, superannuation funds are exposed to climate change across a broad range of sectors globally. While the impact of climate change is a relative unknown, it is imperative that superannuation funds consider the potential risks and opportunities that arise from climate change and how these can potentially be mitigated and accessed. Frontier Investment Consulting consultants ALLISON HILL and JUSTINE O’CONNELL present this special climate change investment guide for trustees and investment committees.

So what is climate change? As some background over the past 120 million years, the earth’s climate has fluctuated quite dramatically. Climate fluctuations can arise due to changes to the earth’s orbit, solar radiation, the positioning of the continents and concentrations of atmospheric greenhouse gases. According to the CSIRO, the changes in surface temperature since the mid-19th century have primarily been affected by Greenhouse gases (GHGs) generated as a result of human activity.

The 20th century was the warmest of the past 1,000 years. The 1990s was the warmest decade of the millennium and 1998 was the warmest year. GHGs trap heat in the atmosphere. If the concentration of such gases in the atmosphere rise, then temperatures will (all other things being equal) be expected to rise.

The main GHGs are carbon dioxide (CO2), methane, nitrous oxide, hydro-fluorocarbons, per-fluorocarbons and sulphur hexafluoride. This group of gases will be referred to collectively as GHGs throughout this article. To what extent global warming has occurred is still debated, however it is clear that the earth’s temperature is rising, in large part due to human activity. The atmospheric concentration of CO2 in 2005 was 379ppm³ compared to the pre-industrial levels of 280ppm³ (according to the United Nations Intergovernmental Report on Climate Change, April 2007). This is its highest level in at least 420,000 years. The increased warming of the earth brings with it a rise in sea levels, shifts in rainfall patterns and more extreme weather conditions, including droughts and floods.

This will have flow through impacts to a decline in overall food production, potential for increased disease and a loss of biodiversity, according to the Intergovernmental Panel on Climate Change (IPCC). The IPCC has concluded that by the year 2100 the earth is projected to warm by 1.4 per cent to 5.8 per cent and that the sea-level is projected to rise between 9cm to 88cm.

To date, experience has been at the high end of predictions. To stabilise the climate, the consensus among most scientists is that the increase in average temperatures should be constrained to no more than two degrees above pre-industrial revolution levels. This target will require significant cuts in global greenhouse gas emissions by the middle of this century. Both the environmental changes, and the required change in work practices, will certainly have a large impact on certain sectors of the economy, with some sectors feeling the effects more severely than others.

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