Let’s be honest: One of the biggest challenges about climate change is staying on top of the debate. No one can pretend that talk of carbon sequestration or the difference between 450 or 550 parts per million greenhouse emissions is easy talk to follow.
If it is the case – as one commentator recently claimed – that the modelling in one of Garnaut’s papers takes four days to run on a very fast computer then who can really blame those who put climate change in the too-hard ‘rocket science’ basket.
But, as we all know, money talks – possibly louder than any talk of the Barrier Reef disappearing or the polar bear facing extinction. No surprise then that the focus of the climate change debate – at least for many in the financial sector – has shifted to the bottom-line.
With apologies to tree huggers, eco-warriors and even our esteemed scientists, it doesn’t matter whether a fund manager or a super fund trustee accepts the science of climate change or whether they believe that climate change is the greatest hoax the world has ever seen. The moment the talk turned to a cost on carbon, climate change became a tangible investment risk. When the Emissions Trading Scheme (ETS) is up and running in 2010, carbon will appear in company financials. It will be one of a myriad of risks that investors face. The carbon-intensity of a portfolio investment will be of material interest.
With all this in mind AIST recently commissioned UK environmental researchers Trucost to examine the carbon footprint of 14 of our largest superannuation funds. Trucost examined the greenhouse gas emissions associated with 100 sharemarket portfolios, giving them a rating from biggest footprint to smallest. While the research revealed a wide variation in the footprint size of each fund, the news wasn’t all bad for super funds.
Encouragingly, the research suggests that most funds can reduce their carbon-risk exposure but still retain some exposure to the relatively high performing carbon-intensive sectors. Those funds that shift investments strategies towards companies with lower carbon emissions will be best placed when an ETS gets underway. As one keynote speaker noted at last month’s Australian Super Investment Conference in Port Douglas, the person who works out a way to make carbon sequestration economically viable will be the next Bill Gates ( if you have any talent in this direction get busy, or if you’re a superfund invest in some!).