This is particularly the case now that Mercer advocates a 40 per cent allocation to climate-sensitive assets. In the asset consultant’s report, Climate Change Scenarios – Implications for Strategic Asset Allocation, Helga Birgden, Mercer’s head of responsible investment, says under certain modelling scenarios, a typical portfolio seeking a 7 per cent return could manage climate-change risk by ensuring that about 40 per cent of assets are climate-sensitive. “An emphasis on those assets that can adapt to a low-carbon environment could actually reduce portfolio risk in some scenarios,” she says. At the Woodside annual general meeting on April 20, the company would not table the CAF’s first and preferred shareholder resolution to disclose its carbon price assumptions. Instead, Woodside obliged the fund to canvass support for an amendment to the company’s constitution so that it would be required to disclose these assumptions. It would require the assent of 75 per cent of shareholders. Alongside HESTA, LGS and MTAA Super, Cbus and UK asset manager F&C also supported the CAFs move. F&C pointed out that peers to Woodside oil, such as ExxonMobil, Royal Dutch- Shell, BP, Total and Statoil had all disclosed their carbon price assumptions and factored them into their capital expenditure modelling. Before the vote, ACSI, which is owned by industry funds and has more than $300 billion under advice, recommended that its members support the resolution. It was a rare move for the governance body, and it doubted the resolution would be passed. Phil Spathis, manager of engagement and strategy, says the unusual ACSI recommendation was made because “subscribers are able to convey to Woodside their desire for additional disclosure to that already provided by the company on the impact of a carbon price on its operations as and when a carbon price becomes effective”.

This was a significant move: ACSI does not generally support pressure for amendments to companies’ constitutions to achieve such specific disclosures. But at Woodside, there is “a case for additional disclosure to be mandated, because of the potential risk [that] climate change regulation poses to the company’s strategy,” Spathis says. Poulter says the Federal Government’s uncertainty was a barrier for super funds in managing climate change risk, but the Mercer report showed that most funds were “not prepared or informed to manage these risks and opportunities”. “The implications for Australian superannuation funds are huge, with a 40 per cent allocation to climate-sensitive assets representing a very significant $500 billion of current and future retirees’ money,” he says. “Three years ago, markets collapsed because of highly optimistic investment assumptions. Now optimistic assumptions are being used again but in a different sector,” he says. “It’s time for regulators to act to prevent a repeat of the sub-prime crisis: but this time it will be a ‘sub-clime’ crisis.” Fiona Reynolds, CEO at AIST, the peak body for superannuation trustees and also a UN PRI signatory, says there are some encouraging signs that funds are making progress. “But there’s still much funds can do to address the risks posed by climate change,” she says.

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