Taxing carbon emissions in Australia would align with Mercer Investment Consulting’s prediction that world regions will pursue different ways of pricing emissions, says Helga Birgden, head of responsible investment for the business in the Asia-Pacific region. Birgden says regulators in the U.S., Europe, China, Australia and New Zealand are developing different carbon pricing mechanisms and this will affect global investors such as superannuation funds. “There are carbon pricing signals in the market but it’s fragmented. It’s not global,” Birgden says. A carbon tax in Australia would provide policy certainty for domestic equity investors. But their growing international exposures will be impacted by pricing policies offshore, she says.“There is a lot of risk and this should not be dictated by someone else.” The prediction was one of four global policy outcomes identified in its report, Climate Change Scenarios: Implications for Strategic Asset Allocation, which was published in February. Greg Combet, Minister for Climate Change and Energy Efficiency, says the tax will end “years of uncertainty” about carbon pricing in Australia. “To enable you to make sound investment decisions, you require transparency as to how a carbon price will affect different companies and what assistance they are receiving,” Combet says. The $6-billion Local Government Super (LGS) has already integrated environmental, social and governance (ESG) risks into its entire investment portfolio. This includes a long-short derivatives overlay of its indexed equity investments, which short-sells stocks that carry ESG risks, and upgrading its property assets to the highest environmental standards.
Peter Lambert, CEO of the fund, says its union and employer base is supportive of these changes. “It’s very difficult for funds who have diverse constituencies to take a stance on climate change because there will be a lot of interests fighting each other,” he says. Funds risk reputational damage if they do not demonstrate their response to climate change. Non-government organisations such as The Climate Institute are expected to publicly “name and shame” funds that do not actively mitigate ESG risks, he says. Meanwhile, a global initiative that assesses property investment funds on their environmental performance has revealed that Australian managers are leading the field. The Global Real Estate Sustainability Benchmark, which assesses listed and unlisted property funds, finds that Australian funds make up six of the top 10 funds managers.
Now in its second year, the survey is supported by 11 of the world’s largest pension funds and asset managers, and Maastricht University. It says the Commonwealth Property Office Fund, a listed Australian property fund managed by Colonial First State Global Asset Management, is the top performer followed by the unlisted Investa Office Portfolio. European manager Sonae Sierra ranks third. This year 340 real estate managers from around the world participated – an increase of 72 per cent from the 198 funds that responded last year. The survey ranks funds and their managers into four quadrants. The number of top-quadrant performers – so-called “green stars” – was 19 per cent of respondents compared with 10 per cent the previous year. Managers in Asia scored worst, being listed as “green starters”, followed by unlisted European funds. North American listed and unlisted fund managers on aggregate achieved “green talk” status, indicating that these funds have sustainability plans but fell short on implementation. European funds scored slightly better in implementation but were still ranked as “green talkers”.