Tasplan chief investment officer Ian Lundy says investing for the low-carbon future and determining what types of assets could become stranded remains a complex issue for the fund and fellow institutional investors.
The potential for mining assets to become stranded, or in danger or premature write-downs or devaluations, increases with their life span, Lundy told Investment Magazine. But he is confident assets the $8.6 billion fund invests in are secure.
“If it’s a 100-year coalmine, then you’ve probably got an issue,” he said. “If it’s a five-year oil well, then it’s less likely to be a stranded asset. I don’t believe most of our assets will become stranded…I don’t think fossil fuels are going to disappear tomorrow, so these companies will continue to operate and make profits for the foreseeable future.”
The International Energy Agency’s Renewables 2018 report forecasts renewable energy sources will continue their expansion in the next five years, accounting for 40 per cent of global energy consumption growth. However, Bloomberg has reported that, while renewables will account for almost a third of total world electricity generation in 2023, rising coal-powered generation in Asia ensures that it will remain the largest source of power in the world.
“Our investment managers also think through these issues and coal is unlikely to go away anytime soon,” Lundy said.
He does, however, have concerns about the particular reasons companies are involved in oil production, and the potential risk these may pose to portfolios.
“If you look at oil…75 per cent of the world’s oil comes from either government-controlled or government-influenced companies, and those companies are digging out oil for reasons other than profit,” he said. “If you’re competing against companies that are not doing it on a straight return-on-investment basis, then I think there are risks to that.”
Last week, Cbus Super’s head of responsible investment, Nicole Bradford, said it was benchmarking its asset managers to determine how well they are factoring climate change into their investment decisions.
In September, the industry fund announced it had set a target for all its property holdings to be net-zero emissions by 2030 and has engaged an asset consultant to consider whether a similar arrangement could be used for the fund’s infrastructure investments.
It is becoming increasingly important for trustees of super funds to be able to demonstrate that they are taking into account climate change-related risks when making investment decisions.
Industry fund REST is staring down an action brought by 23-year-old member Mark McVeigh and lodged in Federal Court last month. It alleges that to satisfy trustees’ duties, REST must seek information from its investment managers about climate risks and comply with the recommendations of the Task Force on Climate-related Financial Disclosures.
Lundy said Tasplan expects its investment managers to consider all risks.
“Climate change is one of those risks, cyber-security and general technological disruption [are others],” he explained. “When we meet with our managers, which we aim to do twice a year at least, then we talk through all these questions. Cyber-security would probably be one that people don’t pay enough attention to.”
Sustainable option for members
Earlier this year, Tasplan re-launched its sustainable option for members. It is one of five diversified options the fund offers out 10 overall. Before it was relaunched, the option performed below the balanced option, Lundy said.
“We don’t believe that should be the case in the long run,” he said. “If there is a performance drain, then it will be minimal. Obviously, there are times when this option will do well and [when it will do] poorly. For instance, at the moment, oil prices are running. That’s been a bit of a headwind for the sustainable option.”
The product uses existing asset pools but for Australian equities it uses Pendal Group and for international equities it uses Magellan Financial. Currently, 7 per cent, or $60 million, of member money is invested in the option.