In a rare confluence of common purpose, the past few weeks has seen the Albanese government indicating it wants super funds to have greater involvement in financing solutions for the energy transition, among other major social themes.
At the same time, the $1 trillion industry super fund movement called on the federal government to develop a national strategy to reduce the country’s carbon emissions, with one of the sector’s peak bodies Industry Super Australia joining calls for measures to ease investment into low carbon projects.
Many in the investment industry and in sustainable infrastructure development also agree. As will many of their super fund members, whose hip pockets are being hit by rising power bills, coupled with growing anxiety around climate change.
This moment of collective investor, business, government and popular support for addressing climate change and optimising our nation’s natural endowments and superannuation savings should not be squandered. It is a generational opportunity for Australia to ensure our future energy security by decarbonising the economy, reduce energy costs and creating new green industries.
As responsible investors and sustainable infrastructure developers, we call for a clear national strategy and supportive policy to guide future investment in Australia to accelerate and deliver a low carbon society.
Global leaders in investment management and infrastructure development here and overseas are already acting on the opportunity offered by the energy transition with new investment funds and initiatives. Australia’s super funds can and should lead in this exciting new chapter of infrastructure investment.
Greater certainty, especially in the electricity market historically plagued with policy chaos, is needed in order to encourage more investors – including our super funds among others – to invest here in Australia.
Remove obstacles
Moreover, we need to remove some of the unintended yet serious obstacles facing our institutions, such as prescriptive portfolio benchmarking rules, that are inhibiting capital allocations right now.
The Albanese government has already moved to reduce carbon emissions across the economy by 43 per cent by 2030. In the short-term, meeting our 2030 emissions target means the pace of decarbonisation is going to be driven largely by the speed at which we can plan, approve and invest in new renewable energy capacity and accompanying transmission infrastructure. The government’s $20 billion Powering Australia Plan is just one example of the scale of new investment urgently needed.
Given the amount of money invested in superannuation in Australia is set to triple to $6 trillion in the early 2030s and hit $9 trillion in 2041 according to projections from Deloitte, why would taxpayer money be used to fund this critical and low risk infrastructure and not some of our superannuation funds?
It should not be assumed investing in the energy transition would, as some have contended, distract super funds from their core purpose to maximise investment returns for members. The facts support the opposite conclusion for the energy transition. Many of our super funds are already investing with managers focused not only on renewables and other net-zero focused strategies here in Australia, but in many other countries, especially the US and Europe.
Many of those funds are enjoying quite attractive, consistent and predictable returns on their energy transition focused investments, from high single figures to mid-teen percentage returns. Many of our super funds have chosen in the past to invest in the energy transition outside Australia because they have assessed the Australian landscape as too risky. We believe this has now changed with the new government.
Conducive policies
The next step is the implementation of long-term policy settings that are conducive to superannuation capital in order to meet the multi-decade challenge of upgrading our energy infrastructure yet reducing costs. These measures could include a clear timetable for the phasing out of coal fired power stations over a manageable period as the UK has done. The remit of Australia’s Clean Energy Finance Corporation could be expanded to create new investment vehicles for our super funds to participate directly in new critical and nation building infrastructure projects such as that contemplated in the Powering Australia Plan.
To create longer-term revenue certainty for new renewables infrastructure which will make investment conducive for super funds, the government could introduce something akin to the UK’s 15–20-year contracts for differences scheme which has attracted huge capital commitments from the UK’s pension funds. Streamlining the new infrastructure project approval cycle is also a crucial part of the challenge and must happen in every state and territory.
However, it is not simply the responsibility of our policy makers to conjure up the investable solutions for the managers of capital.
In managing the risk return equation to achieve the best outcomes, the finance sector in Australia must become more active in developing new investment models, risk sharing and forming innovative co-investment structures that deliver the twin goals of competitive investment returns and sustained emissions reduction.
Pandemic spending has left Australia’s government laden with debt and limited capacity for investment in new projects. The nation’s investment and super funds can play a valuable role in financing the Powering Australia Plan for example, which might actually be a welcome relief for our federal treasury.
We also need to explore and design new partnerships between government and the private sector to leverage the expertise and strength of our combined finance sector and our world leading investment and superannuation industry.
Australia enjoys an expanding pool of patient capital, a robust banking sector, infrastructure managers of international scale and reach, a willingness to explore new investment models and world leading technology and industrial processes.
With politics, industry and popular support now coalescing around these critical issues for our nation, let’s get on with the job of capturing the multiple economic and social dividends that responsible investing in Australia’s energy transition can provide for us all.
