A survey of some of Australia’s largest investors has found that Covid-19 has had little impact on efforts to align portfolio’s with climate-friendly investments, but federal policy uncertainty continues to weigh on investor confidence – and the technology roadmap won’t do the job.
The Investor Group on Climate Change (IGCC), which represents a range of institutional investors including superannuation funds, asset managers and sovereign wealth funds with more than $1.5 trillion under management, has published a survey of 38 investors about their views on climate-aligned investments.
The survey found that a majority of investors have set, or are in the process of considering, net zero emissions targets for their investment portfolios. Investors also said that policy uncertainty continues to remain a barrier to increased investment in low carbon or climate-aligned investments.
This result is largely due to continued political manoeuvring around climate and energy policy, particularly with lacklustre policies and an absence of long-term emissions reductions targets at a federal level.
In its report, the IGCC said that the Technology Investment Roadmap, recently launched by the Morrison government, was not a suitable replacement for a national policy, particularly in the absence of a commitment to a 2050 target.
“The Technology Investment Roadmap is not a substitute for a coherent national climate policy framework for the entire economy and a clear target for net zero emissions by 2050,” the IGCC report says.
“A credible national framework to achieve net zero emissions across the economy would enhance the necessary market signal for institutional investors to accelerate their support for an orderly transition in Australia.”
In contrast, investors said that the disruptions caused by Covid-19 had not slowed progress being made by institutional investors, with almost 70 per cent of the investors saying that Covid-19 had no impact on their ability to progress climate change-aligned investments. A larger proportion of investors, around 90 per cent, said that they were already incorporating climate change considerations in their investment strategies.
“We are currently seeing further progress towards the mainstreaming of climate investment in business as usual investor decisions and strategies,” IGCC CEO Emma Herd said.
“This survey was taken in unprecedented times, with a once-in-a-century global pandemic causing significant disruption in the market. The fact that progress on climate risk has continued in this environment is a reminder that these trends are likely inevitable and irreversible, and will only accelerate in coming years.”
Investors said that they were seeking out a range of investment opportunities to structure their portfolios in line with low carbon strategies, including through green bonds, infrastructure investment and were considering the impacts of a phase out of coal use.
“This is a natural progression as investors sharpen their understanding of the financial risks climate change poses to their portfolios and the investment opportunities the transition to net zero emissions will create.”
“It is positive and important to see the setting of net zero emissions goals across portfolios increasing. Investors need to back this up by implementing ‘ground up’ strategies such as a greater application of climate mandates between asset owners and external managers and detailed target setting.”
However, investors also said that one of the main barriers to climate-aligned investment was a lack of opportunities with appropriate ‘risk-return objectives’, which requires the Australian market to mature, providing large institutional investors access to the types of investment products that suit their investment needs.
This may require the further creation of new green bonds and green investment funds, as institutional investors, including superannuation funds, generally seek diversified investments across multiple industries or infrastructure projects, rather than trying to managing investments in individual projects like a single solar farm or wind farm.
The IGCC said that it was disappointing to see ongoing uncertainty around federal climate policies continuing to impact investor confidence and that the federal government should look to set a long-term emissions reduction target to provide a firm signal to investors that the government was committed to long-term decarbonisation of the Australian economy.
“It is disappointing that climate and energy policy uncertainty continues to be identified as a significant barrier to climate-aligned investment,” Herd said.
“While the Australian Government’s recent announcements on technology development are a welcome step, there is a clear need to establish a national goal for net zero emissions by 2050 and embed it in a national decarbonisation plan to attract to domestic markets the trillions of dollars in private capital investors are looking to deploy into renewable energy, clean technologies and green infrastructure.”