Climate calling

Mercer's Alexis Cheang hears plenty of verbal commitment from Australian superannuation funds about the development and implementation of sustainable investment strategies. The continued aspiration is welcome, but Cheang believes proper execution and realisation still has ways to go.

Principal for responsible investment at Mercer, Cheang says both responsible and sustainable investing in Australia is experiencing monumental shifts as super funds work through the best way to align environmental footprints with their respective organisation's values and beliefs.

In 2014 it was estimated that global responsible investment accounted for US$21.4 trillion in funds under management, presenting challenges for investors in Australia and across the world.

In the US, for example, there's still a large focus on traditional 'ethical investing' or what an investor can exclude from their portfolio. However pension funds such as CalPERS and NYCERS are leading an approach that invests more holistically, Cheang says.

Over several years European investors have increased focus around integrating environmental, social and governance factors in to the investment process - something that gained quick acceptance in London, especially following the launch of the UN-backed Principles for Responsible Investment.

"Although there's probably less divergence now than there was when I started 12 years ago, there's still quite a different way of approaching sustainable investing between the Americans, the Europeans and Australians," Cheang says.

Ultimately, super funds and other instos have to be clear on what they are trying to accomplish.

"If you're trying to accomplish alignment with the beliefs and values of your organisation, then divestment may be a very good strategy for you. If you're primary objective is to deliver the best risk-adjusted returns for your members, divestment may still be appropriate but other sustainable investing tools may deliver that better for you," she says.

Cheang spends time with super funds and their boards working to evaluate the many options in developing and implementing sustainable investment strategies. She says the main focus for super funds in 2016 has been around climate change.

Super funds have attempted to address climate change in various ways. Whether it be excluding investment in thermal coal, carbon footprinting investment portfolios or any one of a multitude of options, Cheang says it's beginning a conversation about where investments are most carbon exposed and what funds can do to address it.

She says many of her clients are trying to partner with investment managers to ask 'how are you thinking about climate change' and 'what are you doing to help me lower my carbon footprint' and help society by meeting the aspirations of the recent Paris (COP21) agreement.

"I think that's quite a new conversation for a lot of investment managers. They're not used to their clients asking about carbon footprints or specifically whether they're addressing climate risk," Cheang says.

The full article appears in the latest edition of FS Super - The Journal of Superannuation Management. You can access the article here.

Read more: USAustraliaMercerAlexis CheangDarren SnyderAmericansAustraliansEuropeansFS SuperJournal of Superannuation ManagementLondonParis
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