Discussing the impact of climate change on super funds at the FSC Summit this morning, UniSuper chief investment officer John Pearce has said simply divesting certain holdings is not an effective strategy.
Appearing on a panel discussing the investment landscape for Australia's fund managers to kick off the Financial Services Council Summit in Sydney this morning, Pearce was asked about the impact of climate change on super funds, and how the $80 billion UniSuper was dealing with the issue.
With a member cohort primarily comprised of higher education professionals, Pearce said the fund is on top of the issue, though noted it required more detailed attention than simply being aware the issue exists.
"Obviously if you imagine our constituency, we're all over this," Pearce said.
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"I have no shortage of gratuitous advice on how to manage for it. The point that I make to them is that it doesn't matter whether people are global [warming] skeptics. The question as an investment manager that we have to address is, 'How do I covert global warming into an investment thesis?"
Pearce said it's a tough thing to do and, while the fund accepted the world was warming and climate change was indeed underway, the difficulty was in taking action. Divesting from fossil fuels, for example, just "passes the parcel".
"The efficacy of divesting is pretty much zero," he said.
Pearce recalled occasions where the fund brought renowned Australian climate scientist and Climate Council chief councillor Tim Flannery before its investment committee to ask for advice on dealing with the issue only for Flannery to warn it "could take 100 years to play out."
"Now for an investment manager, converting this to an actionable investment [thesis], it's very, very difficult. It's hard to convince your members, 'Don't worry about the next 10 or 20 years, this will play out in 100.' Well, sorry, that doesn't wash," he said.
"I agree with all the literature, but my job is to convert it to an investment thesis and the best minds in the world are struggling with this."
Fidelity International portfolio manager Kate Howitt said unfortunately environmentalism had become a luxury good. Up when things are good, down when things aren't.
"When times are good, prosperity is high, we get very concerned about doing right by the environment," Howitt noted.
"When times are tough, everyone's concern comes back closer to home and it gets a lot harder to follow through on these sorts of initiatives. So communities support for supporting longer-dated environmental aims waxes and wanes as we've seen here politically."
The rise of ESG, Howitt said, reflects how the political process frustrates citizens searching for action on things which matter to them.
"Previously when the community wanted certain environmental standards, they elect people and this people make laws and the environmental problem gets solved," she said.
"In recent decades, that process is working less and less well. The community seems to have a view but can't get it expressed through the normal policy making process, and so therefore there's another attempt to go 'Well, let's get that out through our investment managers'."