Cbus benchmarks managers on climate risk

Australia’s Cbus Super is benchmarking its asset managers to determine how well they are factoring climate change into their decisions and is making this specific strand of responsible investment a consideration in awarding future mandates.

But the industry superannuation fund’s head of responsible investment, Nicole Bradford, said despite undertaking the ongoing benchmarking survey, the fund has to “keep in mind many of our members work in industries and live in communities that are likely to be impacted by the transition to a low-carbon future”.

“We want to make sure we don’t starve for capital the companies that are investing in the transition,” Bradford says. “We are also mindful that our portfolio needs to be heading towards a future where climate risks are increasingly central to investment strategy.

“From an active equity perspective, we have a high proportion of active managers, globally; therefore, manager engagement is critical. We have undertaken a fund manager review with detailed questions on their approach to managing transition and physical climate risk.”

Cbus is one of Australia’s older superannuation funds and represents construction and building workers. It has 778,000 members. The A$46 billion ($32.5 billion) fund has become the fifth signatory to the Australian Asset Owner Stewardship Code, joining HESTA, AustralianSuper, Christian Super and Vic Super.

Signatories to the code are required to disclose their approach and outcomes regarding key stewardship activities: voting, engagement, policy advocacy and the selection, appointment and monitoring of external asset managers.

“Responsible investment for Cbus means taking [ESG] risks and opportunities into account in the investment decision-making process and exercising positive influence through our investments and the way the fund operates,” Cbus CIO Kristian Fok said. “Our approach supports the delivery of strong returns to members.”

This comes as fellow industry fund REST stares down a claim that it breached its trustee duties by not taking into account climate change-related risks when making investment decisions on behalf of its members.

Legal advice co-authored in 2016 by Noel Hutley and Sebastian Hartford Davis, which was commissioned by the Centre for Policy Development and the Future Business Council, suggested directors not thinking about climate-change risks today could be found liable for breaching their duty of care in the future. Corporate regulator the Australian Prudential Regulation Authority has publicly said climate change should be viewed as a business risk and the Australian Securities and Investments Commission has also emphasised its importance.

The claim against REST was brought by 23-year-old member Mark McVeigh and lodged in Federal Court in September. It alleges that to satisfy the 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 (TCFD).

The task force offers a voluntary framework that advises companies on how to disclose climate change-related risk and opportunities either due to legal obligation or voluntarily via a corporate sustainability report.

Bradford said Cbus was incorporating TCFD disclosure into the investment management agreements it has with active fund managers “where relevant”.

“We use engagement and voting with companies in which we invest as a tool to influence change,” she said. “We are also looking at how we manage downside risk where we hold passive investments.”

Cbus considers managing climate risk central to its capacity to deliver strong, sustainable returns to its members. Bradford said the fund had undertaken initiatives such as its climate change road map, which provides a framework for a systematic review and analysis of the portfolio over a two-year horizon.

In September, the fund announced it had set a target for all its property holdings to be net-zero emissions by 2030, when that portfolio is tipped to be worth $10 billion. The fund’s flagship Cbus Property subsidiary and property fund managers such as ISPT and AMP now manage about $5 billion of property.

Cbus has engaged its asset consultant to consider whether a similar arrangement could be used for the fund’s infrastructure investments.

“In our real assets, like property and infrastructure, there are potential physical impacts on assets from climate change that need to be incorporated into analysis,” Bradford explained. “This will involve engaging with our managers to help them set targets and deliver on this overarching target. The 2030 target is important from an investment lens, as it is being driven by the market.”