Australian Council of Superannuation Investors keynote speech
The Hon. Matt Kean
Chair - Climate Change Authority
Check against delivery.
May I begin by acknowledging the Gadigal people of the Eora Nation as the traditional owners of the land on which we meet today.
I'd like to pay my respects to elders, past, present and emerging, and extend that respect to any First Nations people here with us today.
Can I also thank the Australian Council of Superannuation Investors group for the invitation to address you today on the challenges and opportunities for Australia posed by climate change.
I'm also looking forward to joining a panel and hearing from two old friends - Amanda McKenzie, co-founder and CEO of the Climate Council, and Anna Skarbek AM, the CEO of the Climateworks Centre.
Both have contributed so much to advancing Australians' knowledge of climate change - and what we can all do to address it.
There is, after all, so much at stake.
On the carrot side of the equation, Australia is uniquely blessed among nations to benefit from a decarbonising world. We enjoy abundant renewable resources in the skies above, and a periodic table of critical minerals beneath our feet.
On the stick end, Australia's exposure to extreme heat and see-sawing rainfall totals leaves us vulnerable to a more chaotic climate that scientists are already detecting as the planet gets hotter.
With so much concerning news arriving on our channels and in our feeds of late, it's understandable for us to lose sight of these opportunities and challenges - some of which are already here.
As superannuation investors, I understand you do face some dilemmas in allocating your $4.5 trillion or so in assets.
How do you invest to maximise returns for your members - both in these turbulent times, but also for those members who will retire in 10, 20 or 30 years or further yet into the future?
If Australia really is to have a net-zero emissions economy by 2050, do the investments you expect to generate returns to super holders from incorporate that goal? Mid-century is only 24 years away, after all.
By some measures, we'll need half a trillion dollars of investment to re-tool our economy over the next couple of decades. The Business Council of Australia estimated the investment range to hit the upper end of the 2035 emissions goal alone at between $200-$500 billion.
The more disorderly the transition, without clear targets and policies, the larger that outlay will be - with increased uncertainty for jobs and increased likelihood of stranded assets.
For superfunds, some of the financial risks from climate change have been set out by the Australian Prudential Regulation Authority, or APRA, in its CPG 229 report.(Opens in a new tab/window)
No doubt many of you will be familiar with it.
These risks include the physical - such as from floods, to cite a present calamity being endured in large regions of Australia's centre and north.
Then there are the transition risks, mostly related to Australia's exposure to decarbonisation trends.
As a major fossil fuel exporter, Australia may well see the value of our shipments and gas and coal diminish - particularly if our main trading partners take a cue from the current war in the Middle East to accelerate the take-up of clean energy sources.
And thirdly, there are the liability risks that result from the potential for litigation where - and I cite here from the APRA document - "institutions and boards do not adequately consider or respond to the impacts of climate change".
That's a lot of risk to weigh up. So how are superfunds' investments lining up with a decarbonised economy at home and abroad?
We do know that Australia needs billions of dollars invested each year in our electricity grid - both to replace the aging and increasingly uncompetitive coal-fired power plants and build additional generation and transmission capacity to meet rising power demand.
Certainly, there are critics who note Australian super funds are largely absent from, say, investing in renewable energy here. A report last year by the Conexus Institute(Opens in a new tab/window) estimated that the amount of capital allocated to climate-related investments was less than 1% of super industry's total.
Some investors here today might raise legitimate reasons for shying away from clean energy investments in Australia - and point out they have found more attractive investments in this sector elsewhere in the world.
However, I would note that foreign investors, many of them pension funds, have found Australia an attractive destination to invest in large-scale wind and solar farms, and now batteries, in a big way.
If there are barriers that discourage you from parking more of your funds in the low-carbon industries in Australia, your collective voice and financial clout can make a difference.
I would encourage you to use that voice to speak up.
Lately, we've also seen recent media coverage of the 50-odd executives from our super industry on a road trip to the United States.
Australian funds already own about AUD41 billion worth(Opens in a new tab/window) of US infrastructure assets, and the roadshow is keen to explore more such opportunities, according to the AFR.
No doubt those fund managers will be keeping in mind their obligations to account for those climate change-related risks I detailed a few minutes ago.
The US has long been an attractive destination for Australian funds. And that country has been investing heavily in clean tech - whether in solar plants in Texas or big batteries in California - and those projects may be appealing to the visiting investors.
In general, though, Australians should be curious to understand how their super funds are aligning their investments so that the climate risks and opportunities are being addressed.
The present turmoil on commodity markets because of the Middle East war highlights the folly of seeking to shore up energy security by investing more into fossil fuels. It makes the imperative to accelerate the decarbonisation of the economy clear.
Sunlight can't get stranded in the Strait of Hormuz.
There really is a lot riding on how we respond.
And as APRA itself notes in its prudential practice guide, Australia's adaptation to climate change won't just carry risks, it will bring new business opportunities. Prudent managers must take both into account.
And one final thought.
Some of you might have seen a report(Opens in a new tab/window) last week from our counterparts in the UK, the Climate Change Committee, on that nation's seventh carbon budget.
A timely takeaway was the report's estimate of the cost of a single fossil fuel shock - the 2022 Russian invasion of Ukraine.
That cost, to households, businesses and the Exchequer or Treasury, was likely to be as large as the total net additional cost of its so-called Balanced Pathway to net zero by 2050.
"Achieving net zero was found to be a more cost-effective path for the UK economy than continued reliance on fossil fuels," the UK report found.
And that's from just one fossil fuel shock.
Economic and fiscal - along with environmental - prudence suggests we should do all that we can to reduce our exposure to such shocks.
Thanks for listening, and I look forward to joining the panel shortly to field your questions with Anna and Amanda.
