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Super has a key role to play in Net Zero challenge

Oksana Patron1 December 2023
Biodiversity ESG

Australian superannuation industry will have a key role to play in helping the local economy transition to Net Zero emissions, according to the Association of Superannuation Funds of Australia (ASFA).

ASFA’s new research has highlighted that Australian economy will need a fundamental shift in the structure, given the scale and complexity of the transition, as well as capital investments in order to achieve its goals and the superannuation sector will serve as a key source of funding.

According to date, total financial investments of APRA-regulated funds currently stand at $2.3 trillion and are projected to reach $10 trillion by 2050.

ASFA’s interim chief executive, Leeanne Turner, has said that although the Government would play a critical role in orderly transition, the social implications and responsibilities will apply to all of society, including the broader business community, financial institutions, non-government organisations and community-based groups.

For individual funds, the change to net zero portfolio emissions will require a highly-complex approach including integrating decarbonisation into established frameworks for long-term value creation and risk management.

This re-enforces the key role that APRA-regulated superannuation funds will play in the collective challenge to transition the Australian economy to net zero emissions.

“For superannuation funds, vital elements include the development of transition plans for key sectors of the real economy; development of a taxonomy for investments consistent with the net zero transition; and development of internationally-aligned standards for the disclosure of climate-related risks and opportunities (for more details, see forthcoming ASFA submission on the Government’s consultation paper for its sustainable finance strategy),” ASFA said.

According to ASFA, the critical role the Government will play in it will include setting the conditions for the required shift in the structure of the economy and the associated scale, distribution and timing of fixed capital investment to give effect to that shift.

Further to that, the Government side will also need to:

  • Develop the frameworks to improve the scope and quality of disclosed data by entities – that relate to climate-related risks and opportunities, and to projections for emissions – across the economy, in order to better inform decision-making and the allocation of financial capital.
  • Reduce barriers (particularly related to regulation and planning) to the required allocation of financial capital, including for new renewable energy infrastructure.
  • Provide targeted incentives for certain investments that, while necessary for an orderly transition, may not be attractive for private financial capital on a risk-return basis (for example, incentives for early-stage investment in nascent technologies, such as ‘green’ hydrogen).
  • Enable critical infrastructure investment that, for the private sector, may not be attractive on a risk-return basis (for example, electricity transmission networks, which can be subject to elevated timing risk). This could include risk-sharing arrangements between government and the private sector
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