RIAA’s response to AFR opinion “Watering down super fund tests risks lower returns”
RIAA disagrees with the recent article, “Watering down super fund tests risks lower returns” published by the The Australian Financial Review. The Your Future, Your Super (YFYS) performance test is having a direct impact on the movement of capital to climate transition and achieving a net-zero economy.
While the policy objectives of YFYS, aiming to empower super members to better understand how their money is invested is a positive thing, we consider there are unintended consequences of a policy which relies on measuring performance against a benchmark based on a market that has high emissions and is focused on short term financial return.
Our latest research, released Monday 4 December clearly demonstrates that MySuper products of super funds demonstrating leading responsible investment practice outperformed those of non-leaders on average in 2022, proving that strong financial performance and investing ethically are not mutually exclusive.
RIAA’s work with the The Conexus Institute clearly shows that the existing benchmarks inadequately reflect the impact of climate change and the energy transition:
- super funds will not be able to create portfolios which align with carbon transition consistent with meeting the Paris Agreement goals for limiting global temperature rise to 1.5 degrees Celsius, without creating an untenable level of YFYS performance test risk;
- it is not presently possible for a super fund to offer a sustainable investment option based on exclusions, like those set out by RIAA (tobacco, nicotine alternatives and tobacco-based products, controversial weapons, nuclear weapons), without creating an untenable level of YFYS performance test risk.
Fundamentally, current benchmarks are backward looking and if we invest against these, then we are destined to create a much hotter world. Research has found for example that the ASX300 is currently tracking at 4.5 degrees of warming by 2100, a conundrum for our government and investors who are targeting well below 2 degrees of warming consistent with Paris Agreement targets.
RIAA also rejects the implication that super members are passive and apathetic in how their money is invested. There is an increasing focus from retail consumers on ensuring their investments are doing good – or at the very least not contributing to an unsustainable future. RIAA’s consumer research shows super fund members increasingly expect their money to be invested in line with their own values, in addition to returning strong financial returns. This research also shows that there are significant differences between the views of older and younger Australians on how motivated they would be to try to save more if their savings and investments made a positive difference in the world: ranging from baby boomers at 39% to Gen Z at 83%. Some Gen Z superannuation fund members today will retire in the 2070s –this time horizon should be considered significant when viewing the systemic risks of poor longer-term performance of unsustainable assets.
On invitation, RIAA attended the Treasurer’s Investor Roundtable this week on net-zero transformation and raised the barriers the current YFYS performance test places on investment opportunities. RIAA continues to engage directly with Government on constructive solutions to this policy tension.