Institutional investors in Australia and New Zealand are setting more stringent carbon emission targets, but need public sector support to hit net zero.
Australian and New Zealand-based asset owners and managers have strengthened their commitment to net zero carbon emissions over the last year, but they are still “lagging expectations” when it comes to reporting.
According to a new survey from the Investor Group on Climate Change (IGCC), which represents Australian and New Zealand investors such as superannuation funds, asset managers and sovereign wealth funds, 40% have made portfolio-wide commitments to net zero emissions by 2050.
This is an increase from 27% in 2020.
Nearly 40% of investors said that they had undertaken a climate-related transition analysis across the whole portfolio with the same number undertaking climate analysis of property and infrastructure assets.
Around 60% of respondents said that fossil fuel divestment and exclusions were now part of investor strategies.
It added that the majority of investors surveyed, representing over A$3.1trillion in global assets under management combined, are also now reporting against the Taskforce for Climate-related Financial Disclosures (TCFD) Recommendations.
It found that 55% of respondents are doing so, up from 38% last year.
In its conclusion, the report added that interim targets for emissions reductions are becoming more popular, with investors aiming for ambitious percentage cuts by 2030 or sooner. Earlier this month, Aware Super, Australia’s second biggest superannuation fund, said it had reduced emissions from its listed equities portfolio by 45% since December 2019, having targeted a 45% across all investments by 2030.
“With net zero now a baseline for action, interim targets are becoming a key feature of Paris-aligned portfolios, with clear signals that investors are embracing the numerous tools and frameworks to reach such targets,” the IGCC report said.
Policy Uncertainty as a Barrier to Investment
Despite this, the IGCC stated that the total number of TCFD disclosures was “still too low and the need to push investors to disclose is critical”. It stated that it had seen positive progress in New Zealand’s mandatory climate disclosure policy and a significant uptick in the quantity of investor climate disclosures but that the “overall number of disclosures continues to lag expectations”.
It said this highlighted the need for mandatory climate reporting disclosure in Australia as well as a need for it to make more credible 2030 emissions targets and a clear goal for net zero emissions by 2050.
Australia is one of the few developed countries not to have set a timeline for reaching net zero emissions, to date preferring to commit to a reduction of 26-28% from 2004 levels by 2030.
Indeed, the IGCC report revealed that 70% of investors highlighted policy uncertainty, primarily in Australia and to a lesser extent New Zealand, as a key barrier to investment, up steeply from 30% in 2020. A lack of appropriate investment opportunities also provided challenges to easily deploy capital.
Investors are however focusing more on the social dimension of climate change with 75%, up 24% from last year, being more aware of the impact communities face in the transition to decarbonisation and the opportunities.
Investor accountability is also now on the radar, the survey added, with considerations on executive remuneration and links to climate metrics. It said a “surprising” 40% said their organisations are “actively considering this matter”, with 10% already linking remuneration to climate-related actions.