Investing for Australia: Clarifying climate risk expectations for the Future Fund

Overview

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Pile of Australian dollar coins

Investing for Australia is a report from the Centre for Policy Development’s Sustainable Economy Program. It follows previous reports and a broader stream of work on the management of climate risk.

The report assesses the Future Fund’s climate risk management using publicly available information.

It uses established tools and compares the Future Fund’s climate risk approach to practices at other institutional investors, including other sovereign wealth funds.

Download The Report

Investing for Australia uses publicly available information and globally accepted tools to assess the performance of the Future Fund on climate risk management. 

It compares this performance to other institutional investors, including other sovereign wealth funds.

What is the Future Fund?

The Future Fund is Australia’s main sovereign wealth fund (SWF).

It invests on behalf of taxpayers.

It gets capital from budget surpluses, and from the sale of Telstra.

In 2022 the Future Fund had nearly a quarter of a trillion dollars under management.

The Future Fund is overseen by a board and it is broadly directed by an Investment Mandate and a Statement of Expectations issued by the Finance Minister.

The Future Fund is required to maximise long-term returns relative to risk, and to adhere to international investment industry best practice.

What is climate risk?

Investors and company directors manage risk and opportunity, including risks and opportunities relating to climate change

Climate change creates risks for investors and fund managers. Things like:

  • Physical risks from weather impacts
  • Devaluing of emissions-intensive investments
  • Investees facing regulatory action over their climate impacts

Why does this matter?

The Future Fund invests public money. Climate risk in its investments rests with all Australians. It is required to observe international best practice for institutional investors, including in how it manages risk

Disclosure is part of climate risk management. Climate risk disclosure is an established practice for the majority of private fund managers

The Taskforce on Climate-Related Financial Disclosure (TCFD) framework may become mandatory for other market participants in Australia

What does Investing for Australia find?

Investing for Australia uses the ICAP Expectations Ladder – an established industry tool –  to assess the Future Fund’s performance on climate risk based on publicly known information.

Table from Investing for Australia showing a partial early stage response

Investing for Australia finds that the Future Fund has made a partial early stage response to climate risk.

What does Investing for Australia recommend?

Investing for Australia recommends Parliament:

  • Request published climate risk disclosure from the Future Fund using global standards and emerging frameworks 
  • Ensures the Future Fund is covered by any new laws governing climate risk disclosure in Australia
  • Establishes and independent review from a panel of experienced investment professionals

The Investing for Australia report recommends that this review should consider whether the Future Fund’s Investment Mandate or Letter of Expectations should change to ensure that the Future Fund’s climate risk response is in line with industry best practice.

Investing for Australia in the media

A new report by the Centre for Policy Development (CPD) has revealed that the Future Fund’s response to climate risk likely falls short of international standards.
The Centre for Policy Development (CPD) is calling for Future Fund to observe industry best practice to manage climate-related risk.
A new report produced by the Centre for Policy Development (CPD) has proposed the Future Fund should be required to issue a climate risk disclosure.
The Future Fund should be required by the federal government to disclose its exposure to climate change risks in line with global industry standards, according to a new report from the Centre for Policy Development.
Australia's Future Fund is a "beginner" when it comes to managing climate risk, an independent report has found.

About the authors

Tom Arup

Tom Arup

Tom Arup was climate lead at the Centre for Policy Development

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