World-first class action highlights necessity for more sustainable super

Young Australians might be feeling the push to reassess their choice of super fund, if this world-first lawsuit is anything to go by.

Earlier this week, 23-year-old Melbourne law student Katta O’Donnell filed a class action lawsuit against the Australian Government and two government officials, alleging they failed to meet their responsibilities to disclose the potential risk climate change creates for Australians' superannuation and government bonds.

Bonds are considered similar to – but generally less risky than – shares, in which you invest money for a fixed period of time and receive regular interest payments in return.

However, instead of making investments in companies, the investor lends money to a government to finance things such as infrastructure, national security, health and welfare.

Like shares, bonds can see a decrease in value if they become less appealing to the market. This can happen when investors have doubt in a government's ability to repay them due to increasing debt, ethical problems or reputational issues.

Many Australians invest in bonds through compulsory superannuation, though Ms O'Donnell has invested in them in addition to her super.

The claim, led by Ms O’Donnell, alleges that Australia’s economy and the nation’s reputation in international financial markets will be significantly affected by the government’s response to climate change.

A number of super funds have already begun to take action towards a more sustainable future, with First State Super announcing earlier this month that it will divest from businesses that derive more than 10 per cent of their revenue from thermal coal by October 2020.

First State Super has also set a number of other goals to achieve a more sustainable investment portfolio. These include a minimum 30 per cent reduction in emissions in its listed equities portfolio by 2023, fund-wide targets for investments in renewable energy and new technologies, and advocating and supporting an economy-wide 45 per cent reduction in greenhouse gas emissions by 2030.

Meanwhile, HESTA has this week called on the Australian Government to develop distinct policies to take on climate change by setting a 2050 ‘net zero’ emission reduction target and providing a clear pathway towards transitioning the economy to a low-carbon future. One of Australia’s largest industry super funds, its Chief Executive Debby Blakey said institutional investors like HESTA have an important role to play in the push to decarbonise Australia’s economy, but a key risk to members was a disorderly, rushed transition.

“We are at a critical juncture – the time to choose and commit to a low-carbon economy is now,” Ms Blakey said.

“We don’t want to see a carbon-led recovery that locks in long-term emissions and increases the risk of assets becoming stranded.

“Climate change represents a financial risk and leading global investors are already putting in place strategies to drive down the carbon in their portfolios and invest more in opportunities arising from the need to transition the world economy.”

According to a poll conducted by the Responsible Investment Association Australasia (RIAA) in 2017, 88 per cent of Australians aged 18 to 34 would be willing to switch to a different super fund to ensure their money is being invested in line with their values. It’s an approach not lost on personal finance in general, with lenders going green in other areas, including personal loans, banking, and mortgage financing, as well.

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