Treasurer Jim Chalmers’ essay provides a key clue on how he plans to redraw the country’s investment landscape, writes Karen Maley.
If I were a trustee of a super fund, I’d be extremely anxious about one sentence in Jim Chalmers’ essay that holds the key to understanding his radical plan for transforming the country’s investment landscape.
All this suggests that the main reason for Chalmers to establish this new “taxonomy” is that it will finally give him granular information on how much money investors – and particular the country’s super funds that control some $3.4 trillion in retirement savings – have actually committed to socially and environmentally positive projects.
Of course, as soon as you apply a credit risk-weighting to different types of investment, it’s a simple matter of arithmetic to work out a rating for institutional investors.All you have to do is work out how much money they’ve committed to companies and projects with the worst climate-risk rating and how much has been allocated to more environmentally benign projects, and you can easily arrive at a climate-rating for big institutional investors.
Not surprisingly, one of the first casualties of this new “taxonomy” will be the gas industry, given that it is a fossil fuel and the whole purpose of this new climate-risk rating system is to reduce investment in industries with heavy greenhouse gas emissions. And he’s also clearly keen to extend it into “social purpose” investments – in areas such as aged care, education and disability.
That doesn’t mean that the market is broken. Rather, the market is simply doing its job of providing negative feedback.He wants to pressure super funds to invest more capital in these priority sectors, and one way to achieve this is to further expand the climate-risk rating framework to cover “social purpose” investments and thereby provide a non-financial incentive for investment.
He believes the country’s super industry should play a bigger role in “investing in our national priorities” and “addressing some of our most formidable economic challenges.”have told him that their goal is to maximise the investment returns for their members, rather than financing “national priorities”.
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