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Dr Richard YinMBBS, Grad Dip Manip Ther
Richard is married, lives in Shenton Park and has two teenage boys. In addition to working as a general practitioner he works as a musculoskeletal physician. |
A Briefing Paper on Superannuation, Health and Climate Change
Current trajectories of global warming place us well outside what would be considered safe limits[1]. Already the world is locked into irreversible rises in global temperatures and no region is immune from the negative impacts. The CSIRO has already highlighted that Australia is feeling costly impacts from greater storms, bushfires and heatwaves at just one degree warming[2] and these climatic changes are already having an effect on the physical and mental health of Australians, particularly our children who are most vulnerable[3].
Yet successive governments both in Australia and internationally have failed to take the necessary policy decisions that are required to mitigate against catastrophic global warming. But action is building on numerous fronts. Outside of Australia clean energy and carbon constraint policies are growing. Health professionals are becoming more engaged and framing policies from a health perspective[4]. The costs of alternative technologies are plummeting. Social pressure through local campaigns and the divestment movement is escalating.
Currently most of us through our superannuation are invested in fossil fuel companies whose actions contribute to global warming. At the same time our investments in these companies exposes us to financial risks from policies and actions in response to climate change that impact on the valuation of such companies. This briefing paper outlines the requirement to rapidly decarbonise our societies; the role of coal, its negative health effects and the combined gains to health and the climate from ending coal powered electricity; the investment risk of coal and other fossil fuels within our superannuation; the requirements of our superannuation industry to manage the risks posed to our investments from climate change; and possible member action to drive change within this industry.
Climate change and health: the need for urgent action
The health impact of global warming threatens to undermine the last half centuries gains in development and global health. Globally climate change is already causing 400,000 deaths per annum[5]. The direct health effects include increase in heat stress, floods, droughts, and increased frequency of intense storms; with the indirect effects such as adverse changes in air pollution, the spread of vector diseases, food insecurity and under-nutrition[6].
To keep global temperatures to a safe limit, around 75% of all fossil fuels must be kept in the ground and 88% of all coal reserves[7]. To avoid catastrophic climate change will require the rapid decarbonisation of our societies and ending our dependence on fossil fuels. The phase out of coal is proposed as an early and decisive policy package targeting air pollution yielding immediate gains for society. The world’s leading medical journal the Lancet calls for the review of the 2200 coal-fired plants currently proposed for construction globally explaining that their emissions will damage health unless replaced by cleaner energy alternatives[8].
The hidden cost of coal: removing coal-fired power stations will yield and immediate health and economic benefits
Coal aside from its effects on warming is a pollutant and causes throughout its life-cycle, from mining, disposal of contaminated water and tailings, transportation, washing, combustion, and disposing of post-combustion wastes, significant health impacts. It contributes to heart disease, cancer, strokes and chronic respiratory diseases[9]. Globally air pollution from coal combustion accounts for over 200,000 deaths per year. The risk of premature deaths for people living within 50 km of coal-burning power stations can be as much as three to four times that of people living at a greater distance. The health cost associated with coal combustion cost Australia $2.6 billion annually[10]. Globally air pollution largely from fossil fuel combustion causes 2.1 million deaths annually[11], in Australia it contributes to 1600 deaths per annum[12]. To phase out coal from the energy mix will yield immediate health and economic gains[13]. President Obama’s Clean Power Plan which will limit carbon pollution from power plants is expected to reduce up to 3,600 premature deaths, lead to 90,000 fewer asthma attacks in children, and prevent 300,000 missed work and school days[14].
Our superannuation is gambling our money on coal and other fossil fuels
Australian fossil fuel companies continue to spend billions of dollars developing further reserves of coal that cannot be burnt if we are to keep warming to a safe limit[15]. In 2015, the Norwegian Government Pension divested from thermal coal on the basis of analyses showing “the coal industry globally is in a state of structural decline. It is a shrinking industry with little upside potential. Coal stock prices have collapsed, markets are oversupplied and some analysts—including this one—have concluded that coal markets will never recover.”[16] “Currently, in aggregate, fossil fuel companies are estimating with 90 per cent certainty that they will be able to extract freely (for subsequent sale and combustion) over three times more carbon than is compatible with the internationally agreed 2 degree limit on global warming.”[17] The world’s top 500 pension funds, with assets in excess of US$40 trillion, invest some 55 per cent of those assets in climate-exposed industries, and less than two per cent in low carbon investments, such as renewables, energy efficiency and alternative technologies. “That is a 55-2 punt against a climate-induced Global Financial Crisis (GFC); a punt that dwarfs the risks taken in the sub-prime crisis that led to the recent GFC. I am sure, as evidenced by recent surveys, most retirees and workers would be appalled to know that such risks were being taken with their superannuation”, says John Hewson, former federal Liberal leader[18].
The fiduciary responsibility of superannuation funds to their members
Superannuation funds have a fiduciary duty to manage the risk of their investments on behalf of members. There is a clear-cut case that asset owners and investment managers - especially those with a long-term mandate - need to carefully consider carbon and climate change as a financial risk[19]. The most recent report from an index of how the world's top 500 superannuation, sovereign wealth and insurance funds manage these risks, the Asset Owner's Disclosure Project (AODP), reveals that some of our superannuation funds are making world-leading efforts to invest for the future, while others appear to be hoping that the whole "climate change" thing will go away[20]. Australia's Local Government Super came top of the worldwide index. It's one of just nine asset owners who received a "AAA" rating. Australian Super, the country's biggest superannuation manager, also attained this level. Top rated funds are beginning to protect their investments through strategies including engaging with the companies, in which they own shares, divesting of heavily carbon-exposed assets, or deploying hedging strategies. Simulations by The Aperio Group on an ASX 200 portfolio excluding the most fossil fuel intensive companies found that such portfolios when compared to historical data tracked the broad share market very closely achieving very similar month to month returns[21]. These findings are supported by recent international analysis showing that fossil fuel divested funds have outperformed more conventional portfolios in the last 5 years[22].
How should a superannuation fund respond and manage the risks of climate change?
The AODP speaks of a requirement for transparency that members are aware of what they are invested in; a climate risk management strategy considering long-term risks and future climate regulation; low carbon investments as a hedge to climate risk with an appropriate diversification of assets that will not be impacted by carbon pricing; active ownership and engagement with companies on issues related to climate change risks; and governance structures inclusive of performance incentives that are aligned to members’ long term investment horizons and not based on short term performance[23]. In 2011, the global investment consultant Mercer released a report entitled “Climate Change Scenarios: Implications for Strategic Asset Allocation” and was a collaboration between Mercer and institutional investors holding over $2 trillion dollars in assets. The report's key finding was that climate change increased investment risk and advocated immediate investment in low carbon assets to hedge climate risk; advocated massive realignment in portfolios to 'climate sensitive assets'; described traditional portfolio models as being incapable of managing climate risk; and that policy uncertainty added 10% to portfolio risk. The implications for superannuation funds are significant with a 40% allocation to climate sensitive assets currently representing approximately $500bn of current and future retiree's money in Australia alone[24].
[1] https://www.newscientist.com/article/dn26243-world-on-track-for-worst-case-warming-scenario/
[2] http://apo.org.au/research/climate-change-australia.
[3] http://dea.org.au/images/general/Children_and_climate_change_report%3A_No_Time_for_Games_web.pdf
[4] http://www.thelancet.com/journals/lancet/article/PIIS0140-6736(15)60854-6/fulltext
[5] http://www.daraint.org/wp-content/uploads/2012/09/CVM2ndEd-FrontMatter.pdf
[6] http://www.thelancet.com/journals/lancet/article/PIIS0140-6736(15)60854-6/fulltext
[7] http://www.climatecouncil.org.au/uploads/a904b54ce67740c4b4ee2753134154b0.pdf
[8] http://www.thelancet.com/journals/lancet/article/PIIS0140-6736(15)60854-6/fulltext.
[9] http://www.psr.org/assets/pdfs/psr-coal-fullreport.pdf
[10] http://caha.org.au/wp-content/uploads/2010/01/Climate-Council_HealthEffectsofCoal_WEB-PDF.pdf)
[11] http://iopscience.iop.org/1748-9326/8/3/034005/pdf/1748-9326_8_3_034005.pdf
[12] http://www.environment.gov.au/protection/nepc/nepms/ambient-air-quality/variation-2014/questions
[13] http://www.thelancet.com/journals/lancet/article/PIIS0140-6736(15)60854-6/fulltext
[14] https://www.whitehouse.gov/the-press-office/2015/08/03/fact-sheet-president-obama-announce-historic-carbon-pollution-standards
[15] http://www.carbontracker.org/report/australias-carbon-bubble/
[16] http://ieefa.org/wp-content/uploads/2015/05/Case-for-Divesting-Coal-from-the-Norwegian-Government-Pension-Fund-Global_compressed.pdf
[17] http://350.org.au/wp-content/uploads/2014/07/Climate_Proofing_Your_Investments_final.pdf
[18] http://www.policyforum.net/the-super-future/#sthash.eBP9dbJv.dpuf
[19] http://www.climateinstitute.org.au/articles/media-releases/fossil-fuel-investments-could-leave-us-stranded.html/section/431
[20] http://aodproject.net/climate-ratings/aodp-global-climate-500-index.html?resetfilters=0&clearordering=0&clearfilters=0
[21] http://350.org.au/wp-content/uploads/2014/07/Climate_Proofing_Your_Investments_final.pdf
[22] http://www.theguardian.com/environment/2015/apr/10/fossil-fuel-free-funds-out-performed-conventional-ones-analysis-shows
[23] http://aodproject.net/climate-ratings/how-do-the-ratings-work.html
[24] http://aodproject.net/images/docs/Asset-Owners-Climate-Change-Best-Practice-Framework-v27.pdf
Yet successive governments both in Australia and internationally have failed to take the necessary policy decisions that are required to mitigate against catastrophic global warming. But action is building on numerous fronts. Outside of Australia clean energy and carbon constraint policies are growing. Health professionals are becoming more engaged and framing policies from a health perspective[4]. The costs of alternative technologies are plummeting. Social pressure through local campaigns and the divestment movement is escalating.
Currently most of us through our superannuation are invested in fossil fuel companies whose actions contribute to global warming. At the same time our investments in these companies exposes us to financial risks from policies and actions in response to climate change that impact on the valuation of such companies. This briefing paper outlines the requirement to rapidly decarbonise our societies; the role of coal, its negative health effects and the combined gains to health and the climate from ending coal powered electricity; the investment risk of coal and other fossil fuels within our superannuation; the requirements of our superannuation industry to manage the risks posed to our investments from climate change; and possible member action to drive change within this industry.
Climate change and health: the need for urgent action
The health impact of global warming threatens to undermine the last half centuries gains in development and global health. Globally climate change is already causing 400,000 deaths per annum[5]. The direct health effects include increase in heat stress, floods, droughts, and increased frequency of intense storms; with the indirect effects such as adverse changes in air pollution, the spread of vector diseases, food insecurity and under-nutrition[6].
To keep global temperatures to a safe limit, around 75% of all fossil fuels must be kept in the ground and 88% of all coal reserves[7]. To avoid catastrophic climate change will require the rapid decarbonisation of our societies and ending our dependence on fossil fuels. The phase out of coal is proposed as an early and decisive policy package targeting air pollution yielding immediate gains for society. The world’s leading medical journal the Lancet calls for the review of the 2200 coal-fired plants currently proposed for construction globally explaining that their emissions will damage health unless replaced by cleaner energy alternatives[8].
The hidden cost of coal: removing coal-fired power stations will yield and immediate health and economic benefits
Coal aside from its effects on warming is a pollutant and causes throughout its life-cycle, from mining, disposal of contaminated water and tailings, transportation, washing, combustion, and disposing of post-combustion wastes, significant health impacts. It contributes to heart disease, cancer, strokes and chronic respiratory diseases[9]. Globally air pollution from coal combustion accounts for over 200,000 deaths per year. The risk of premature deaths for people living within 50 km of coal-burning power stations can be as much as three to four times that of people living at a greater distance. The health cost associated with coal combustion cost Australia $2.6 billion annually[10]. Globally air pollution largely from fossil fuel combustion causes 2.1 million deaths annually[11], in Australia it contributes to 1600 deaths per annum[12]. To phase out coal from the energy mix will yield immediate health and economic gains[13]. President Obama’s Clean Power Plan which will limit carbon pollution from power plants is expected to reduce up to 3,600 premature deaths, lead to 90,000 fewer asthma attacks in children, and prevent 300,000 missed work and school days[14].
Our superannuation is gambling our money on coal and other fossil fuels
Australian fossil fuel companies continue to spend billions of dollars developing further reserves of coal that cannot be burnt if we are to keep warming to a safe limit[15]. In 2015, the Norwegian Government Pension divested from thermal coal on the basis of analyses showing “the coal industry globally is in a state of structural decline. It is a shrinking industry with little upside potential. Coal stock prices have collapsed, markets are oversupplied and some analysts—including this one—have concluded that coal markets will never recover.”[16] “Currently, in aggregate, fossil fuel companies are estimating with 90 per cent certainty that they will be able to extract freely (for subsequent sale and combustion) over three times more carbon than is compatible with the internationally agreed 2 degree limit on global warming.”[17] The world’s top 500 pension funds, with assets in excess of US$40 trillion, invest some 55 per cent of those assets in climate-exposed industries, and less than two per cent in low carbon investments, such as renewables, energy efficiency and alternative technologies. “That is a 55-2 punt against a climate-induced Global Financial Crisis (GFC); a punt that dwarfs the risks taken in the sub-prime crisis that led to the recent GFC. I am sure, as evidenced by recent surveys, most retirees and workers would be appalled to know that such risks were being taken with their superannuation”, says John Hewson, former federal Liberal leader[18].
The fiduciary responsibility of superannuation funds to their members
Superannuation funds have a fiduciary duty to manage the risk of their investments on behalf of members. There is a clear-cut case that asset owners and investment managers - especially those with a long-term mandate - need to carefully consider carbon and climate change as a financial risk[19]. The most recent report from an index of how the world's top 500 superannuation, sovereign wealth and insurance funds manage these risks, the Asset Owner's Disclosure Project (AODP), reveals that some of our superannuation funds are making world-leading efforts to invest for the future, while others appear to be hoping that the whole "climate change" thing will go away[20]. Australia's Local Government Super came top of the worldwide index. It's one of just nine asset owners who received a "AAA" rating. Australian Super, the country's biggest superannuation manager, also attained this level. Top rated funds are beginning to protect their investments through strategies including engaging with the companies, in which they own shares, divesting of heavily carbon-exposed assets, or deploying hedging strategies. Simulations by The Aperio Group on an ASX 200 portfolio excluding the most fossil fuel intensive companies found that such portfolios when compared to historical data tracked the broad share market very closely achieving very similar month to month returns[21]. These findings are supported by recent international analysis showing that fossil fuel divested funds have outperformed more conventional portfolios in the last 5 years[22].
How should a superannuation fund respond and manage the risks of climate change?
The AODP speaks of a requirement for transparency that members are aware of what they are invested in; a climate risk management strategy considering long-term risks and future climate regulation; low carbon investments as a hedge to climate risk with an appropriate diversification of assets that will not be impacted by carbon pricing; active ownership and engagement with companies on issues related to climate change risks; and governance structures inclusive of performance incentives that are aligned to members’ long term investment horizons and not based on short term performance[23]. In 2011, the global investment consultant Mercer released a report entitled “Climate Change Scenarios: Implications for Strategic Asset Allocation” and was a collaboration between Mercer and institutional investors holding over $2 trillion dollars in assets. The report's key finding was that climate change increased investment risk and advocated immediate investment in low carbon assets to hedge climate risk; advocated massive realignment in portfolios to 'climate sensitive assets'; described traditional portfolio models as being incapable of managing climate risk; and that policy uncertainty added 10% to portfolio risk. The implications for superannuation funds are significant with a 40% allocation to climate sensitive assets currently representing approximately $500bn of current and future retiree's money in Australia alone[24].
[1] https://www.newscientist.com/article/dn26243-world-on-track-for-worst-case-warming-scenario/
[2] http://apo.org.au/research/climate-change-australia.
[3] http://dea.org.au/images/general/Children_and_climate_change_report%3A_No_Time_for_Games_web.pdf
[4] http://www.thelancet.com/journals/lancet/article/PIIS0140-6736(15)60854-6/fulltext
[5] http://www.daraint.org/wp-content/uploads/2012/09/CVM2ndEd-FrontMatter.pdf
[6] http://www.thelancet.com/journals/lancet/article/PIIS0140-6736(15)60854-6/fulltext
[7] http://www.climatecouncil.org.au/uploads/a904b54ce67740c4b4ee2753134154b0.pdf
[8] http://www.thelancet.com/journals/lancet/article/PIIS0140-6736(15)60854-6/fulltext.
[9] http://www.psr.org/assets/pdfs/psr-coal-fullreport.pdf
[10] http://caha.org.au/wp-content/uploads/2010/01/Climate-Council_HealthEffectsofCoal_WEB-PDF.pdf)
[11] http://iopscience.iop.org/1748-9326/8/3/034005/pdf/1748-9326_8_3_034005.pdf
[12] http://www.environment.gov.au/protection/nepc/nepms/ambient-air-quality/variation-2014/questions
[13] http://www.thelancet.com/journals/lancet/article/PIIS0140-6736(15)60854-6/fulltext
[14] https://www.whitehouse.gov/the-press-office/2015/08/03/fact-sheet-president-obama-announce-historic-carbon-pollution-standards
[15] http://www.carbontracker.org/report/australias-carbon-bubble/
[16] http://ieefa.org/wp-content/uploads/2015/05/Case-for-Divesting-Coal-from-the-Norwegian-Government-Pension-Fund-Global_compressed.pdf
[17] http://350.org.au/wp-content/uploads/2014/07/Climate_Proofing_Your_Investments_final.pdf
[18] http://www.policyforum.net/the-super-future/#sthash.eBP9dbJv.dpuf
[19] http://www.climateinstitute.org.au/articles/media-releases/fossil-fuel-investments-could-leave-us-stranded.html/section/431
[20] http://aodproject.net/climate-ratings/aodp-global-climate-500-index.html?resetfilters=0&clearordering=0&clearfilters=0
[21] http://350.org.au/wp-content/uploads/2014/07/Climate_Proofing_Your_Investments_final.pdf
[22] http://www.theguardian.com/environment/2015/apr/10/fossil-fuel-free-funds-out-performed-conventional-ones-analysis-shows
[23] http://aodproject.net/climate-ratings/how-do-the-ratings-work.html
[24] http://aodproject.net/images/docs/Asset-Owners-Climate-Change-Best-Practice-Framework-v27.pdf