Cbus Super has announced they will reduce their absolute carbon emissions by 45% across their portfolio by 2030.
The $54 billion industry super fund has announced a new Climate Change Roadmap, under which Cbus will put in place processes to achieve portfolio targets for each asset class, including equities. Cbus already has specific net zero emissions target for property by 2030 and infrastructure by 2050, said Kristian Fok, chief investment officer, Cbus.
Fok noted that since announcing the zero net emissions target for their property portfolio two years ago, their internal property management company and external property fund managers have set targets to achieve those aims.
"We have mechanism to target around scope 1 and scope 2 in particular by 2030, and we have a clear pathway that we have in place," Fok said. "That's a combination of creating significant efficiencies in energy use, and then also looking at how we source the residual part of energy in terms of a net zero framework, such as the deal that Cbus property managers did with Melbourne City Council for a bulk purchase of renewable energy, which helps stimulate the demand for renewable energy."
Fok noted that setting a net zero target in motion for its property assets has proven a strong value proposition with tenants in office property, particularly government and semi-government departments which frequently have rules relating to environmental performance of leased spaces.
Focusing on property and infrastructure at first also allowed Cbus to build up the capability to consider the fund's entire portfolio.
"We also built a lot of internal capability in terms of directly managing across equities, debt, infrastructure, and most of the strategies that we have developed, although they weren't targeted around a carbon or a greenhouse gas budget, the type of companies that portfolio managers are attracted to are more in the future-type companies rather than the old economy companies," Fok said. "So when we looked at the way that they're making decisions, that wasn't explicitly with a GHG budget in mind, but the way we are making money through how they are picking stocks aligns with that aim as well."
Setting a net zero target versus setting an absolute target allows Cbus to have flexibility within their portfolios, Fok said.
"There are some industries that don't have immediate alternatives, and we have to be looking at the mechanisms that can take carbon out of the atmosphere - areas like forestry for example," Fok said. "There's also the consideration that technology could change. We are trying to get a framework that allows us to look at all future developments in that regard."
Cbus has analytical tools to hand to evaluate the data relating to climate risk on portfolios - Fok cited MSCI as one data provider for the equities portfolio.
"A lot of the work that we're doing over the next six to 12 months is to pull together the data on the unlisted portfolios," Fok said. "Property is well advanced, infrastructure is being mapped. IFM has announced different initiatives around some of their biggest assets that are moving in the same direction as well."
Cbus has already undertaken work to understand companies that are at risk of not transitioning either due to products they produce or lack of management capability. Under the roadmap Cbus will develop a stranded assets framework, building on work that has already seen several high-risk climate holdings reduced or being removed from their portfolio.
"A whole portfolio approach is useful - I have multiple teams looking at different sectors and different sectors can advance at different paces," Fok said. "It makes sense to set a risk budget around that, because we understand the opportunity and the risks of being left behind. It helps to connect individual decisions in a more holistic way; we take that portfolio-level view of risk rather than a risk on equities versus cash and bonds. It's another way of framing the portfolio."
Cbus also emphasised the role of collaboration and engagement as part of the roadmap. Cbus has joined the United Nations Convened Net Zero Asset Owners Alliance and is the first Australian financial institution to do so. The global initiative is convened by the PRI and UNEP Finance Initiative and is supported by global leading asset owners committed to transitioning their portfolios to net zero emissions by 2050.
The Cbus Climate Position Statement and Roadmap will be reviewed next in 2022 and is publicly reported on each year in the Cbus Annual Integrated Report.
Cbus is the third industry fund this year to set significant targets to reduce carbon emissions throughout its portfolio. In July, the $120 billion First State Super will divest $40 million of its equity portfolio holdings in thermal coal miners, including its indexed exposures, from thermal coal miners from October and will reduce greenhouse gas emissions in its listed equities exposures by at least 30% by 2023. In June, HESTA announced it would reduce the absolute carbon emissions in its investment portfolios by 33% by 2030 and will move to net zero by 2050. HESTA, which has $52 billion in assets under management, has a Climate Change Transition Plan (CCTP) that seeks to effectively align the fund's actions and investment portfolio with the goals of the Paris Agreement.