Finance Your Super Climate change could put the squeeze on super fund members

Climate change could put the squeeze on super fund members

A house made of money about to be wiped out by a huge wave.
Climate change's impact on property prices could hurt super funds too. Photo: The New Daily
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The value of Australia’s property market could lose more than $500 billion in the next decade. But home owners aren’t the only ones at risk.

Research by the Climate Council shows climate change could wipe $571 billion off Australian property values by 2030, and one in every 19 property owners could be facing “effectively unaffordable” home insurance premiums as climate risk grows.

The impact this would have on Australia’s shrinking pool of home owners is obvious, but the ownership of commercial properties and infrastructure assets (such as toll roads) by superannuation funds means super fund members could also be in the firing line.

Dr Karl Mallon, director of science at climate technology firm XDI and a co-author of the report, told The New Daily that financial institutions, including super funds, will have another problem to wrestle with – the disruption to business.

“[The $571 billion figure] is just the adjustment in the value of property because of damage, but not covering things like disruption,” Dr Mallon said.

“If you run a retail outlet, the cost of damage might be a problem, but the cost of lost revenues while the premises are being repaired is the most expensive component,” Dr Mallon said.

Agricultural land, commercial properties (like large shopping centres), and infrastructure projects (such as toll roads) will be particularly challenged by climate change-related disruption caused by floods, droughts, fires and more, Dr Mallon said.

A Bunnings Warehouse in Townesville following massive flooding in North Queensland.
The value of commercial properties at risk of flood could plummet. Source: Getty

Super funds will need to identify which of their property investments are “climate toxic” and develop a plan to mitigate the potential danger, he said.

“Some of these assets aren’t going to be worth much [in the future], and you need to think about what that will mean when you’re trying to get your pension paid,” Dr Mallon said.

“I would be looking for someone who’s taking these risks very seriously.”

Minimising exposure

Industry Super Australia’s deputy chief executive Matt Linden said many large funds are already looking for ways to “minimise or manage” the effects of climate change on their property holdings.

“This is an ongoing process and not a set-and-forget strategy, so that the latest information and risks can be evaluated and strategy refined if needed,” he said.

In addition to assessing the risk faced by each property, Mr Linden said that industry super funds are also increasing their investment in opportunities “that will be part of the solution, such as renewable energy”.

“Industry super funds have a long track record of embedding climate risk in their investment processes and decisions,” he said.

Self-managed super funds most at risk

Ian Yates, chief executive of Council on the Ageing (COTA), said large, well-performing funds are less likely to be hurt by climate change-related risks than smaller funds, especially self-managed super funds (SMSFs).

“Big super funds, funds with good performance, they already have people watching these issues and looking for those risks and opportunities – climate change can present investment opportunities too,” he said.

“SMSFs though could find their value affected.”

Trying to design an investment portfolio to protect against complicated issues like climate change is a difficult task for even the sharpest investors, Mr Yates said, and fund members – especially but not exclusively self-managed – should avoid “taking action on these things themselves”.

“There are too many SMSFs run by people trying to make tricky investment decisions that even big fund managers with professional investment teams struggle with,” Mr Yates said.

The New Daily is owned by Industry Super Holdings

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