Federal government under pressure to review Your Future, Your Super performance benchmarks

Fund managers are warning the Your Future, Your Super performance benchmarks can deter investment in renewable energy and ethical investments.

Hyperion Asset Management chairman Tim Samway said in the current Your Future, Your Super benchmarks would encourage super funds to invest in coal companies. Picture: Chris Pavlich.

The federal government is under pressure to review the Your Future, Your Super performance benchmarks for the $900bn MySuper sector, with fund managers warning that they can deter investment in renewable energy and ethical investments.

Hyperion Asset Management chairman Tim Samway said the current benchmarks would encourage superannuation funds to invest in coal companies – currently outperforming the market – and discourage them from investing in renewable energy or related ventures.

“The fossil fuel companies and the carbon emitters around (are) going to make out like bandits over the next 20 years,” he said in an interview with The Australian.

Mr Samway said the pressure on super funds not to fail the annual performance tests, which are administered by the Australian Prudential Regulation Authority and came into force last year, was now weighing on super fund investment managers, discouraging any potentially “risky” investments, including in renewable energy projects, which could take years to become profitable.

The Your Future, Your Super performance benchmarking system came into force in July, with APRA releasing the performance figures on 80 MySuper products with 14 million members.

Last August, it named 13 funds which had underperformed the benchmarks, urging them to lift their game and in many cases to merge with larger funds. From this year, the funds will be rated on an eight-year performance, with funds that fail the test two years in a row potentially being banned from accepting new money.

While the performance tests are aimed at weeding out poor performing funds and encouraging mergers in the super fund sector, there have been criticisms that the benchmarks used can have unintended consequences for fund managers by discouraging them from making any risky or longer-term investments.

The point was made in an earlier interview by one of the world’s top responsible investment specialists, Jens Peers, the Boston-based chief executive of ethical fund manager Mirova US. Mr Peers was in Australia for a conference of the Responsible Investment Association of Australia.

Labor superannuation spokesman Stephen Jones, told the conference that he would review the benchmarks if Labor won government in the May election.

He said the benchmarks being used for the Your Future, Your Super tests were “already having some unintended and negative consequences.” These included potentially driving faith-based investors out of the market.

“We want to ensure that the efforts to flag investment returns and their costs doesn’t interfere with the equally-proper objective of funds to drive social and economic outcomes,” Mr Jones said.

“There are a bunch of areas that need to be looked at, we won’t just throw it out but there are definitely some areas for finetuning.”

Mr Samway said there were a “range of reasons” that the share price of coal companies and other carbon emitters could remain strong for a long time, including the energy shortages caused by the Russian invasion of Ukraine.

He said the current performance test benchmark system meant that “it doesn’t allow you to move too far away from the benchmarks”. He said the risks of the transition away from carbon had not yet hit the sharemarket.

“They will, over time, but some fossil fuel companies will do extremely well for a while … A lot of investors will lose money when the carbon transition hits home, but this is decades ahead – not next year or the year after.”

Naomi Edwards, the chairwoman of Spirit Super, said the current Your Future Your Super benchmark tests had “the potential to give strange results”.

“Having an APRA-run benchmarking system is a good idea,” she said. “Anything that can help, drive the real focus on improving returns is good … but the risk with Your Future, Your Super is that it stops many good super funds from investing appropriately.”