IFM Investors launches climate transition fund to reduce exposure to carbon emissions

The $185bn IFM Investors is to launch a climate transition fund for ASX-listed shares targeted at Australian super funds under pressure to do more to invest in lower emissions stocks.

The pooled fund, which will be opened to Australian-based institutional investors, is a climate-enhanced index – which IFM says will help investors reduce their exposure to carbon emissions. Picture: Getty Images

The $185bn IFM Investors is to launch a climate transition fund for ASX-listed shares targeted at Australian super funds under pressure to do more to invest in lower emissions stocks.

The pooled fund, which will be opened to Australian-based institutional investors, is a climate-enhanced index – which IFM says will help investors reduce their exposure to carbon emissions.

It is also being designed with an eye to constraints on superannuation funds which have to comply with the Your Future, Your Super performance benchmarks or risk being ordered not to accept any more members.

Fund managers and advisers have expressed concern that the performance benchmarks, which are administered by the Australian Prudential and Regulation Authority, can make it hard for funds to invest in renewables and other low-carbon companies which may take a longer time to become profitable.

The new IFM fund will target a 50 per cent reduction in Scope 1 and Scope 2 emissions by 2030 relative to 2019 benchmark levels, as well as Scope Three reductions by taking overweight positions in “clean energy and climate transition solutions as well as reducing exposure to carbon intensive companies.

IFM executive director, index and quantitative equities, Laurence Irlicht, said the new fund would also be leveraging IFM’s scale as one of the largest equity managers in the country, with some $45.5bn in Australian shares, to actively engage with companies and “advocate for greater accountability and positive climate outcomes”.

He said IFM would take into account companies’ transition capabilities and risks “as well as engaging with companies that are assessed to have a high transition risk.” He said the fund would provide a low-risk strategy for investors which benchmarked the ASX300 and aimed to align with Your Future, Your Super performance requirements.

“IFM has managed low-carbon, listed equities portfolios for clients for more than a decade,” he said. “We expect the new pooled fund will have broad appeal among investors seeking to decarbonise their Australian equities portfolios and reduce climate risk without taking on significant tracking error and fees.”

Mr Irlicht said the companies which would be in the index were selected from a quantitative process of using third party data on the carbon emissions of companies using “optimising techniques to get the best possible result within the constraints”.

“We are looking for the most efficient portfolio which produces the best climate change result and minimises the (ASX 300) tracking error,” he said.

While he would not name any specific companies which would be part of the index, he said it would not include companies which invested in thermal coal.

“While we can seek to influence a company and change its ways and reduce their carbon output, when it comes to thermal coal companies we realise that there is not much we can do to influence them,” he said.

Mr Irlicht said the new fund had come about as a result of discussions between IFM’s responsible investment team, its equities team and client relations team.

“But they want to have companies with good-quality (carbon) transition characteristics in their portfolio. This gives them that while maintaining a low tracking error.” He said the fund would be created based on the data from external third parties which specialised in providing climate information on companies.