Neuberger Berman calls for super funds to slash emissions by 50pc by 2030

The $US400bn investment management firm Neuberger Berman is calling for super funds to set interim targets on the path to net zero by 2050.

Super funds should be looking to slash emissions in their portfolios by 50 per cent by the end of this decade, according to Neuberger Berman.

A disconnect between rhetoric and reality is the biggest risk facing Australia’s superannuation funds as they transition to net-zero investing, according to the $US400bn investment management giant Neuberger Berman.

Many of our super funds were global leaders in assessing climate risks to portfolios several years ago, but a big “top down” policy push in other countries had now closed the gap, leading other markets to catch up, said Jonathan Bailey, the investment manager’s head of ESG investing.

While a handful of super funds have now committed to achieving net zero emissions by 2050, including Cbus, AustralianSuper, HESTA and UniSuper, the big question is how they get there.

Some have failed to outline any interim targets, while others have set targets of a 30 or 40 per cent reduction in portfolio emissions by 2030. Many funds have yet to even commit to net zero emissions.

Funds needed to go harder and faster, and to get to net zero by 2050, they should be looking to slash emissions in their portfolios by 50 per cent by the end of this decade, Mr Bailey said. Interim targets were crucial to the success of the long-term net zero goal.

“Even if, today, delivering a 50 per cent reduction in carbon intensity and a diversified portfolio might be challenging, it is certainly possible to see reductions of 20 or 30 per cent in diversified portfolios, which is a good step in the right direction,” Mr Bailey said.

“And, of course, we and other investors will be engaging with operating companies to get those additional reductions over the rest of the decade to be able to deliver that 50 per cent reduction by 2030.”

Mr Bailey will this month speak to Australian institutional investors on the transition to net zero.

As clients call on Neuberger Berman to help manage the risks and opportunities to align portfolios with the net zero goal, the conversation often quickly shifts from equities to other asset ­classes.

“We’re working with clients in Australia around these portfolios. And I think what is particularly interesting is often the conversation around environmental, social and governance issues starts in the public equities markets, but actually we’re seeing a lot of discussion of this in fixed income and credit markets as well, given the obvious focus in credit markets around risk.”

According to the global investment manager, efforts to slow climate change through carbon taxes, regulation, green fiscal spending, energy transitions and changing purchasing behaviour will create new winners and losers in business, and new risks and opportunities in investment.

As a flood of money rushed towards ESG opportunities, investors should be looking beyond the obvious picks and considering the business models that are going to be advantaged by this greater focus on ESG, Mr Bailey said.

“There are still plenty of opportunities out there for investors to be invested in companies that are enabling this transition and the public demand and the policy environment will continue to accelerate the attention to securities in this space.

“Look at companies that are providing the input materials to those that are in the hydrogen and electric vehicle transition, or technology companies that may enable the shift to a low-carbon environment.”

On the transition to net-zero investing, Mr Bailey said funds would be judged not on their commitments, but on their actions.

“The biggest risk right now is the potential disconnect between rhetoric and reality. There’s increasing focus, not on what a fund’s intentions are, but on what have they actually done.”