Future Fund needs to be more transparent on climate: think tank

The Centre for Policy Development says the fund is behind on disclosure levels of others, including those in Singapore, New Zealand and Norway.

The CPD report comes as the government is considering moves to strengthen climate risk reporting by Australian companies.

The Future Fund should be required by the federal government to disclose its exposure to climate change risks in line with global industry standards, according to a new report from the Centre for Policy Development.

The left-leaning think tank says the Future Fund – which manages some $200bn in assets for the government – is behind in disclosure levels of other sovereign wealth funds, including those in Singapore, New Zealand and Norway, on their exposure to climate change risks.

It calls on the government to require it to meet global standards on climate change risk disclosure. It also calls on the government to set up an independent review panel of “experienced investment professionals” to examine the fund’s mandate around climate change.

“As a sovereign investor the Future Fund, along with other public institutions, has been somewhat insulated from the market pressures that have driven evolving best practice across the institutional investment industry,” Toby Phillips, the director of the CPD’s sustainable economy program, said on the release of the report.

“The evidence shows a clear disparity between industry best practice and what can be observed of the actions of our national sovereign wealth fund,” he said. “In other jurisdictions, sovereign and public investors many times larger than the Future Fund have taken active steps to lead best practice across disclosure, governance, engagement and investment strategy.”

He said standardised disclosures using frameworks like the Task Force on Climate-Related Financial Disclosures were now mandated across the institutional investment industry. Some countries, such as New Zealand, explicitly include sovereign investors in mandatory climate risk disclosure regimes.

“It is not desirable for a situation to emerge where investors many times smaller than the Future Fund are observing … a set of practices around risk and opportunity that is not practised by large sovereign investors,” he said. “The better situation is an even playing field where climate risk reporting practices and requirements are shared by public and private market participants.”

The report comes as the government is considering moves to strengthen climate risk reporting by Australian companies.

“With almost a quarter of a trillion dollars under management, the Future Fund is a major institutional investor acting on the global stage,” Mr Phillips said. “It is reasonable to expect them to play by the same rules as other major investors.”

Zoe Whitton, managing director at climate investment and advisory firm Pollination and a director of the CPD, said governments the world were “being asked to prove that they’re managing climate change risks well.”

“They are realising their sovereign investors are part of this management, and that their actions send a clear signal to their capital providers,” she said, adding businesses and investors – including sovereign investors – had made “big advances in managing climate risks and opportunities in the past few years.”

“The industry and regulators … expect that climate risk should be discovered, disclosed and addressed by investors,” she said.