With the energy transition shaping up to be a substantial investment opportunity for long-term investors, Australia’s superannuation funds say they are increasingly taking note of its financial implications and the ways they can capitalise on this shift.
According to Andrew Lill, outgoing chief investment officer at $86 billion fund Rest, the energy transition is “one of the big investment opportunities of our lifetime”, particularly in light of the fund’s relatively younger member base compared with its peers.
Speaking at the 2024 ASFA Conference on Wednesday, he acknowledged there are “various pathways and pillars” for funds to meet commitments to reduce emissions in the economy.
“Just to zoom out for a second, I think it starts, from my point of view as an investor, a strong belief that climate risk is investment risk. That means, if we don’t invest today to tackle some of the climate challenges, then we won’t have a resilient, productive economy in the future, which will be disadvantageous for members in terms of financial outcomes in the future,” Lill said.
Importantly, no one individual, fund or economy will be able to achieve this transition on their own, driving the need for collaboration on a large scale. However, Lill pointed out, opportunities in this space remain “uncertain”.
“There’s no formula you can follow, but often the most uncertain ideas with the greatest risks provide the greatest opportunities and returns in the long term. So, we have to lean into this, and the way to do that is to diversify across regions and types,” he said.
He took note of the government’s Future Made in Australia (FMIA) initiatives, which seeks to build an ecosystem around the energy transition, ranging from critical minerals and renewable energy to transmission and storage.
The government has committed $22.7 billion in its 2024–25 budget for the FMIA budget, which it said seeks to mobilise the support of institutional investors, including super funds, towards investment in clean energy, innovation and technology projects to “secure Australia’s place in a changing global economic and strategic landscape”.
“Have a go at each of these things in an investment portfolio and over time, by being an investor and being invested, you’ll see where the opportunities come out. That’s certainly where I, as a CIO, have led my investment team on that path,” Lill said.
Also speaking at the conference, Aware Super chief executive Deanne Stewart agreed that institutional investors like super funds “need to turn our minds” to the energy transition, given its significant impact.
For asset owners like Aware Super, this could mean navigating a variety of risks depending on how the pathway to net zero continues to shape up, and how they can build resilience in their portfolios.
“There will be a massive role we play in that transition, and a core element of that is not just the investment, but the way we engage in a really rigorous, thoughtful, and cooperative manner to really help and assist companies in that transition. That’s a really competitive advantage in many ways of the long-term nature of the superannuation system,” she said.
The fund has already identified opportunities in areas like renewables, and according to Stewart, it could increasingly play a role in other aspects.
“Particularly, if we look at our private equity portfolio, we’ve actually got a number of companies that help on the resilience side, whether that be more water-resistant crops or agriculture that requires less water or actual regeneration,” she said.
“We will play a role across the gamut. The knack is absolutely [in identifying] where the best opportunities are for the risk on the table.”
