Institutional Investors and Climate Change

Summary

What role can superannuation funds play in society’s response to climate change?

Researchers

Project Background and Aims

Since the conclusion of the Paris Agreement in 2015, there has been a very significant shift in the way climate change is framed and understood by business and investors. No longer merely an ethical or corporate social responsibility issue, climate change is now widely recognised as posing financially material risks. Equally, business and investors are increasingly cast as critical actors in society’s response to climate change. If sustainability is integral to investor decision-making on how to construct portfolios and allocate capital, as well as to investor stewardship activities, such as engagement with companies, investors can potentially play a significant role in helping to align capital, resources and economic activity to clean energy outcomes.

Drawing on an analysis of the legal context, prevailing investment theory and practice, as well as the emerging sustainable finance agenda, this project explores decision-making by a group of Australian institutional investors (superannuation funds and fund managers) on climate change. The project seeks to evaluate whether and how this decision-making is changing as a result of the consideration and integration of climate risks; and in turn, whether this is contributing to a shift of capital and resources in ways which support the transition away from a carbon intensive to a clean energy economy.

Methodology

Combining legal analysis with empirical research (document analysis and interviews), this project takes a law-in-context approach to understanding investor decision-making on climate change. It explores how this decision-making is being shaped by existing legal frameworks which require institutional investors to act in the best interests of beneficiaries and to address sustainability issues where they pose material risks to investments; as well as by dominant approaches to investment practice, which emphasise risk management through portfolio diversification and seek to integrate environmental, social and governance risk considerations into these processes. Analysis of investor policies and disclosures combined with a targeted set of qualitative interviews are used to uncover current and emerging practice of investor decision-making on climate change.

Publications relevant to this project

Jacqueline Peel, Anita Foerster, Brett McDonnell and Hari Osofsky, ‘Governing the Energy Transition: the role of corporate law tools’ (2019) Environmental and Planning Law Journal (Link to paper on SSRN: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3439212)

Hari Osofsky, Jacqueline Peel, Brett McDonnell, Anita Foerster, ‘Energy Re-investment’ (2019) 94(365) Indiana Law Review (Link to paper on SSRN: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3412509)

Anita Foerster, ‘Climate Justice and Corporations’ (2019) King’s Law Journal, https://doi.org/10.1080/09615768.2019.1645447