Across the financial services industry there are a number of key themes that are ongoing and emerging, including regulatory and legislative change, challenges of a pandemic environment, distribution channels and the rising focus on ESG and sustainability considerations.

In this panel session we will discuss the strategic considerations associated with the rising adoption of net zero by 2050 commitments by asset owners and investment managers. The challenges will be discussed by leading super funds and investors and they will share their thoughts on how our industry can progress towards this target.

Lonsec hosted this panel as part of the Fund of the Year Awards 2021.

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The recently released Intergovernmental Panel on Climate Change (IPCC) Report made for sobering reading. Based on the most up to date, science-based understanding of the climate system and climate change, the report found that it “is unequivocal that human influence has warmed the atmosphere, ocean and land. “ According to the report, human influence has ‘very likely’ to ‘almost certainly’ contributed to global land and ocean warming, the retreat of glaciers, the decrease in Artic sea ice, rising sea levels and the increase severity and number of extreme weather and climate events that are occurring across every region across the globe.

The Lonsec Sustainable Managed Portfolios have a dual objective of delivering strong risk-adjusted returns while also making a positive contribution to the key environmental and social challenges facing society as measured by the United Nations Sustainable Development Goals (SDGs).

Climate change impacts a number, if not all, of the SDGs.

For example, changing weather patterns, more severe droughts, floods and tropical cyclones can significantly impact SDG 2 Zero hunger (and consequently SDG 3 Good health and well-being) due to increased food insecurity. SDG 1 No poverty will also be affected, as livelihoods, particularly in the agricultural sector, are lost. Climate change is also clearly impacting SDG 14 Life below water with coral bleaching events and ocean acidification on the rise and 15 Life on Land as decreased biodiversity, changing climate zones, and heatwaves threaten the extinction of many species.

The Lonsec Sustainable Managed Portfolios seek to address climate change in several ways;

  • We invest in strategies that are actively looking to solve the challenges of climate change. Impact strategies such as the Impax Sustainable Leaders Fund which invests globally in companies that are active in resource efficiency and environmental markets and the Pengana WHEB Sustainable Impact Fund which invests in sustainable investment themes including environmental themes such as cleaner energy, sustainable transport and water management. The Lonsec Sustainable Portfolios also have exposure to green and sustainable bonds through our fixed income strategies, where the proceeds of the bonds go directly towards funding climate solutions such as wind and solar farms.
  • We limit our exposure to fossil fuels, and in particular, thermal coal. As the highest emitting fossil fuel, coal is simply an exposure we want to avoid. Most of our underlying managers go further and exclude fossil fuels altogether which we strongly encourage as alternative technologies including renewables become more accessible. We monitor the portfolio’s exposure to each of the major fossil fuels (coal, gas, oil) using a third-party data provider to ensure that our exposures are low or zero and aligned with the goals of the Paris agreement, and we track the overall carbon footprint of the portfolio.
  • We invest in strategies such as the BetaShares Global Sustainability Leaders ETF (ETHI) that targets ‘climate leaders’. These are global large cap companies that have passed screens to exclude companies with direct or significant exposure to fossil fuels. 100% of the power generated by the companies in ETHI come from renewable sources.
  • We invest with managers that have strong Environment Social and Governance (ESG) integration, that is, they understand and incorporate the physical and transition risks of climate change into their financial analysis. They are managers that engage directly with companies around their climate disclosures and on their transition plans to net zero emissions. While targeting climate leaders and excluding fossil fuels can assist in keeping the carbon footprint of the portfolio low, it does little to reduce carbon emissions in the real-world – it simply passes the problem and emissions onto other investors. All companies, not just those focused on climate solutions, need to be part of the transition if we are to have a real-world impact. We want fund managers to work with all companies to reduce their emissions across the board and improve the carbon footprint of the entire market. In this regard, we see ESG integration as playing a critical role in delivering to the SDGs.

We believe the Lonsec Sustainable Portfolios are well positioned from a climate change perspective, however, more needs to be done. We will continue to work with fund managers and encourage more ambitious goal setting. At present we have 35% of FUM in the portfolio committed to net zero emissions by 2050 either through the Net Zero Asset Managers initiative or independent commitments. We want to see that number increase. It is important to Lonsec and important to our clients that we seek to urgently address climate change. We believe that addressing the impacts of climate change can help build more resilient portfolios and deliver more stable and higher long-term returns for our clients.


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