The superannuation sector in Australia represents approximately AU$4 trillion of assets under management. By directing this vast pool of capital towards climate-aligned investments, Australia can do its part to limit global warming to 1.5° Celsius and position itself as a leader in the global net zero economy. 

Superannuation funds are regulated through the Your Future, Your Super (YFYS) annual performance test conducted by the Australian Prudential Regulation Authority. 

Treasury’s Sustainable Finance Roadmap highlights stakeholder concerns with the YFYS performance test design, suggesting it is a key barrier to integrating climate into investment decision-making. 

The roadmap also indicates the Australian Government’s plan to support credible business transition planning through best practice guidance, to be published by the end of 2025. 

With this growing momentum in Australia, Climateworks Centre has identified two opportunities to aid the transition to a net zero economy:

A climate benchmark for YFYS Performance Test

The YFYS performance test benchmarks superannuation funds against relatively high-emitting indices. 

Enhancing Credible Transition Finance proposes an optional, alternative set of ‘climate transition indices’ for superannuation funds to adopt in the annual performance test. 

This will ensure superannuation funds act in the best financial interest of their members while meeting their net zero 2050 commitments.

Credible transition planning 

Climate transition plans are a critical tool for mobilising the necessary finance to reach net zero, as they support meaningful engagement between companies and investors. 

Momentum around corporate transition plans is growing. 

In 2023, the Carbon Disclosure Project collected data on transition plans from more than 20,000 companies. 

They found that the number of companies disclosing climate transition plan increased by 44 per cent from the previous year but that only 2 per cent of the assessed transition plans were considered credible.

Climateworks has identified an opportunity to build on global initiatives and leverage the expertise of Australian industry groups and thought leaders to develop a succinct guide on credible corporate climate transition plans. This guide will provide a list of criteria that companies, investors and policy-makers can use to demonstrate or assess credibility in company transition plans.

‘Sustainable finance is the engine room of the net zero transition. Credible transition plans turn commitments into action – and into investable opportunities. With proposed reforms to the Your Future, Your Super performance test, we are supporting superannuation funds to finance that action and help steer the economy towards net zero.’

Cassandra Williams, Climateworks Centre Head of Enterprise Programs & Strategy

What we’re doing

Climateworks aims to enhance the annual superannuation YFYS performance test and embed credibility into corporate transition plans, both for those creating and assessing plans, through the two work streams of the  Enhancing Credible Transition Finance project. 

Working with government, we will

• support the inclusion of alternative, optional climate transition indices in the YFYS performance test
• build industry consensus and support the inclusion of credibility best practices into Treasury’s transition plan guidance
• contribute to public and private consultations and support disclosures of credible transition plans more broadly.

Working with the superannuation industry, we will

• support the inclusion of climate indices into superannuation funds’ investment mandates 
• assess current practices and show how credibility transition plan assessments can inform investment decisions.