Note: This is preliminary analysis by Climateworks Centre on the feasibility of including climate benchmarks in Treasury’s Your Future Your Super performance test. This document, prepared for Treasury and superannuation investors in July 2024, represents Climateworks’ initial analysis in this area. This document is for general informational purposes only and does not constitute, nor should it be relied upon as legal, financial, or tax advice.

The Australian Government’s ‘Your Future Your Super’ legislation aims to safeguard Australians’ retirement savings against high fee, low performing management of their superannuation options. 

Within this legislation, the Australian Prudential Regulation Authority’s performance test has called out MySuper and trustee-directed product superannuation options that underperform, emphasising the duty superannuation fund trustees have to act in the best financial interests of their members.  

The current performance test has been successful in holding superannuation trustees to account, upholding members’ rights to have funds act in their best financial interest. 

However, in its existing form, the performance test has inadvertently incentivised benchmark-hugging practices against relatively high-carbon-emitting indices.

Climate change has the potential to negatively impact performance returns, which runs counter to the performance test’s duty to uphold Australians’ best financial interests. 

Investment processes need to be able to capture risks and opportunities brought about by the climate transition.  

Climateworks proposes introducing a set of optional, alternative indices to incorporate climate considerations into the performance test regime. 

These alternative climate indices would sit alongside the current performance test as an optional benchmark for superannuation funds to adopt. 

The aim is to add flexibility for superannuation funds to allocate capital into more climate-aligned investments without diluting the purpose of the performance test.

For further information please contact:

ISBN: 978-0-9941725-9-4