Australian Treasurer Jim Chalmers announces another evaluation of the exceptional performance test
In a significant move towards addressing climate change, the Australian government has announced plans to rethink the superannuation performance test, a decision that has been welcomed by asset owners with a growing interest in climate solutions.
Last week, the Economic Reform Roundtable, a three-day policy event, was held in Canberra. The roundtable aimed to shape the Albanese government's reform agenda, and if it went as planned, a consensus would emerge about what needs to change and how.
At the heart of the issue is the impact of the superannuation performance test on capital allocation to climate solutions. The test, which focuses on short-term benchmarks, has been criticized for its unintended consequences of constraining capital allocation to climate solutions.
Cassandra Williams, head of enterprise programs and strategy at Climateworks, has stated that government, finance, and industry are aligned behind a common goal of mobilizing capital to reach Australia's net zero emissions target. Climateworks advocates for rethinking the superannuation performance test's benchmark, and they have recommended the use of optional 'climate transition indices'.
If the government were to go down this road, several options for providers, such as S&P, MSCI, and FTSE, would be available. The optional 'climate transition indices' would sit alongside the current benchmark as a voluntary 'column B'.
The Australian Treasurer, Jim Chalmers, has acknowledged the problem and stated that they will have another look at the super performance test. The government's decision to rethink the superannuation performance test signals a recognition of a problem concerning climate solutions.
A consensus has now emerged, and it includes a willingness to reform Australia's superannuation performance test. The government's decision is welcome news for Australian asset owners, as it opens up opportunities for investment in climate solutions.
Beyond rethinking the superannuation performance test, the Australian government can implement measures such as setting clear emissions reduction targets, supporting the development of low-carbon industries like ammonia production, engaging investors and businesses for transparency, and fostering strategies for aggressive emission cuts and negative emissions by 2050 to align with findings on achieving net-zero emissions in the power sector.
The road to net zero emissions is a long one, but with the government's commitment to rethinking the superannuation performance test, Australia is one step closer to a sustainable future.
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