Superannuation for most of us is compulsory saving that we really don't worry too much about until we start getting closer to retirement. We leave it to the investment managers and superannuation trustees to judge the benefits and risks in investment strategies they put forward.
But what if their assessments of risk and investment strategies are all short term market oriented or only consider past trends. This is the problem posed by climate risk and the carbon bubble. The carbon bubble represents a major shift in resource exploitation and energy production, and a social and technological transition required. Australia's headlong rush for coal expansion risks stranded assets. The economic risks of a carbon bubble and stranded assets have been warned by Carbon Tracker, PriceWaterhouseCoopers (PwC) and International Energy Agency (IEA).
Global pension funds control about $30 trillion in assets. It is estimated that over 55 per cent of pension contributions are invested in high-risk, high-carbon assets with less than 2 per cent being invested in low-carbon assets.
With climate change science indicating that 80 per cent of known fossil fuel reserves need to be left in the ground to maintain a safe climate, there is an enormous carbon bubble of overvalued assets. This poses a huge problem: when this carbon bubble bursts it will substantially downgrade the value of these superannuation investments, that is, your and my future retirement income.
