Why IFM’s new climate fund must buy fossil fuel companies

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Superannuation performance rules mean IFM Investors’ new climate transition fund has no choice but to invest in oil and gas companies.

IFM Investors, one of Australia’s biggest asset managers, has launched a fund aimed at satisfying industry super investors that want to invest member’s money in shares that willThe catch is that the former Coalition government’s performance rules limit the degree to which such an investment can deviate from the benchmark ASX300.

“We have designed it to have a small enough tracking error, or active risk, so it is totally compatible with a fund’s Your Super, Your Future core allocation, and then we use that risk budget to enhance its climate characteristics,” said Laurence Irlicht, IFM executive director of index and quantitative equities.

Under rules that took effect on July 1 last year, regulators annually test default “MySuper” funds, effectively limiting their ability to take on riskier bets.IFM, which oversees $181 billion in assets for more than 120 million retirement savers and is owned by 20 pension funds, says it will use its scale to engage with companies and “advocate for greater corporate accountability and positive climate outcomes”.

“We want companies typically with lower scope one, two and three emissions. But we can hold companies that have higher emissions, as long as those are balanced by more holding companies with lower emissions because it’s the aggregate over the whole portfolio that matters.”

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