The carbon footprint of your super

Last year, in an industry-wide first VicSuper included a section on every member's Annual Benefit Statement that showed the carbon emissions attributed to a portion of a members' account balance. This 'carbon footprint' represented an estimate of the carbon dioxide equivalent emissions produced by the listed equity component of a member's super savings.

This year, members with savings in listed equities have again received a carbon footprint estimate.

In order to estimate the carbon footprint, VicSuper commissioned research to measure the total carbon emissions of VicSuper Fund's listed equity investments, and found that our investments have become less carbon intensive compared to measurements for the 2007/08 financial year . In fact, the carbon efficiency of the listed equity investments in VicSuper Fund has increased by 12% since last year. Every investment over this period, except for two new investments which do not yet have a comparable measure, improved in carbon efficiency.

Table 1: Year-on-year change in carbon efficiency

*Investment in these funds commenced in 2008/09, therefore there is no year-on-year comparison data yet available.

Why have we measured the carbon footprint of your super?

As the saying goes, "you can't manage what you don't measure". Climate change is shaping up to be the biggest economic, social and environmental challenge of our generation. At VicSuper, with our members' quality of life in retirement at stake, we aim to be prepared to meet and manage this challenge. This is why VicSuper has begun to measure and report the carbon footprint of the assets in VicSuper Fund.

Why have we only measured listed equities?

Measuring the carbon intensity of over six billion dollars worth of investments spread across different asset classes across the globe is a challenging task. This is why we decided to approach the task step-by-step. We started with listed equities because it forms the biggest portion of VicSuper's assets under management, and because listed companies are the easiest asset class to measure and compare due to the ready availability of publicly reported information. Next year we hope to also measure and report the carbon footprint of VicSuper Fund's commercial property and private equity investments.

How does climate change affect super savings?

Super savings in VicSuper Fund are invested in one or more of four asset classes to provide for income in retirement. These asset classes have a range of economic, environmental and social impacts and benefits, including exposure to climate change risk.

We know that the impacts of climate change will affect investments in all asset classes and investment returns, however there has been little research conducted on the extent of these impacts. We think it is important to understand and attempt to quantify the major climate change related risks in our investments, which is why we decided to commission research ourselves.

More information on sustainability investing, and the potential impact of climate change, can be found in our annual Sustainability Report.

What does the figure on the Annual Benefit Statements mean?

The figure in the box on members' Annual Benefit Statements is the estimated amount of greenhouse gas emissions, expressed as carbon dioxide equivalent kilograms  (or tonnes - depending on the size of a member's investment), for the listed equity component of a member's superannuation savings. This figure is derived from the estimated annual emissions of the companies held in VicSuper Fund's listed equity portfolio as at 30 June 2009.

Carbon dioxide equivalent

There are six main greenhouse gases, carbon dioxide being the major one, each with a different potency or 'global warming potential'. For the sake of clarity these greenhouse gases are often expressed in terms of carbon dioxide equivalents (CO2-e)

The six main greenhouse gases are:

• Carbon Dioxide (CO2)
• Methane (CH4)
• Nitrous Oxide (N2O)
• Hydroflurocarbons (HFCs)
• Perflurocarbons (PFCs)
• Sulpur Hexafloride (SF6)

If a member's superannuation is invested or partially invested in an investment option other than the Cash Option, they will have an exposure to listed equities and therefore an exposure to greenhouse gas emissions.

Will the carbon footprint of members' listed equities decrease?

Generally the higher an account balance, the higher an account's carbon footprint. This is due to increased savings contributing to a greater shareholding or ownership of a company. It is for this reason that VicSuper is concentrating on reducing the carbon intensity of members' retirement savings along with having regard for the absolute carbon emissions.

Carbon intensity is a measure of greenhouse gas emissions expressed as tonnes of carbon dioxide equivalents per million dollars of company turnover (or revenue). This is a more valid method than measuring carbon emissions based on a company's market capitalisation (which is the value the stock market places on a company), as the value of a company on a stock market can fluctuate widely over short periods of time, and is not necessarily reflective of the revenue and carbon generating operations of the company. 

VicSuper's existing sustainability focus has already contributed to members' carbon emissions being lower than if VicSuper did not integrate sustainability considerations into its investment strategy. We aim to continue this focus to further reduce the carbon emission intensity of our members' investments, along with minimising VicSuper Fund's environmental footprint.

How is VicSuper reducing the carbon emissions of members' accounts?

Due to the wide-ranging impacts of issues such as climate change we believe that integrating environmental, social and governance (ESG) considerations into investments should not be limited to a single investment option or single asset class, but should be integrated across a super fund's entire investment portfolio.

We will expand our carbon footprint analysis to include the cash, fixed interest and property asset classes, refining the process along the way. Ultimately we aim to tell members what the carbon footprint of their entire superannuation account is.

Alongside this measurement process VicSuper is working hard to reduce the carbon risk and to identify and manage carbon opportunities in each asset class. With dedicated sustainability investments and engagement programs in equities and property, and with initiatives in place to continually improve the sustainability performance of the whole Fund, we are well placed to further reduce the carbon intensity of the portfolio.

The investments section of our Sustainability Report contains further information.

How is the carbon footprint calculated?

VicSuper engaged the UK-based research company Trucost to measure the carbon footprint of VicSuper Fund's listed equities using its world-leading research and analysis.

Trucost make their carbon footprint estimate based on listed equity investments held by VicSuper Fund as at 30 June 2009. Therefore, it is an estimate based on a point in time rather than average emissions (and therefore average account balances) calculated over the financial year.

The carbon footprint figure on your Annual Benefit Statement is calculated by apportioning Trucost's emissions data across the average of your listed equity investments over the 2008/09 financial year.

Trucost's estimates are based on two primary sources of data: company sustainability reports and annual reports. The gaps in publicly-reported company data make it necessary for Trucost to estimate the emissions of some companies. If a company does not disclose its carbon emissions in a comparable form, Trucost uses its proprietary methodology to estimate carbon equivalent emissions using company financial statements as a proxy. Trucost do not provide an error estimate (or error bounds) of their carbon footprint calculation.

More information on Trucost's methodology can be found on the Trucost website.

Further information on the carbon footprint of your super

If you would like more detailed information on this topic, please read VicSuper's Sustainability Report 2009. This will be available from October 2009.