9th September, 2008

New research released today reveals a wide divergence between the carbon performance of some of Australia's largest superannuation funds. However the research, by respected UK-based environmental research company Trucost, also suggests superannuation funds that employ carbon-efficient investment strategies could maintain returns and portfolio diversification under a carbon-emission trading scheme.

The report "Carbon Counts 2008: The Carbon Footprints of Australian Superannuation Investment Managers", commissioned by the Australian Institute of Superannuation Trustees (AIST), measured the carbon footprints of 14 of Australia's largest superannuation funds

Trucost assessed how the Super Funds would be positioned under the proposed emissions trading scheme. To measure carbon footprints, Trucost analysed the greenhouse gas emissions of companies held in 100 Australian equity portfolios collectively managed by the funds and valued at $31.6 billion.

Key findings reveal a 36 percent difference between the largest and smallest carbon footprints of the funds and an eightfold difference in footprints of the equity investment portfolios. On the whole, Sustainability and Growth portfolios were the most carbon efficient, while the Enhanced Index portfolios - with their tendency to select more Basic Resources, Construction and Materials, Oil & Gas and Utilities stocks - had the greatest carbon intensity.

The report also shows that while the carbon footprint of the ASX 200 is one-fifth larger than that of the MSCI All World Developed Index it is almost 40 per cent smaller than the MSCI Asia ex-Japan Index.

AIST CEO Fiona Reynolds said superannuation funds need to manage long term risk and climate change is one of the greatest of all. It was therefore hoped that the research findings would raise awareness among super funds about the relevance of climate change as a fiduciary issue and more specifically help funds identify investment risks and opportunities as Australia moves to implement an emissions trading scheme by 2010.

"Supers funds, as owners of Australia's major corporations, need a greater understanding of how the value of their investments may change under a carbon trading scheme. Super fund members, in turn, are entitled to ask the question: what are the long-term consequences of investing in a carbon-constrained economy and what is my fund doing about this issue?," said Reynolds.

Applying a carbon price of A$20 to the greenhouse gases allocated to the holdings in the portfolios analysed, Trucost estimated that the carbon costs would be $A119 million, about 0.7 per cent of total revenue of the portfolios analysed.

Importantly for those funds with large carbon footprints who may be more exposed to future costs under Australia's planned Emissions Trading Scheme, Trucost was able to show that funds which adopt a carbon optimisation strategy* can significantly reduce their carbon footprint without sacrificing returns or stock diversification.

"While it's still early days in the brave new world of carbon-pricing, this research suggests that far from being a doom and gloom scenario for super funds and their members, there may be just as many investment opportunities as there are risks," said Reynolds.

Simon Thomas, CEO of Trucost said: "Trustees and portfolio managers could reduce the greenhouse gas emissions associated with holdings to manage exposure of carbon costs. Asset managers could carbon optimise portfolios that employ any investment strategy, while maintaining financial returns".

*Portfolios are carbon-optimised by re-balancing their holdings based on the carbon efficiency of companies relative to benchmark sector peers. Trucost was able to reduce the carbon footprint of the ASX 200 by 42% by reconstructing the index to be overweight carbon-efficient companies and underweight in carbon-intensive companies within each sector.

NOTES FOR EDITORS

• The value of holdings analysed was A$31.6 billion as at 31 March 2008.
• The carbon footprints of funds range from 276 tonnes of greenhouse gas emissions (measured as their carbon dioxide equivalent) per A$ million invested to 431 tonnes of carbon dioxide equivalent (tCO₂e) per A$ million.
• The carbon footprint of the aggregated holdings of the portfolios analysed is 357 tCO₂e per A$ mn invested. This is 4% smaller than the carbon footprint of the ASX 200 (free float adjusted holdings only), at 370 tonnes of carbon CO₂e per A$ million.
• The carbon footprint of the ASX 200 is one-fifth larger than the carbon footprint of the MSCI All World developed Index and almost 40% smaller than the relatively carbon-intensive MSCI Asia ex-Japan Index.
• The combined emissions associated with portfolio holdings amount to 5.9 million tCO₂e, or 1.4% of annual Australian emissions (excluding emissions from land use change and agriculture). If a carbon price of A$20 were applied to 5.9 greenhouse emissions, carbon costs would amount to more than A$118 million.
• The portfolio with the largest carbon footprint is associated with emissions of 569 tCO₂e for every A$ million invested. This is nearly 8 times more carbon intensive than the most carbon-efficient portfolio, with a carbon footprint of 76 tCO2e/A$ mn.
• Australian equity portfolios were categorised into 7 investment styles. Sustainability portfolios had the smallest carbon footprint (282 tCO₂e/A$ mn), followed by Growth, Core, Small/Mid Cap and Value portfolios respectively.
• The carbon footprints of the 2 Sustainability portfolios analysed varied widely.
• Aggregated holdings in Index and Enhanced Index portfolios having the largest carbon footprints of the investment styles analysed, and are more carbon intensive than the ASX 200 Index.

Further Details

Trucost
Tom Williams and Matt O'Leary, Brunswick Group
+44 (0) 20 7404 5959
trucost@brunswickgroup.com

AIST
CEO Fiona Reynolds: 03 8677 3800
Janet de Silva, AIST Media Manager: 0425 745 095

MEDIA BRIEFING

Which funds and portfolios were analysed?

The 14 funds participating in the survey were all not-for-profit industry superannuation funds which took part in the study voluntarily. To protect their anonymity, the funds and portfolio managers cannot be named. Trucost analysed 23% of the value of assets in the funds. The sample portfolios include domestic listed equities only, and represent most, but not all of the Australian equities of participating funds.

How are carbon footprints calculated?

Portfolios were analysed where Trucost had greenhouse gas emissions data on more than 80% of the value of companies held. Trucost holds the world's largest repository of corporate greenhouse gas emissions. Trucost sources emissions data from company annual reports and accounts, environmental/sustainability reports and other public disclosures. Where companies do not disclose GHG data, Trucost employed its environmental modelling tool to estimate company greenhouse gas emissions. The input-output model maps over 720 environmental impacts of business activities in 464 sectors, using economic and environmental data from sources including the Australian National Pollution Inventory.

Trucost analysed the direct emissions from each company's operations and fuel combustion, as well as first-tier emissions from their direct suppliers. Company emissions were allocated to portfolios in proportion to ownership. Carbon footprints are measured as tonnes of greenhouse gas emissions per million Australian dollars invested.

How significant are the greenhouse emissions associated with the funds?

The 5.9 million tonnes of CO2e emissions are relatively small. However, they represent emissions from 23% of the value of assets in the funds, and are therefore only a portion of total emissions associated with the funds. The 5.9 million tonnes represents 2% of the emissions from the 216 companies analysed, in line with the funds' 2% ownership of the total market capitalisation of these companies.

The A$118 million in carbon costs applied to these emissions is unevenly distributed between portfolios and funds. Portfolios with large carbon footprints are more exposed to carbon costs than portfolios that are relatively carbon efficient.

Are there similarities between the portfolios with the largest/smallest carbon footprints?

Common characteristics of the five most carbon-intensive portfolios include a relatively high weighting of the value of holdings in the Utilities sector; at least 15% of the value of holdings in the Basic Resources sector; selection of relatively carbon-intensive companies in the Construction & Materials and Basic Resources sectors; and a Value investment style.

Common characteristics of the five most carbon-efficient portfolios include the exclusion of Utilities and Construction & Materials sectors; little or no holdings in the Chemicals sector, underweight in Basic Resources and overweight in Financial Services sector compared with the ASX 200. Four of the five portfolios employ a Value investment style.

Can all portfolios be carbon optimised to reduce their carbon footprints?

Portfolios of any passive of active investment strategy can be carbon optimised. However, the approach works best on indices or portfolios that contain diverse stocks within sector allocations. The approach maintains diversification of stocks available to portfolios and maintains sector neutrality without sacrificing financial returns. Rebalancing of holdings to overweight companies that are carbon-efficient relative to sector peers in a chosen benchmark can be capped to limit tracking error – maintaining financial returns relative to the underlying index. Carbon optimised funds using Trucost data have been launched by leading asset managers including UBS, Merrill Lynch and GLG Partners.

Have the carbon footprints of other funds been measured?

This is the first time that the carbon intensity of a range of Australian Superannuation Funds and portfolio investment managers has been publicly reported. Trucost has conducted similar carbon footprint analysis on funds in the UK and Asia – see Carbon Counts 2007: The Trucost Carbon Footprint Ranking of UK Investment Funds and Carbon Counts Asia 2007: Carbon Footprints of Asian Investment Funds, available at www.trucost.com

About Trucost

Trucost Plc is a world-leading environmental research organisation which helps companies and investors understand the environmental impacts of business activities. Trucost provides data and analysis on company emissions and natural resource usage in financial as well as quantity terms to help investors, fund managers and analysts understand how environmental issues could affect companies' future earnings. Institutional investors use the information to assess the carbon or environmental footprints of their portfolios, to identify differences in performance, to address environmental risks and create structured products with lower carbon or environmental impacts.

Trucost tracks data on the environmental impacts and disclosures of over 4,200 companies and has the world's largest record of greenhouse gas emissions. Coverage includes the FTSE All-Share, S&P 500, Russell 1000, Nikkei 225, DJ STOXX 600, MSCI World Developed, MSCI Europe, MSCI Asia ex-Japan and ASX 200 indices.

About The Australian Institute of Superannuation Trustees

The Australian Institute of Superannuation Trustees (AIST) is the peak representative body for the $450 billion not-for-profit superannuation sector. Our members manage superannuation on behalf of nearly 2/3 of the Australian workforce. Membership includes industry, corporate and public sector funds.

AIST is an independent professional body whose aim is to improve superannuation services and build a better retirement for all Australians.

AIST is the peak representative body for the $450 billion not-for-profit sector, covering nearly 2/3 of the Australian workforce. Membership includes industry funds, public-sector funds and corporate funds.

© 2007 Australian Institute of Superannuation Trustees ABN 19 123 284 275

DISCLAIMER
This summary is intended as information only and should not be used in the place of legal or other advice. Australian Institute of Superannuation Trustees expressly disclaims all liability and responsibility to any person who relies in full, or in part, on any of the information contained in this summary, or is omitted from it.